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Barriers To Constraining Health Care Cost Growth

Abstract

 
Managing health care cost growth is a fundamental challenge facing our health care system. Through analysis of semistructured interviews, we conclude that barriers to health plan–level cost containment activities and strong forces outside the control of individual health plans will prevent many health system reforms (such as more competition among plans or modest increases in patient copayments) from stemming health care cost inflation. Policy debates and budgetary discussions must recognize that health care cost growth in excess of gross domestic product (GDP) growth is likely inevitable in the foreseeable future. The policy focus should be directed toward encouraging value.

Managed competition has been considered a fundamental component of cost containment efforts for more than two decades. Medicare Advantage (formerly Medicare+Choice) reflects, in part, the belief that competition among health plans will help constrain costs.³ Although evidence supports the premise that managed care organizations (MCOs) have lower spending compared with indemnity fee-for-service systems, debate persists over whether the rate of health care spending growth differs among diverse delivery systems.⁴ Rather, evidence suggests that although managed competition slows health care cost growth, the effects are not large enough to stem the rising share of GDP devoted to health care.⁵ This evidence is largely based on statistical analyses of the diffusion of technology in health maintenance organizations (HMOs) or in markets with varying levels of HMO penetration.⁶ What the literature does not tell us is why managed care plans have not reduced technology adoption and the resultant cost growth to a greater degree. Accordingly, here we examine the forces that influence the use and diffusion of medical innovations in managed care plans.

Study Methods

Top Study Methods Study Results Discussion Editor's Notes NOTES

 
For this study we used an exploratory, qualitative approach guided by grounded theory.⁷ We developed a semistructured interview protocol, with open-ended questions, to elicit respondents’ understanding of the use of innovative technology. We focused on diagnosis and treatment of coronary artery disease because this disease affects many people, causes substantial mortality and morbidity, and is costly per case. Moreover, in the past decade there has been rapid technological change in the diagnostic, therapeutic, and preventive services related to coronary artery disease. Despite the focus on services for this condition (such as stents, statins, and revascularization procedures), we allowed respondents to discuss any innovation or clinical area they wished to include.

We studied four health plans in two distinct geographic markets (Markets A and B). Both markets were in the Midwest and had HMO penetration rates of about 30 percent, with active, large purchasers. Market A was dominated by three major health plans. Its provider community included five major networks, each of which contracted with large medical groups and hospitals. Cardiology groups were aligned for the most part with each hospital. Market B also had several large insurers and hospital systems. Cardiologist practices there ranged from solo practices to large groups and were generally aligned with hospital cardiology departments. In Market A the participants were a fee-for-service (FFS) plan and an HMO that largely relied on a model of capitation to physician groups implemented through a physician hospital organization. In Market B the participants were a large MCO that offered both an FFS product and a network-model HMO, and a mixed-model plan that incorporated both a group- and a network-model delivery system.

Each interview inquired first about health plan interventions (internal factors) aimed at influencing the adoption and diffusion of innovation. Internal factors included the existence and operation of a technology assessment process, the plan’s financial incentives, and utilization review or profiling. We also inquired about forces outside the plan (external factors) that affect the use of new technologies. These included community norms of medical practice, patient demand, manufacturer marketing, and benchmarking with peer institutions or practitioners.

Interviews were conducted during 2001. At each health plan, we interviewed an administrator familiar with the technology assessment process, at least one practicing cardiologist, and representatives from affiliated physician groups. We interviewed twenty-seven people, including sixteen plan administrators (five from one plan, four each from two other plans, and three from a fourth plan), six physician group administrators (four from Market A and two from Market B), and five cardiologists or cardiac surgeons (three from Market A and two from Market B). Interviews lasted about 60–75 minutes.

Study Results

Top Study Methods Study Results Discussion Editor's Notes NOTES

 
Dominance of external factors. It was clear from the interviews that the process of adopting medical innovation was primarily driven by external factors outside the control of the health plans. In particular, respondents consistently felt that physicians drove the innovation, with only limited interference from MCOs. The most important external factor was a desire to provide interventions that had a perceived clinical benefit. Other external forces noted by respondents included competition among physicians, consumer demand, and manufacturers’ marketing strategies.

