The Truven Health Blog

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Paying for Volume, Paying for Value – How About Paying for What Works?

By Truven Staff
Mike Taylor imageHealthcare costs consume nearly 18% of the U.S. GDP, twice the percent of any other country in the world. In a study recently released by Truven Health Analytics, healthcare costs incurred by employers have risen by 4.3% annually since 2006. Much of that increase occurred in hospital outpatient services, growing at an annual rate of 6.5%; pharmacy costs grew only by 2.1% annually. The rate of rise has attenuated over the last several years, probably mainly due to the recent recession. As the U.S. economy recovers, one can expect healthcare cost inflation to rise again.

Clearly healthcare costs are a major issue in the U.S., and a solution must be found. In the past, employers used many approaches to control the healthcare spend. Disease management programs, health coaches, and raising co-pays and deductibles have all been tried, but these efforts have not been very successful. A large part of the problem is the way we pay for healthcare in this country. “Fee-for-service” payment rewards doctors and hospitals on the basis of the quantity of services provided. This payment method is an incentive to provide more services, with no emphasis on the quality or outcome of those services. Unfortunately we know that many of those services have no useful purpose: earlier Truven Health studies have found nearly $3.6 trillion of wasteful spending over a ten year period. New technology and the rapidly growing market of biologic drugs will continue to drive costs higher, but misuse and overuse of these technologies and drugs needs to be controlled. It’s been said that the most expensive piece of equipment in a doctor’s bag is the pen, and that is still true today.

The Affordable Care Act offers a potential solution by incenting organizations to improve the overall appropriateness of care provided to patients. Incenting higher quality of care, rather than higher volume of care, will help control healthcare cost inflation. Strategies such as bundled payments encourage more efficient use of healthcare resources, and the development of Accountable Care Organizations (ACOs) will hopefully change the way medicine is practiced in the U.S. In the ACO model, overuse of technologies becomes a cost issue, not a profit center. In an ACO environment, a hospital or health system is incented to provide more cost effective care; there are no such incentives in a fee-for-service environment. 

New advances in medicine need to improve the care we receive, but we should not adopt new technologies until they have been proven to be effective. The Mayo Clinic Proceedings recently published a list of 146 common therapies that have been shown to either not work or cause harm. For example, stem cell transplant for breast cancer was widely adopted in the late 1990s, but was later shown to not be effective. Knee lavage for osteoarthritis has been performed on thousands of patients, but we know it isn't beneficial. We should not and simply cannot afford to pay for treatments that don’t work.

Michael L. Taylor, MD FACP
Chief Medical Officer