The Worrisome Outpatient Trend: What Does Disease Management Have to Offer?

In its last post, the Disease Management Care Blog criticized the wretched state of individual disease management company sponsored ‘white papers.’ Contrast their pale efforts with this study from the McKinsey Global Institute titled “Accounting for the cost of the US health care: a new look at how Americans spend more that would be expected by high levels of wealth.’ It’s an update to a 2007 report that found that $650 billion of the $1.7 trillion spent by the U.S. cannot be explained on the basis of wealth alone. This kind of white paper the DMCB likes. So, apparently, does the White House. And so should DMCB readers, so we can be better informed about where the opportunities lay when it comes to healthcare reform.

Before the DMCB checks out some of the report’s more interesting conclusions, it’d like to point out that McKinsey is arguably so big and famous that it doesn’t have to bother with the peer review process, this particular paper is better thought of as a short book than a manuscript, it was run past a panel of reviewers (‘academics, think tanks and industry stakeholders’), it’s remarkably transparent and has little in the way of any ‘hard sell’. Oh, and by the way, it’s immensely informative. In these respects, it resembles the wide ranging and important white papers released by the DMAA. Like McKinsey, they also transparently draw on the resources and expertise of multiple experts in the industry and keep the marketing to a minimum.

So what does McKinsey say in this particular tome? While there’s a lot here about U.S. administrative costs (surprisingly, growth is mostly in the public, not the commercial domain) and pharmacy (yes, everything you’ve heard is true, we pay a lot more than the French), it was the insights about outpatient costs that caught the DMCB’s eye. That’s right. Inpatient costs are not the villain.

First off, McKinsey compared the United States to other countries in the Organization for Economic Co-operation and Development (OECD for short, consisting of Austria, Canada, the Czech Republic, Denmark, Finland, France, Germany, Iceland, Poland, Portugal, South Korea, Spain and Switzerland). As gross domestic product increases across these countries, the relative per capita spend on health care also goes up in a more-or-less linear fashion. Think of it as a wealth effect: the richer you are, the more you can afford to spend on healthcare. McKinsey extrapolated these numbers to the U.S. and found that we spend $650 billion more than expected over the calculated OECD baseline.

Think this excess is thanks to persons with chronic illness ending up in the hospital over and over again? Think again. It was outpatient care and same day hospital/other center visits that seemed to account for two thirds of this relative excess with a scary year-to-year trend of 7.5%. While it was outpatient physician visits that accounted for the bulk of the cost, it was the high margin (a whopping 25% is not unheard of) outpatient procedures that had the highest trend at 9.3%. This is thanks to a double whammy of more procedures being done plus a higher cost per procedure. This toxic brew is driven by new and more expensive technology (there are no innovations that are decrease costs, each new one is more expensive) combined with the independence of physicians, patient demand rising to meet to capacity and relative consumer price insensitivity (thanks to still widespread employer-based insurance).

Think the shift to outpatient care is an attractive policy alternative to pricey inpatient care? Nope. Since the majority of inpatient reimbursement is based on fixed payments, hospitals are being forced to be more efficient. In contrast, fee-for-service payments in outpatient settings reward doing more with more revenue, which adds fuel to the fire. The DMCB sort of knew that, but it McKinsey pointed out that outpatient care volume is also being driven by increased availability to more people: no longer does that annoying but tolerable hernia or trick knee require a long trip to the hospital with an overnight stay; you can have it done at the new Surgi-Center down the road and be home in time to watch Dancing With the Stars. In fact, inpatient costs, after controlling for GDP, are only slightly above OECD predicted baseline.

Interesting, hm? Hospitals are not the problem when it comes to rising healthcare costs. Since the data suggests fixed payments 'work' for hospital costs, no wonder the Obama Administration is putting such an emphasis on using the same approach for post-hospitalization care.

Implications for disease management? While reducing avoidable hospitalizations has been the mantra, perhaps it needs to think more about how it can offer access to better-value and lower cost outpatient care services. In addition, the industry has much to offer patients when it comes to informed decision making about the risks, benefits and alternatives to invasive therapies. Is it time for the industry to focus its efforts on managing the outpatient trend and being one of many answers to the insatiable appetite for technology?? Given the insights from this McKinsey report, the DMCB thinks the answer may be yes.