Clinical benefit. Administrators and physicians strongly indicated that the potential for improved outcomes was a primary driver of the adoption process. This was particularly true if existing treatments were not achieving desired outcomes with sufficient regularity. The most commonly cited coronary artery disease example was the rapid adoption of intra-coronary stents. Stent placement offered a scientifically sound, clinically feasible solution to a known problem: high restenosis rates. Anecdotal evidence quickly indicated that restenosis rates following percutaneous transluminal coronary angioplasty (PTCA) were reduced, resulting in immediate pressure for health plans to cover stent placement before the publication of controlled investigations that rigorously documented their advantage over other treatment options.

The clinician respondents considered the medical community to be the sole judge of clinical appropriateness. Plan administrators generally concurred and recognized the importance of opinion leaders in driving local opinion and adoption behavior. Certain respondents stated that the medical profession as a whole was biased toward action—instead of inaction—when faced with uncertainty about whether to intervene—behavior often referred to as the "technological imperative." This bias was augmented by a subset of physicians—"early adopters"—who actively sought out and applied new technologies. Respondents generally believed that the behavior of early adopters was motivated by perceptions of patients’ best interests, although some respondents noted a potential for self-interest as a driving force for early adoption.

Competition. Queries about market competition as it related to diffusion of innovation revealed two points. First, physicians use technology to compete for patients. The observation that the use of high-technology services leads to a perception of improved quality has been described elsewhere.⁸ Given the further perception that high quality attracts patients, quality became an important dimension of competition among physicians. Despite the added costs, respondents viewed the adoption of technology as a way to attract patients. One group administrator, in discussing the group’s public image, was particularly frank about the link between technology/quality and market competition: "A key part of our strategy is to make ourselves indispensable to the market such that insurance companies cannot sell their policies if we are not in the deal." His belief was that being perceived as a quality leader was a key ingredient to becoming indispensable, and advanced technology was needed to achieve this position.

Second, professional competition among physicians influenced use of technology. Having the latest technology offers substantial professional status to a physician group. As one respondent noted, "[No one wants to be] the one on the block who doesn’t know the new technique." However, another noted that if a physician group was too aggressive in using new technology that did not eventually prove effective, the group would be open to criticism and potential embarrassment.

Consumer demand. Respondents felt that consumers were becoming more informed and sophisticated regarding health services. But their knowledge regarding innovation for coronary artery disease treatment lagged behind that of other decisionmakers and played a limited role as a force driving technology use. There were exceptions, most notably cholesterol-lowering drugs, where consumer demand—believed to be driven by direct-to-consumer advertising— played a role in technology diffusion. In this case, consumers’ desire for increased access did not present any tension among stakeholders, since the physicians and health plans also supported more widespread use of these drugs. Some providers were taking advantage of greater consumer sophistication by marketing services (such as full body scans) directly to consumers, even when services were not covered by insurance.

Manufacturers. Respondents also indicated that manufacturers often provided the initial external impetus for "getting the ball rolling." Industry was considered an important information source, especially early in the diffusion process. Manufacturers have a direct incentive to encourage utilization, a position strengthened if supporting scientific evidence is available. Respondents generally noted the manufacturers’ role as potentially valuable, despite a perceived conflict of interest. One respondent called them a "necessary evil."

Limited role of internal factors. Complementing the clearly stated importance of external factors in determining technology adoption, our interviews revealed strong agreement that internal health plan initiatives influenced diffusion of innovation only at the margin. Three broad categories of plan activities emerged: care management, environment management, and coverage policy. Care management refers to efforts to guide treatment in specific clinical situations. This includes activities such as utilization review, education interventions, and disease management programs. Environment management refers to activities designed to create incentives and systems to influence practice patterns without explicitly directing care. Perhaps the most prominent activities in this area involve the use of contracting and financial incentives that reward cost savings without specifying how they would be achieved clinically. It also includes setting patient copayments in ways that reduce utilization and hence costs. Coverage policy refers to activities related to deciding if the plan should cover specific services. All of the plans tried to influence technology adoption via coverage decisions. This is the only one of the three cost containment activities explicitly designed to influence diffusion of new technologies.

Our small sample size and qualitative approach prevent us from commenting on the general effectiveness of these plan activities, which have been addressed in detail elsewhere.⁹ However, our respondents indicated that plans were moving away from strict efforts to manage care and from incentive systems that transferred sizable financial risk to providers. One plan was dismantling a capitation system that had been established to place providers at risk if costs exceeded budgets. Through our interviews, we could identify and describe reasons why the aforementioned strategies might not be very effective in constraining diffusion of new technology.

