Without changes, California’s health care costs expected to soar

Without changes, California’s health care costs expected to soar

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The Press Democrat by Guy Kovner –

July 19, 2013:

The average California family will be forced to spend a third of its annual income for health insurance by 2022 if costs continue to spiral upward at current rates, according to recent reports by industry groups.

Obesity, prescription drugs, unnecessary tests and expensive new technology are driving up health care costs in California, according to a report issued

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this month by the California Association of Health Plans.

Obesity alone adds $12.8 billion to the state's $230 billion annual health care bill. More than 60 percent of Californians are overweight or obese, and obesity is expected to double by 2030, increasing its share of health care costs by 15.7 percent.

The state's total health care bill has tripled since 1991, with cost increases exceeding inflation and expected to keep growing due to multiple factors, including the rollout of the federal Affordable Care Act in 2014 and the increasingly overweight public. (The state's population has nearly doubled since 1991.)

Area doctors say much of the spiraling cost is due to the way health care services are paid for, echoing a study earlier this year by the Berkeley Forum for Improving California's Healthcare Delivery System.

That report, by a

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blue-ribbon group that included Blue Shield of California, Kaiser Permanente and Sutter Health in collaboration with the UC Berkeley School of Public Health, called for sweeping change in the economic model for California health care.

The current model, known as fee-for-service, is not the right medicine for Californians, who are already spending $23 a day on health, said Dr. Stephen Steady, a gastroenterologist who is president of the Sonoma County Medical Association.

Fee-for-service bases patient payments on the number of tests and treatments performed rather than overall efficiency

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or the medical outcome. That encourages a “duplication of services that may not be needed,” Steady said.

When each independent health care provider is ordering the tests and imaging needed to treat patients — and billing for his or her services — the costs “just start adding up,” Steady said.

And that fragmented care, he said, underlies the California Association of Health Plans report, which said that as much as 30 percent of nation's health expenditures — $810 billion in 2011 — goes to unnecessary tests, treatments, drugs and hospitalizations.

“The incentives are not aligned in an effort to control costs,” Steady said.

By dramatically cutting back on the fee-for-service model, California could trim $110 billion from health care from the estimated $4.4 trillion expenditures between now and

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2022, according to the Berkeley Forum report.

That would cut costs an average of $802 per household per year over that period, and $1,422 per household in 2022, the report said.

“It is time for fundamental change. It is time for action,” the report said, calling its plan “a transformational, bottoms-up approach to creating a more affordable, cost-effective healthcare system.”

Instead of fee-for-service, which accounts for 78 percent of the state's health care expenses today, the report calls for more integrated systems, similar to Kaiser's, that draw primary care physicians, specialists, hospitals and even nursing homes into a collaborative effort to provide patient care.

The provider groups would operate under a “risk-adjusted global budget” for each patient, a wonkish term for setting a target cost based on a person's diagnosis.

This bundled care system provides penalties for exceeding the cost targets and rewards for staying within them, Steady said.

“We are learning that we need to work together for the patient to benefit the most,” said Patrick Johnston, president of the health plans association, which represents 39 plans including Aetna, Anthem Blue Cross, Blue Shield, Health Net and Kaiser.

The Berkeley Forum report proposed reducing the share of fee-for-service expenditures from 78 percent of the state's health care spending to just 50 percent by 2022. It would do this by boosting the number of Californians now enrolled in integrated systems, 29 percent, to 60 percent.

Dr. Brad Stuart, director of Sutter Health's home care program in Santa Rosa, said this is one of many calls for increasing integrated care, which he supports.

“Providers are compelled to be more responsible and accountable for what they do,” he said. “They only lose money if they run up the costs.”

Sutter Health, which operates 24 hospitals in Northern California and is building a new $284 million hospital in Santa Rosa, is taking a step toward integration with the launch of a health insurance plan called Sutter Health Plus.

The new plan is expected to be available for enrollment in Sonoma County in the fall of 2014.

Kaiser Permanente, founded in 1945, pioneered the concept of combining health insurance, physicians, and hospitals into a single organization. It remains the nation's only fully integrated system.

Dr. Walt Mills, a Kaiser family practice doctor, described how it worked recently on behalf of a cancer patient.

Mills was studying the patient's magnetic resonance image and, in order to consult with an oncologist, walked 30 yards down the hall at Kaiser's Santa Rosa Medical Center.

The two got on a conference call with a Kaiser neurosurgeon in Redwood City and in five minutes determined a care plan that would have taken days or weeks to develop outside an integrated system, he said.

Mills, who was in a private practice with about 50 percent fee-for-service compensation for 17 years before joining Kaiser, felt compelled to join a system that he said saves money and improves the quality of patient care.

Kaiser is 10 percent more cost-efficient than the average health maintenance organization and 15 percent ahead of all plans in the markets Kaiser serves, according to a report in April by Aon Hewitt, a consulting firm commissioned by Kaiser.

Kaiser serves more than 7 million members with 36 hospitals and 12,000 physicians in California. Sonoma County membership totals nearly 188,000.

Fee-for-service is “the elephant in the living room” of health care cost inflation, said Dr. James DeVore, medical director of the Annadel Medical Group of physicians affiliated with Santa Rosa Memorial Hospital.

Costs “will drop considerably,” he said in an e-mail, as health care moves “away from a hospital-based focus of managing illness” to an integrated model that stresses prevention, wellness and “aggressive management” of chronic illnesses like diabetes.

The United States gets a poor bang for its health care buck, said Dr. Mary Maddux-Gonzalez, chief medical officer of the Redwood Community Health Coalition, a network of clinics and health centers.

Health spending per capita in the U.S. was $8,233 in 2010, 56 percent more than Switzerland, the next highest nation, and more than twice as much as the average in seven other developed countries in Europe, according to a California Healthcare Foundation report.

But Americans' life expectancy, 78.7 years in 2010, was 25th in the world in 2011, while deaths due to medical errors, estimated at about 200,000 per year, rank among the

nation's top five

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“We are not getting value commensurate with what we're spending,” said Maddux-Gonzalez, the former county public health officer, who also faulted the fee-for-service system.

“The financial incentives are not lined up for good outcomes,” she said.