10 Obstacles Hospitals Face in Achieving Cost Savings

In light of news that nine of CMS' 32 Pioneer Accountable Care Organizations will exit the program, Paul Levy, former CEO of Beth Israel Deaconess Medical Center in Boston, wrote a blog post about the 10 obstacles to achieving mass-scale cost savings.

CMS recently released data showing all 32 Pioneer ACOs improved quality and patient satisfaction in their first performance year, but only 13 saved enough to share in savings with Medicare. Nine of the Pioneer ACOs are leaving the program — seven will transition to the Medicare Shared Savings Program, and two will exit CMS' ACO program entirely.

These results did not take Mr. Levy by surprise, as he said he anticipated this outcome when the program was announced two years ago. The logic is embedded in economics. "The issue goes beyond the structural problem built into the Pioneer program," he wrote in the blog post. "The answer lies in the fact that you don't hire people into the healthcare system unless they are serving a growing demand for healthcare service. Little has changed to alter that growing demand."

Mr. Levy referenced a previous blog post he wrote about a 10 percent annual medical cost inflation rate for a health system's capitated patient group over the five years. That rate was slightly below the health system's fee-for-service patient group. Mr. Levy said he was willing to concede the payment system made a difference to the inflation rate, "but the point is that [it] was not a major difference."

Mr. Levy identified 10 "primary contributors" to the growing demand, and thus growing supply and costs, for healthcare services.

1. Demographics. More baby boomers are seeking hospital care, along with their aging parents, who need acute and chronic care services.

2. Entitlement. Mr. Levy said baby boomers expect and demand everything for themselves and of the insurance products they expect their employers to provide. "For their parents, they often expect extraordinary end-of-life care interventions, paid for by Medicare," he wrote.

3. Elective surgeries. As an example, Mr. Levy said a knee that "previously would have remained sore" or undergone treatment through physical therapy is now a candidate for arthroscopic surgery.  

4. Medical arms race. Hospitals and physicians feel compelled to purchase the latest medical technology, even if it lacks proof of enhanced clinical efficacy, according to Mr. Levy.

5. Defensive medicine. In a 2012 survey, 75 percent of physicians said they practice defensive medicine, and most do so to avoid being named in potential malpractice lawsuits.

6. Regional patient referral patterns. "Local practice patterns often are just that, with no evidentiary basis," wrote Mr. Levy.

7. Patient safety issues. Preventable harm in clinical settings leads to extended hospitalization and patient injuries.

8. Lack of access. People may incur more costs if they don't have health insurance and cannot receive proper preventive care or early diagnostic treatment.

9. "The cottage industry problem." Mr. Levy says the medical profession, for both practices and hospitals, has "failed to adopt process improvement approaches that are common in other industries" and that lead to more efficient, quality-driven and standardized processes.

10. Widespread lifestyle problems. Mr. Levy said today's sedentary and malnourished lifestyles among all age groups lead to major health issues.

More Articles on Healthcare Costs:

Study: Population Health May Drive Geographic Variation in Medicare Costs
Poll: Integrating Physicians Could Increase Costs
All Pioneer ACOs Improve Quality, Just 13 Achieve Shared Savings

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