Wall Street Journal- Hospitals Find Way to Make Care Cheaper -- Make It Better | Friends of Cancer Research

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Wall Street Journal- Hospitals Find Way to Make Care Cheaper -- Make It Better


By Thomas M. Burton,  Be it cereal or cars, buyers usually have an idea of how good the products are and how much they cost before they buy them.

That's not how U.S. health care works. Patients rarely know which hospitals offer top-quality lung or aortic surgery, and which are more likely to harm them. Hospitals don't compete on price and rarely publish measurements of their quality, if they measure it at all.

Except in Pennsylvania. For two decades, a state agency has published "medical outcomes" -- death and complication rates -- from more than 50 types of treatments and surgery at hospitals. The state has found that publishing results can prompt hospitals to improve, and that good medical treatment is often less expensive than bad care.

[Under the Microscope]

One reason is that high-quality treatment usually results in shorter hospital stays and fewer readmissions. The state has had less success in publishing hospital prices and has drawn criticism from hospitals that disagree with its reporting methods. But companies or unions in Pennsylvania that have agreed to work only with the best-performing hospitals say they have been able to drive down medical costs.

"High-quality care costs less -- always," says David B. Nash, a medical-quality expert and dean at Thomas Jefferson University's School of Population Health in Philadelphia. "If the federal government could behave like a savvy shopper, that would change the health-cost game overnight. But the government is a bill payer, not a savvy shopper."

The Senate Finance Committee could vote late this week on its sweeping health bill, seen as the backbone for any final legislation. That bill would make available $75 million annually for the U.S. Department of Health and Human Services to develop methods of improving quality, including potentially publishing outcomes.

Although at times premium care can be exorbitant, there's evidence some in Pennsylvania saved money using top-rated hospitals. Hershey Co. offered workers medical coverage based on the state agency's reported outcomes, and cut the company's expenses by 50% over several years. The Philadelphia police union's benefits-management company says it uses the state reports to steer officers to the best hospitals; as a result, it say its costs fall about 17% below those of comparable plans.

Tom Lamb, administrator of Philadelphia police health benefits, says he frequently explains to members why they should go to hospitals with better outcomes. "If an officer's 7-year-old daughter has to go in for surgery," he says, "I'll sit down with the father and say, 'Are you just going to shake your head yes when your pediatrician wants to send her to his golfing buddy?' "

Quality Ratings

The Delaware Valley Health Care Coalition, a group of union and municipal health funds covering 1.3 million people, is beginning the process of picking about 20 hospitals based on the state's quality ratings. Capital BlueCross in Harrisburg has designed a plan that selects hospitals based on the reports. Mark Dever, benefits manager at Duquesne Light in Pittsburgh, says his company recently got an offer from a hospital chain to treat the company's workers. But after reviewing state quality data and comparing prices, he rejected it.

[Walter McClure, who helped spark Pennsylvania's efforts, was an early advocate of publicizing medical outcomes and fostering competition among hospitals.] Jeffrey Thompson for The Wall Street Journal

Walter McClure, who helped spark Pennsylvania's efforts, was an early advocate of publicizing medical outcomes and fostering competition among hospitals.

An August 2008 study in the American Journal of Medical Quality reported that Pennsylvania in-hospital odds of death were 21% to 41% lower than those in other states. The research focused on heart attacks, congestive heart failure, brain hemorrhage, stroke, pneumonia and septic infections.

The Obama administration is allotting $1 billion for research to compare effectiveness of medical treatments. Some hope comparing hospital outcomes will be part of that. "As a patient," says Michael Pine, who runs a medical quality-measuring business in Chicago, "I would generally be more interested in whether Hospital A or Hospital B gets better results, more than whether drug A is more effective than surgery."

The theory underlying the Pennsylvania program is that, to create a truly competitive health-care market, consumers need hard information showing which hospitals perform better.

Curbing Infections

For example, Pennsylvania three years ago published its first report on hospitals' infection rates that arise largely from intravenous catheters and tubes left in too long. Infection numbers the following year fell 7.8%, as hospitals responded with steps designed to lower infections.

The average payment in 2006 for hospitalization where a patient acquired an infection was $53,915; with no infection, the average payment was $8,311, according to state reports.

By simply getting rid of preventable infections, Pennsylvania estimates its hospitals could lower expenses by nearly $1 billion.

The White House is looking at publishing information possibly including medical outcomes as part of overhaul efforts, officials say. Quality data could also be used in existing programs. "There is a clear understanding from the Obama administration that both Medicare and Medicaid need to move in the direction of what's happening in Pennsylvania," says Jonathan Blum, director of the government's Center for Medicare Management.

The Philadelphia police health fund benefit-management company, covering 26,000 people, adopted a plan pegged to the state's hospital-quality results seven years ago. Mr. Lamb says the police fund has saved as much as $5 million a year using the information.

Sent Home

One retired Philadelphia police officer benefited from the state reports in an unusual way -- by learning he didn't need the coronary angioplasty he had been prescribed. Ed Gillespie, of Cape May, N.J., says he was told by his doctor six years ago that he needed angioplasty to clear out heart arteries. After consulting with Mr. Lamb, he learned state reports showed good results at Jefferson Medical College in Philadelphia. He decided to go there.

While he was on the gurney awaiting angioplasty, his cardiologist asked colleagues to study the films more carefully -- and concluded he could go home without treatment, Mr. Gillespie recalls. "I get checked every year, and I've been OK," he says.

Pennsylvania's agency -- called the Pennsylvania Health Care Cost Containment Council, or PHC4 -- has its critics. Hospitals have complained its data are imprecise or unnecessary.