A desire to maintain stakeholder support. Respondents consistently expressed the view that plans were generally hesitant to alienate physicians, consumers, or employers. Maintaining a high level of these stakeholders’ satisfaction is central to a plan’s success, and administrators considered it important for plans to avoid conflict with physician groups or being perceived by consumers as denying care. Plans increasingly considered administrative requirements unpalatable for physicians and patients. This affected all three cost containment strategies, although it affected efforts to micromanage care most strongly. Administrators felt that physicians at the bedside could make more-informed decisions about the use of new technologies. Less rigid approaches to managing care were discussed, but these were considered less effective at constraining costs and dependent on physician acceptance.

The desire to avoid alienating stakeholders was not meant to imply that plans were not concerned with costs or that there were no efforts to micromanage care (for example, formularies). Indeed, physician respondents occasionally made negative remarks about plans’ ongoing efforts to influence clinical behavior. Although a respondent would occasionally relate a story of what he or she considered to be heavy-handed management, those examples were the aberration, not the norm. On balance, physicians felt that they were in control of their clinical practice and that when desirable new technologies came along, they could provide their patients with access to them without strong plan opposition. Plan administrators agreed with this conclusion.

Concern over alienating physicians and enrollees also made it difficult to manage the environment so as to constrain costs. For example, respondents generally believed that consumers were resistant to greater patient cost sharing or restrictions on the choice of providers that might facilitate cost containment. Similarly, physicians were resistant to contracts that transferred financial risk to providers, which limited plans’ ability to use this strategy.

The desire to maintain stakeholders’ support also limited the effectiveness of using coverage policy to limit access to new services. Respondents suggested that strategic considerations for the health plan, independent of scientific assessment, might greatly influence benefit design decisions. For example, a desire to avoid the appearance of restricting access to important innovations was apparent in discussions of the benefit design process. Demand from plan physicians or patients, or both, and an awareness of what competing plans are doing, might lead to coverage even when it was felt that data to support coverage were unavailable. In part because of the recognition that plans had to be responsive to the external stakeholders, one respondent described his environment as "managed care in drag."

Monitoring difficulties. Efforts to micromanage care or limit access to new technologies through coverage policies require monitoring by the plan. Such monitoring could be costly and difficult. For example, respondents suggested that plans often felt compelled (appropriately) to cover technology proven beneficial to a specific patient group. Yet patients outside of the target group would receive the service, and this was difficult to control without incurring large expense and perhaps alienating patients and physicians. In some cases, the service would even be provided if not covered and billed under a different code.¹⁰

Lack of definitive evidence to restrict use. Our interviews suggest another reason why plans had only limited control over technology diffusion. Instead of requiring the "burden of proof" for adoption, more frequently, definitive evidence was required to justify restricting use. Because new technologies are generally less well studied than established services, there is often a lack of data measuring the related clinical and economic consequences. Amid high clinical uncertainty (the vast majority of instances), plan administrators deferred to physicians. Reliance on physicians’ judgment was reinforced by a pattern of continuous yet small refinements to existing devices and procedures that made the performance of controlled trials with the "latest" version extremely difficult. This "moving target" contributes to the difficulty in assessing and controlling the diffusion of new technology.

Willingness to experience common trends in cost growth. Many plan managers felt that pressure to reduce costs was diminished if costs were rising in competing plans. A consistent strategy that emerged from our discussions was to keep cost growth trends "within some range of the overall trend line." When discussing staying in line with the competition, one administrator noted that "we would be as happy as clams with that, but that doesn’t mean within that trend line there is not still plenty of opportunity for appropriate use and cost reduction." The somewhat grudging acceptance of common cost trends and the major barriers to managing diffusion of new technologies suggest a possible collective-action problem.

Perhaps because of the barriers outlined above, plan administrators’ attitudes were not strongly oriented toward limiting access to new technologies. Consistent with the desire to maintain stakeholder support, administrators were oriented more toward provision of appropriate care than toward constraining costs (and hoped that in doing so they would stay within the trend line). One administrator summed up this sentiment nicely: "You don’t want to reject new technology. You want to offer it to your members...You want to have access to all the new things that everybody else is getting." The focus was squarely on promoting "appropriate" care, and plans were willing to pay for it. When asked if the cost growth in his plan was greater than that for a competitor, an administrator responded: "If we are doing what is medically appropriate, then I don’t care." Another plan manager, when asked about managing cost trends, stated: "To me that is the wrong question...The right question is, how do you manage appropriateness trends." Consistent with the mission of emphasizing appropriate care over cost containment, every respondent, regardless of position, noted a growing emphasis within plans on encouraging the use of services that are supported by rigorous clinical data. Although one might worry that such statements are only lip service to the idea of focusing on appropriateness, numerous objective data exist suggesting that tangible actions consistent with this view were taken (for example, disease management programs or quality improvement efforts designed to increase the use of effective services).

