Monthly Archives: September 2009

More than half of all health spending wasted

Some late night Web surfing led to a blog about one of my favorite topics: reducing health care costs. In April 2008, PricewaterhouseCoopers hosted the 180° Health Forum in Washington D.C. The results of that conference are published as: The price of excess: Identifying waste in healthcare spending,

As part of its preparation for the 180° Health Forum, PricewaterhouseCoopers’ Health Research Institute (HRI) interviewed more than 20 participants, reviewed more than 35 studies about waste and inefficiency in healthcare and surveyed 1,000 consumers to understand the public’s perception of waste and inefficiency in the system. From that research came The price of excess: Identifying waste in healthcare spending. …

Key Findings
Our research found that wasteful spending in the health system has been calculated at up to $1.2 trillion of the $2.2 trillion spent in the United States, more than half of all health spending. Defensive medicine, such as redundant, inappropriate or unnecessary tests and procedures, was identified as the biggest area of excess, followed by inefficient healthcare administration and the cost of care necessitated by conditions such as obesity, which can be considered preventable by lifestyle changes. PricewaterhouseCoopers’ paper classified health system inefficiencies into three “wastebaskets” that are driving up costs:

Behavioral where individual behaviors are shown to lead to health problems, and have potential opportunities for earlier, non-medical interventions.
Clinical where medical care itself is considered inappropriate, entailing overuse, misuse or under-use of particular interventions, missed opportunities for earlier interventions, and overt errors leading to quality problems for the patient, plus cost and rework.
Operational where administrative or other business processes appear to add costs without creating value. [My added emphasis.]

Some of these are easier to attack than others. Number 1 on my list would be administrative and business process costs.

See also: The Innovator’s Prescription, The Innovator’s Prescription #1, Reducing Costs, Reducing the Risks of Complexity [and costs]

Time to Kill the PHR Term

Language can be magic carpet that takes thoughts to new and interested places; it can also be a trap. This blog has been about electronic medical records—EMRs—generated by healthcare providers. A corollary to that has been a personal version of EMRs from multiple providers that make up a personal health record—PHR for an individual. There is a trap in dealing with the personal version as a collection of information from other records. The PHR is reduced to a record or data rather than becoming a tool that supports the individual’s efforts to improve and maintain good health.

Microsoft Health Vault, Google Health, and similar programs use the Internet and linked tools including iPhones and “smart” medical devices to create the needed tool or “platform” for more than just records. John Moore of Chilmark Research argues that it is time to move from PH-Record to PH-Platform and I agree

Quoting from John’s post:

… where we really get concerned with the PHR term is that in the meaningful use recommendations that were accepted in July.   Under meaningful use guidelines, those obtaining Stimulus (ARRA) funding for adoption of a certified EHR must provide a PHR to their patients by 2013.  Trouble here is how will HHS define what that PHR is?  Last year, HHS [had] the PHR term defined (see below).  This term, we have been told, is what will be used within the context of meaningful use rule making.  If this is indeed true, adoption of PHRs will continue to be lackluster.

PHR, Personal Health Record: “An electronic record of health-related information on an individual that conforms to nationally recognized interoperability standards and that can be drawn from multiple sources while being managed, shared, and controlled by the individual.”

To move beyond the limitations of this definition (and the baggage that goes with it) Chilmark proposes a new term, Personal Health Platforms (PHPs) with the hope that others will pick up the banner moving us beyond where we are today and hopefully get HHS to look beyond the narrow confines of the PHR definition that they have before them.

What is a Personal Health Platform?

Our proposed definition is as follows:

A Personal Health Platform (PHP) is an Internet-based platform that securely stores and manages a citizen’s personal health data, data that may be derived from multiple sources including among others clinical systems, payer systems, self-enter data, and biometric.  The PHP also provides the framework and capabilities to support applications, services and/or tools that a citizen may invoke to leverage their personal health data enabling the citizen to make better, more well-informed decisions regarding their health or the health of a loved one.

The second sentence of that definition is the key differentiator. A PHP does more than simply store the data, it makes that data actionable.

In a nut shell, we keep the records and the communication links and interfaces that create the personal records and we add capabilities that support additional information and make all of the information actionable. That is a result that is worth the effort.

See also: Including patients in EMRs and
What if? What if we expand the definition of EMR?

Proposal to Microsoft & Google

A core element of healthcare reform in its broadest context is cost. The first step in controlling cost is to gain visibility about what healthcare actually costs at a level where action can be taken. Microsoft Health Vault and Google Health are platforms that can provide that visibility for consumers. That information can then be de-personalized and used to provide visibility from multiple points of view including hospitals, private practices, regions of the country, type of procedure, etc.

The problem

If I receive healthcare services that involve more than a single provider I will be billed for services from the primary provider and a host of other providers and services including labs and pharmacies. These will show up as line items on a statement I receive from the provider if I am a direct pay or on a statement from my insurance company. Some will be prompt; some will show up months later. All of them will be printed on paper.

