The Agenda

Abelson and Harris on the Dartmouth Atlas

Reed Abelson and Gardiner Harris have written an excellent analysis for the New York Times on how the Dartmouth Atlas of Health Care has been misused during the health reform debate. This is exactly the kind of journalism I wish we’d seen more of during the months leading up to the passage of PPACA, and it will contribute to the ongoing debate over how to overhaul the U.S. health system. Assuming Abelson and Harris are right, and they appear to have done a careful job, the extent of the misrepresentation of the Dartmouth Atlas findings has been extraordinary: 

The principal argument behind Dartmouth’s research is that doctors in the Upper Midwest offer consistently better and cheaper care than their counterparts in the South and in big cities, and if Southern and urban doctors would be less greedy and act more like ones in Minnesota, the country would be both healthier and wealthier.

But the real difference in costs between, say, Houston and Bismarck, N.D., may result less from how doctors work than from how patients live. Houstonians may simply be sicker and poorer than their Bismarck counterparts. Also, nurses in Houston tend to be paid more than those in North Dakota because the cost of living is higher in Houston. Neither patients’ health nor differences in prices are fully considered by the Dartmouth Atlas. 

Then there is the question of outcomes:

But the atlas’s hospital rankings do not take into account care that prolongs or improves lives. If one hospital spends a lot on five patients and manages to keep four of them alive, while another spends less on each but all five die, the hospital that saved patients could rank lower because Dartmouth compares only costs before death.

But the atlas’s hospital rankings do not take into account care that prolongs or improves lives. If one hospital spends a lot on five patients and manages to keep four of them alive, while another spends less on each but all five die, the hospital that saved patients could rank lower because Dartmouth compares only costs before death.

To be sure, there is a great deal of evidence that suggests that the quality of care varies considerably across regions, and that cost doesn’t always track quality. I worry that Abelson and Harris are overstating the case when they write the following:

 

While a few studies by other researchers have shown that more spending leads to worse health, some others have suggested the opposite — that more expensive hospitals might offer better care. But many have shown no link, either way, between spending and quality.

In other words, there is little evidence to support the widely held view, shaped by the Dartmouth researchers, that the nation’s best hospitals tend to be among the least expensive.

At this point, it is useful to draw on literature on business-model innovation: the central problem is that general hospitals are not specialized, and this lack of specialization drives cost growth. So comparing one set of general hospitals to another isn’t necessary the most sensible way to think about the problem.

Towards the end of the article, Abelson and Harris raise a potential problem for PPACA:

In Dartmouth’s rankings, for instance, New Jersey comes in dead last because its costs per Medicare beneficiary are the nation’s highest. And yet, for the quality of care offered in New Jersey, independent of cost, federal health officials rank New Jersey second only to Vermont.

This doesn’t demonstrate that New Jersey’s higher spending levels are responsible for its high quality of care. But it does suggest that cost-cutting efforts in Medicare will not prove as painless as PPACA proponents have suggested, which is one reason why opponents of the law have suggested very different strategies for restraining cost growth. As Abelson and Harris note, there are a number of optimistic assumption embedded in PPACA’s projected cost savings regarding the tradeoffs between cost and quality of care. This reminds me of the Medicare chief actuary Robert Foster’s report on PPACA:

Simulations by the Office of the Actuary suggest that roughly 15 percent of Part A providers would become unprofitable within the 10-year productivity period as a result of the productivity adjustments. Although this policy could be monitored over time to avoid such an outcome, changes would likely result in smaller actual savings than shown here for these provisions.

Foster continued in this vein:

Average Medicare costs per beneficiary usually increase over time as a function of (i) medical-specific price growth, (ii) more utilization of services by beneficiaries, and (iii) greater “intensity” or average complexity of these services. In general, limiting cost growth to a level below medical price inflation alone would represent an exceedingly difficult challenge. Actual Medicare cost growth per beneficiary was below the target level in only 4 of the last 25 years, with 3 of those years immediately following the Balanced Budget Act of 1997; the impact of the BBA prompted Congress to pass legislation in 1999 and 2000 moderating many of the BBA provisions. As an additional comparison, during the last 25 years the average increase in the target growth rate has been 0.33 per cent below the average increase in nominal GDP per capita — which is approximately the target level for the physician sustainable growth rate (SGR) payment system. Congress has overriden the SGR-based payment reductions for each of the last 7 years (and, to date, for the first 5 months of 2010). 

That is, Foster is suggesting that the cost savings are very unrealistic.

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