Respondents tended to view cost growth as inevitable, although several expressed the view that quality-enhancing efforts had the potential (albeit unproven) to save money in the long run. One respondent noted: "I guess I see [trends in utilization] as more...inexorable and they are going to happen." Another described technology as a "steamroller." Respondents were similarly skeptical of employers’ ability to influence these trends. One stated: "[Employers] are not even suited up for that fight." Respondents were explicit about the relatively ineffectual impact of managed care interventions on the adoption of new technology. One medical director stated: "I basically would have to say for this health plan that there is a lot of external pressure [to provide new services]. We follow suit."

Discussion

Top Study Methods Study Results Discussion Editor's Notes NOTES

 
Our interviews with various decision-makers provide a generally consistent picture about the process of technology diffusion and cost growth in managed care plans. Powerful external forces push for early and undiminished diffusion of new technology. Managed care plans are limited in their ability and desire to stand in the way of the innovation "steam-roller." Although always striving for efficiencies, they stated no desire to impede technological progress. In essence, plans deferred to physicians’ professional expertise in determining which technologies to use. Given the perceived fait accompli regarding the process and use of technological innovation, the plans in our study focused more on attainable objectives, such as delivering appropriate care for clinical conditions for which rigorous evidence is available, rather than on areas of new innovation. Thus, we conclude that managed care, as historically practiced, will not dramatically slow health care cost growth. The provider culture surrounding the standards of evidence for adopting and using new services may be more important for constraining cost growth than plans’ cost containment efforts.

The explicit establishment of this conclusion has important policy and clinical practice implications. First, rising cost growth should not be considered a problem per se, and therefore physicians and technology companies should not be the focus of blame. There are clinical areas where technology can improve health outcomes, and we should appreciate that physicians and technology manufacturers are striving to achieve those improvements. Second, programs such as Medicare Advantage may encourage efficiency and promote quality, but they will not likely be a panacea for the rising cost of health care.

Our interviews suggest that the forces pushing for innovation in health care are very strong. Thus, although we did not examine financing innovations such as consumer-driven health plans, we should approach with skepticism claims that other financing arrangements will be more successful at constraining cost growth. More evidence is needed to establish the impact such arrangements will have on the rate of growth in health spending and whether consumers will accept arrangements that place them at more financial risk if they become ill. Professional norms, difficult to influence in a decentralized dynamic environment, may have more to do with cost growth than consumer activism.

Study limitations. Our study has limitations that should be considered when interpreting the results. Our focus on coronary artery disease and our sample of four health plans in two markets may limit the generalizability of our findings to other clinical conditions, plans, or markets. However, we believe that the findings are valid, in part because there was remarkable consensus among respondents and in part because the plans we studied were not the only ones struggling with issues of cost growth and technology diffusion. The commonality of cost growth across plans and markets supports our conclusion that external factors are more important than internal ones in driving cost growth.

Moreover, we could not explore the extent to which managed care plans were able, collectively, to alter the external environment and thus external forces. Evidence suggests that the impact of managed care at the market level is stronger than the impact of any given plan.¹¹ Yet the continual rise of costs in managed care–dominated markets and the backlash against managed care suggest that the barriers discussed likely limit the effectiveness of the system of managed competition as well as the effectiveness of any given plan.

Experience suggests that as long as there is disease and suffering, there will be medical innovation. Although one can never be sure of the exact nature of clinical and technical progress, if history is a guide, it will, on balance, increase costs at the population level (despite potential cost savings in selected areas or per case).

Our interviews suggest that any policy initiative trying to constrain cost growth must recognize the central role that physicians—and professional judgment and norms—play in influencing the adoption and diffusion of new technology. As policymakers struggle to modify the health care system, they must ponder challenging issues, such as how to address the distributional inequities that arise as accepted care becomes more expensive; how to allow physicians autonomy—important for medical practice; and how to promote appropriate access to new technologies without writing a blank check for all health care services. In short, the basic challenges that led to managed care have yet to be resolved.

