"New Year's Resolutions for Healthcare Reform: a Three Legged Stool Approach" by Lynn Nicholas

As a new year is launched, our state and the nation stand on the threshold of monumental challenge to fix a broken economy that offers daily and dire reports of rising unemployment and unprecedented fiscal calamity. Mixed into the mess is the challenge to keep healthcare reform on track.

It’s easy to say that runaway healthcare costs are the main problem. While it is essential that everyone who provides, pays for or receives care has a responsibility to do more to manage healthcare costs, we need to first find a common agenda for action. I propose stakeholders focus on three specific challenges within our faltering healthcare system: reducing clinical variation, payment reform and administrative simplification. These three challenges, which I like to call the “three-legged stool” of healthcare improvement, must be addressed simultaneously and with equal vigor in order to succeed. Equal pressure on each leg will bring down healthcare costs concurrently on multiple fronts, which is far more practical and likely to succeed than simply putting hospitals – or any other healthcare stakeholder – on an externally imposed budget and hoping for a better system to emerge.

There is universal agreement among all Massachusetts stakeholders

—healthcare providers, government, business, insurance companies, and consumers—that health insurance premiums are growing at an unsustainable rate. But there remains a chasm between the perceptions and realities of the factors driving healthcare costs that needs to be appreciated.

Contrary to popular belief, Massachusetts health insurance premiums are comparable to those in the rest of the country when you factor in the higher cost of living in the Bay State, particularly Eastern Massachusetts. In addition, comparisons of per capita healthcare expenditures by state, which supposedly show Massachusetts with the highest healthcare costs in the nation, fail to account for underlying differences in demographics and the policy driven cost of providing care. (Massachusetts has more residents per capita over age 75 than most other states, for example, and this population naturally has significantly higher healthcare expenses. Our residents also use more public healthcare access programs and post-acute care services than healthcare consumers in most other states.) Nonetheless, Massachusetts hospitals can and must become even more efficient and continue to improve care delivery, and they are committed to moving the needle on these issues.

“Payment Reform” efforts are finally underway with the convening today of the Special Commission on Payment Reform. This group, in which I participate, will wrestle with how to reform the health care payment system to reward improved primary care and focus on outcomes rather than piecework. This work will be a major influence in controlling cost growth in Massachusetts.

“Clinical variation”— when different hospitals and physicians treat patients with the same conditions in different ways – is another significant driver of hospital costs. Through increased use of evidence-based medicine and participation in public reporting and information transparency, Massachusetts hospitals are already working to reduce clinical variation and improve the delivery of cost-effective, high quality care. Increased government and business community investment in evidence-based research will help speed the adoption of best practices throughout the provider community, and in many instances these investments will save healthcare dollars by identifying proven, cost-effective treatments rather than leaving providers to practice “defensive medicine” that drives up costs, ordering un-necessary tests or expensive new options that don’t necessarily improve outcomes.

Perhaps the most overlooked opportunity for cost reduction lies in decreasing administrative costs. There is a tremendous amount of redundancy and unnecessary paperwork in the healthcare system, imposed on providers by private insurers, state and federal government. These administrative costs add an estimated $5 billion annually to the overall cost of healthcare, which is 10 percent of all the money spent on healthcare in the Commonwealth. The administrative burden in the system adds cost and frustration, without adding value. Although there are some efforts now underway in Massachusetts to decrease administrative costs, opportunities exist to achieve major additional cost savings through administrative simplification. Massachusetts Hospital Association will be releasing the first report in its series, “Controlling Healthcare Costs,” on the subject of administrative simplification next week.

The bottom line for this new chapter in both state and national healthcare reform is actually one of the lessons learned from the initiative that has successfully expanded insurance coverage to more than 97 percent of Bay State residents: We must all share responsibility. But this time, our mutual responsibility is for finding and implementing healthcare cost solutions through simultaneously reducing clinical variation; designing payment reform that controls costs, improves care delivery and pays fairly; and by decreasing administrative costs. Without consistent equal pressure on all three “legs of the stool,” our reform efforts will topple.

Lynn Nicholas, FACHE, President & CEO
Massachusetts Hospital Association