More than half of hospitals in the U.S. are projected to experience negative margins in 2022, with expenses estimated to increase by nearly $135 billion over 2021 levels, according to a recent Kaufman, Hall & Associates report.[1]
While health systems have no direct means of controlling the rising rate of inflation, they are able to reduce the impact of losses through the use of utilization management strategies and tools designed to ensure that patients get the care that they require, without excessive testing and unnecessary costs associated with care they don’t need.
Utilization management, while effective at addressing the most obvious sources of waste within a health system, has been less successful at a more granular level, due in part to the disconnect between those who create and enforce clinical cost guidelines and those who actually provide the care. Hospital-based utilization reviews grew in popularity throughout the 1960s and 1970s, as a result of growing doubts that greater medical care expenditures resulted in improved health status.
By the 1980s, utilization efforts began to transition to third-parties, such as health plans, in response to research that suggested that many medical services were unnecessary or inappropriate; an increased emphasis by purchasers on linking cost containment with quality assurance; and a proliferation of information resources and assessment tools that made case-by-case review of proposed services feasible on a large scale.[2]
Throughout its history, utilization efforts have placed increasing pressure on providers with regards to the cost of care, starting with prospective pay, then HMOs, and now value-based care and bundled payments. Each new effort has sought to transfer greater economic risk onto providers, perhaps because those who administer costs take the perspective that since providers are the ones making decisions about what to spend, they should also manage the implications of their decisions.
Over the same period, provider access to cost data remained very limited, so decisions about what drugs to prescribe or treatment to undertake were made with no exposure to the related costs. As a result, clinicians have long been outspoken critics of utilization management because it’s been seen as limiting their clinical autonomy and contributing to an ever-increasing administrative burden.[3]
Amidst various initiatives to make healthcare bills less mystifying, educating providers on their spending habits may have a positive impact. A major factor contributing to the cost of care is what type of spender a patient’s provider is, according to new data released by IllumiCare.
IllumiCare’s research found thousands of dollars in disparities among providers of the same specialties taking care of the same type of patients, both across different hospitals and within the same hospital. The variations stem from costs providers make judgement calls about — such as ordering medications, lab tests and radiological exams.
Previous research in the Journal of American Medical Association was limited to hospitalists and internal medicine providers. It found that health care spending varies even more across individual physicians within the same hospital than it varies across different hospitals. IllumiCare’s analysis covered all subspecialties and sheds new light on cost variation in more targeted specialties such as cardiology and pulmonology.
IllumiCare presents costs, risks, and other key data in the clinical workflow using the Smart Ribbon platform, a floating ribbon of cost and risk data that unobtrusively overlays a hospital’s EMR. The data comes from dozens of acute care hospitals across the country. IllumiCare collected data about the wholesale cost of every order for a medication, lab, and radiology test, who ordered it (by provider/type) and the patient’s acuity.
The company’s Cost Variation eReport found substantial spending differences within providers working in the same specialty and on the same type of patients, including:
A $5,438 variation between the 25th and 75th percentiles among pediatric hematology-oncologists
Nearly a $3,000 difference among OB/GYNs between the 25th and 75th percentiles among vaginal deliveries without a complicating diagnosis
A difference of $3,885 between the 25th and 75th percentile range of spending for OB/GYN orders of Cesarean Sections without complications or comorbidities.
While every patient and procedure has unique needs, vast cost variations on standard procedures without complications should be alarming to the health system. Moreover, providers need to understand how their own practice patterns differ from peers.
The report outlines the 15 sub-specialty/diagnosis-related group combinations with the largest cost variations. When costs are scaled to reflect the disparities between different diagnosis-related groups, cardiology and OB/GYN specialists showed the greatest variation. The study found these variations stem from differing practice patterns among providers in the same sub-specialties — for instance, in which medications they prescribe.
“These spending disparities ultimately impact patient bills and affordability of care, particularly with patients carrying greater responsibility for their healthcare costs in recent years,” said G.T. LaBorde, CEO of IllumiCare. “We built the Smart Ribbon to increase transparency for providers, who have been historically navigating care decisions without insight into cost. Bringing awareness to cost variation and providing a tool that allows providers to make more judicious decisions at the point of care promotes a culture of clinical stewardship that can greatly impact over utilization.”
Amidst various initiatives to make healthcare bills less mystifying, educating providers on their spending habits may have a positive impact. A major factor contributing to the cost of care is what type of spender a patient’s provider is, according to new data released by