Editor's Notes

Top Study Methods Study Results Discussion Editor's Notes NOTES

 
Michael Chernew (mchernew{at}umich.edu) and Peter Jacobson are professors at the University of Michigan School of Public Health, Department of Health Management and Policy, in Ann Arbor. Timothy Hofer and Keith Aaronson are associate professors at the university’s School of Medicine, Department of Internal Medicine. Hofer is also a research scientist at the Veterans Affairs Center for Practice Management and Outcomes Research in Ann Arbor. Mark Fendrick is a professor in the University of Michigan’s Department of Internal Medicine.

The project was supported by Grant no. 1R03 HS09838 from the Agency for Healthcare Research and Quality. The authors acknowledge the invaluable support of four anonymous facilitators in the health plans and the assistance of health plan staff.

NOTES

Top Study Methods Study Results Discussion Editor's Notes NOTES

 

1. J. Gabel et al., "Health Benefits in 2003: Premiums Reach Thirteen-Year High as Employers Adopt New Forms of Cost Sharing," Health Affairs 22, no. 5 (2003): 117–126.[Abstract/Free Full Text]
2. See, for example,V.R. Fuchs, "Economics, Values, and Health Reform," American Economic Review 86, no. 1 (1996): 1–24; [ISI][Medline]D. Cutler, "Technology, Health Care Costs, and the NIH" (Paper prepared for the National Institutes of Health Economics Roundtable on Biomedical Research, Cambridge, Massachusetts, September 1995); and J.P. Newhouse, "Medical Care Costs: How Much Welfare Loss?" Journal of Economic Perspectives 6, no. 3 (1992): 3–21.[ISI][Medline]
3. The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 transformed the Medicare+Choice (M+C) program into Medicare Advantage. See Centers for Medicare and Medicaid Services, "Medicare Advantage: Immediate Improvements in Benefits, Premiums, and Copayments," 29 July 2004, www.cms.hhs.gov/medicarereform/issuepapers/title1and2/files/issue_paper_17_-_medicare_advantage.pdf (6 August 2004).
4. W.G. Manning et al., "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review 77, no. 3 (1987): 251–277; [ISI][Medline]H.S. Luft, Health-Maintenance Organizations: Dimensions of Performance (New York: Wiley, 1981); and R.H. Miller and H.S. Luft, "Managed Care Plan Performance since 1980," Journal of the American Medical Association 271, no. 19 (1994): 1512–1519.[Abstract]
5. M.E. Chernew et al., "Managed Care, Medical Technology, and Health Care Cost Growth: A Review of the Evidence," Medical Care Research and Review 55, no. 3 (1998): 259–288.[Abstract/Free Full Text]
6. See, for example, L.C. Baker and S.K. Wheeler, "Managed Care and Technology Diffusion: The Case of the MRI," Health Affairs 17, no. 5 (1998): 195–207; [Abstract]M.E. Chernew, A.M. Fendrick, and R.A. Hirth, "Managed Care and Medical Technology: Implications for Health Care Cost Growth," Health Affairs 16, no. 2 (1997): 196–206; and [Abstract]D.M. Cutler and M. McClellan, "The Determinants of Technological Change in Heart Attack Treatment," NBER Working Paper no. 5751 (Cambridge, Mass.: National Bureau of Economic Research, September 1996).
7. B.G. Glaser and A.L. Strauss, The Discovery of Grounded Theory: Strategies for Qualitative Research (Chicago: Aldine-Atherton, 1967).
8. H.S. Luft et al., "The Role of Specialized Clinical Services in Competition among Hospitals," Inquiry 23, no. 1 (1986): 83–94.[ISI][Medline]
9. On the issue of utilization review, see, for example, J.R.C. Wheeler and T.M. Wickizer, "Relating Health Care Market Characteristics to the Effectiveness of Utilization Review Programs," Inquiry 27, no. 4 (1990): 344–351.[ISI][Medline]
10. N.R. Powe, C.A. Steiner, and G.F. Anderson, "Awareness of Providers’ Use of New Medical Technology among Private Health Care Plans in the United States," International Journal of Technology Assessment in Health Care 12, no. 2 (1996): 367–376.[ISI][Medline]
11. Chernew et al., "Managed Care, Medical Technology, and Health Care Cost Growth."

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