Any effort on my part to analyze this data will require hours to transcribe it to an electronic form and then to assign it to specific illnesses or injuries and then classify it in meaningful sub-categories for analysis. If I find a potential issue it is difficult to challenge it in a timely manner.

Proposed solution

You could provide an interface to providers to capture the data in its electronic form and post it on my personal health record (PHR) as a standard spreadsheet, e.g., Excel. That format would:

  • Identify the service provider with a link to a database for more information, e.g., what services does XYZ Medical provide and how I can contact them – an Internet link would probably take care of most providers.
  • Provide a generic classification of the services, e.g., hospital, lab, ambulance, etc.
  • The date of service
  • Some description of the service which could be a billing code* and a standard translation
  • Amount billed, allowed, payer paid, I pay

It should include charges that are covered by insurance plus non-covered charges such as non-prescription pharmacy at drugstores and other providers that are subscribers to Health Vault or Google Health. It should allow me to add in costs related to trips for treatment, special clothing or devices not covered by insurance, etc.

It should provide the means for me to assign each line item or set of line items to a particular illness or injury or some general classification of my choosing, e.g., seasonal allergy.


  • I could accumulate charges related to an incident to get a better understanding of what it cost
  • I could explore options for less costly solutions, e.g., clinic vs. emergency room
  • I would have more confidence in the accuracy of my charges if I could see them sorted in ways that make sense to me, e.g., see that two charges for the same service or item on the same day were for something that could reasonable occur more than once on the same day
  • I would be able to challenge any apparent issues in a timely manner and with a minimum of effort using the data and information in the report
  • I would be able to get a sense of the charges that have been invoiced and those that have not
  • I would see the value or limitations of my insurance to negotiate for more cost effective insurance in the future.
  • I would be better informed about the cost of healthcare and therefore better able to participate in discussions of options and solutions.


Participation in this service could be part of a provider or payer’s package of services. A translation from their standard formats to yours would have to be developed but we should be dealing with relatively standard data elements as specified by HIPAA and the current work on electronic medical records. The cost per provider or payer should be relatively small.

I leave the cost and benefits of de-personalizing data for broader analysis to you but I suspect that it is relatively small once the data exists in a standard format.

* Related discussion on problems with billing codes initiated by e-Patient Dave on Twitter

Reducing Costs

Just finished reading a blog post that includes the comment:

The cost of medical care can be calculated by adding up the cost of each unit of care, multiplied by the cost per unit. If an appendectomy costs $8,000 and you need to perform 100 appendectomies a year, the total cost would be $800,000. To add up the total costs of all care you have to calculate this for each procedure, office visit, X-ray, drug, etc., and add them together. Once you understand this concept, it’s easy to figure out how to cut the total cost. You reduce the payment for each service, or you reduce the number of (unnecessary) services used in a given year, or both.*

If you assume that the cost of a unit of service is constant then of course the total cost is simply cost per delivered service times the number of services. Part of health care reform is to change the unit of cost per required service. There are a number of articles that document changes in healthcare processes that can produce significant savings by reducing the cost to deliver a unit of service (and hence to cost to the patient) or the number of required units (and hence the total cost.)

One examples of reducing costs that will reduce the average cost per procedure is described in Reducing the Risks of Complexity Some procedural changes that are simple in concept but not-so-simple in implementation:

In December, 2006, the results were published in The New England Journal of Medicine. Within the first three months of the project, the infection rate in Michigan’s ICUs decreased by sixty-six per cent. The typical ICU cut its quarterly infection rate to zero. Michigan’s infection rates fell so low that its average ICU outperformed ninety per cent of ICUs nationwide. In the first eighteen months, the hospitals saved an estimated hundred and seventy-five million dollars in costs and more than fifteen hundred lives. The successes have been sustained for almost four years.

Another: “For many patients, but not all, RCs [retail clinics] are cheaper (on the order of 30% cheaper), faster even without an appointment, and more convenient (up to 18/7).” A thirty percent savings on some procedures for some patients using lower cost solutions reduces the average cost per unit of service. When doctors substituted office visits in lieu of house calls they simply implemented a lower cost way of providing services that allowed them to deliver more units of service per day and thereby reduce the cost per unit and retain or improve their take home income.

Reducing the average cost (price paid) per unit of service for existing providers is not the only way to reduce health care costs. Better processes and new ways of delivering services can reduce the cost to the doctor of providing services which allows for a lower cost to the patient/payer without reducing the doctor’s take home income.

It won’t be easy but there is growing evidence that today’s health care delivery is not as efficient as it can be. We need to find opportunities to reduce the cost of providing services while maintaining or improving outcomes. Those savings can be passed on to patients.

*For every complex problem, there is a solution that is simple, neat, and wrong. H.L. Mencken