P.J. Brennan, chief medical officer of the University of Pennsylvania Health System, says that PHC4 reports -- even though they are adjusted for certain risk factors -- still aren't comprehensive enough to take into account the very sickest patients, the sort treated at academic medical centers. "These reports are very important for transparency, but I don't think you can look at a PHC4 report and conclude you should not go to that hospital," he says.

In the state's most recent report, the Hospital of the University of Pennsylvania performed well in many categories but had worse-than-expected death rates in treating septicemia, or blood infections.

State legislators have tentatively cut the PHC4's budget to $2.8 million this year from $5.4 million in 2008, largely because of a state deficit.

[Return Trips]

The program got its start in the 1980s. Alarmed by health-cost inflation, business and labor leaders sought out Walter McClure, a Minnesotan who had pioneered a medical-quality program. Dr. McClure, who has a Ph.D. in physics, made a presentation to the Pennsylvania Business Roundtable in 1985.

Dr. McClure called on the executives to foment competition among hospitals. "We used to say to a patient, 'Go anywhere, regardless of cost, and we will pay the bill,' " he said in his speech. "Quality was assumed. That was dumb."

In 1986, Pennsylvania legislators created the PHC4. Three years later, the agency published its first report comparing death rates at about 180 hospitals.

Hahnemann University Hospital in Philadelphia fared poorly at first on several quality measures. Its ratings were significantly "worse than expected" on eight of 55 procedures in the first PHC4 "Hospital Effectiveness Report." The report included data for July 1, 1989, to June 30, 1990.

John Russell, then president of the Hospital Association of Pennsylvania, says Hahnemann and others complained, but "within about six weeks, they cleaned up their act." In the second Hospital Effectiveness Report, Hahnemann improved its ratings on seven of the eight procedures. The hospital declined to comment.

PHC4's first report on infections in 2006 showed Hamot Medical Center in Erie with a relatively high infection rate, in part because the hospital was early to use computers to track such rates. Emily McCracken, the hospital's epidemiologist, says the report "put a spotlight on something that needed a spotlight."

The hospital has since lowered the infection rate by about 20% by cleaning IV catheters more often and removing them earlier.

Care Disparities

Over the years, PHC4 sought a wider variety of data and started producing reports on infection rates, readmissions and lengths of stay due to complications. The reports revealed startling disparities among hospitals and even individual doctors.

The hospital-performance reports use data compiled from medical records. Results are "risk adjusted," meaning the agency collects laboratory and medical-chart information about the age and overall health of patients so hospitals taking on difficult cases won't be unduly penalized.

The agency estimates the cost to the state's 172 acute-care hospitals of collecting the data annually is $7 million. The state's hospital association says it is $10 million or more.

The state agency hasn't been as successful in obtaining the prices that insurers pay to hospitals, information that would be important because it would allow patients and payers to factor in prices when choosing hospitals. The agency has legal power to get that information from insurers and publish it, but it has done so only for heart surgery. An agency spokesman says insurers didn't refuse, and that lack of manpower at the agency explains this omission. One person familiar with the events says many insurers wouldn't divulge prices.

Hershey came to rely on the state's hospital reports. In the early 1990s, medical costs for its 15,000 workers and dependents were soaring. "I told the human-resources department we needed to do something," says then-Chief Executive Richard Zimmerman.

Richard C. Dreyfuss, compensation and benefits manager, and his boss, William Lehr Jr., scrutinized the state's data for 23 hospitals. Mr. Dreyfuss ranked hospitals based 70% on medical outcomes and 30% on hospital prices, which the company obtained from insurers on its own. He focused on 21 costly procedures such as heart bypass and diabetes care.

Cost Correlation

Results shocked him. "The correlation between cost and quality was zero," he says. "You go in thinking that all hospitals are pretty much equal, but this was eye-opening. Generally, higher-cost hospitals had poorer outcomes."

Mr. Dreyfuss devised a plan called Health Styles in which only 10 hospitals would be included -- and 13 left out. Employees had other plans to choose from, but Health Styles was cheaper than the relatively inexpensive health maintenance organizations Hershey offered, Mr. Dreyfuss says.

The 13 excluded hospitals weren't happy -- especially the highly regarded Penn State University's Milton S. Hershey Medical Center, founded by the family that created the chocolate company.

C. McCollister Evarts, dean of the hospital's medical school, told Messrs. Dreyfuss and Lehr that the state agency's information was wrong and "you don't understand what an academic medical center does," Messrs. Dreyfuss and Lehr recall.

Dr. Evarts confirms his remark and says he believes such measurements have become far more precise over the years. In recent years, Hershey Medical was reinstated under the company's plans. The hospital declined to comment.

The Health Styles plan took effect in 1994. About 40% of employees in central Pennsylvania signed up. The company, which was self-insured, was able to hold its medical-care cost increases annually to 4%, about half the national rate, saving about $10 million in the first five years. "This thing was a real winner," says Mr. Dreyfuss. He and other former Hershey executives say the company cut its annual medical expense by 50% for several years.

Dennis Bomberger, business manager of Chocolate Workers Local 464, says Hershey's Health Styles "was an excellent plan" that "employees liked the best."

The plan was discarded two years ago, however, when a new Hershey management team changed health coverage, Mr. Bomberger says. A Hershey spokesman declined to comment.

Former Hershey vice president Mr. Lehr is now chairman and chief executive of Capital BlueCross, where he has installed a plan for customers that would use PHC4 data to select hospitals. He would like to see hospital-quality information available across the country. "I would ask officials in Washington to push for mandatory compiling of medical data."