Opinion | Don’t Cut Costs You Don’t Understand

According to the Centers for Medicare & Medicaid Services, spending on healthcare in the U.S. grew to $4.3 trillion, or 18.3% of gross domestic product, in 2021. These statistics make for alarming headlines as pundits sound off on rising healthcare costs, researchers highlight the disparity between healthcare spending and outcomes, and politicians promote legislation to rectify the problem either through increases in coverage, decreases in reimbursement, or other mechanisms of sweeping system changes.

We need more nuance in these discussions. The issue of healthcare spending cannot be solved with a wholesale approach whereby one piece of legislation fixes everything. Instead, we need to identify specific healthcare products and services for which we are overpaying, develop a thorough understanding of their value proposition, and create standardized practice patterns in order to make comparisons and target specific cost-saving interventions.

Define ‘Healthcare Spending’

First, we should stop using the term “healthcare spending” so broadly as to generalize our interventions, rendering them ineffective at best and counterproductive at worst. For example, despite considerable legislative efforts such as the Affordable Care Act, healthcare spending has continued to rise. These efforts attack the problem on a large scale, but spending is influenced by many factors and reflects a series of many problems, rather than a single problem, to solve.

Without greater specificity, the result is overly simplistic conclusions by well-intentioned researchers, such as those who suggest “it’s the prices, stupid.” Legislation often fails to consider downstream effects of slashing prices, such as increased low-value health spending or decreased employer-sponsored coverage.

What Is Value?

In addition to defining which services are costly, we should thoroughly understand the value proposition. What is value in healthcare? Professor Michael Porter, PhD, MBA, defines it as “health outcomes achieved per dollar spent.” It is the relationship between cost and the resultant health outcomes that determine whether we are overpaying for specific health services. If we simply reduce costs without considering the health outcomes achieved, it could lead us to wrongly assume we have achieved savings, when we would instead be restricting valuable care.

We need meticulous systems for measuring condition-specific health outcomes and total cost of care for each health condition. For example, for knee arthritis we could track patient-reported outcome measures for interventions such as physical therapy. If we want to define the value of this service, we could track both the cost and the health outcomes achieved with physical therapy and then measure downstream utilization such as the need for additional services (e.g., injections or surgery).

Using this data, we reduce costs by spending more on services that produce better health outcomes and reduce spending on services that produce worse outcomes. This reallocation of spending is the key to cost reduction, but it needs to be specific to the health condition and interventions used, otherwise we come to misleading conclusions that we spend more on healthcare but have worse outcomes compared to other countries. In reality, it depends on which outcomes we’re looking at.

That’s Why It’s Called the ‘Practice of Medicine’

Another problem is the heterogenous practice patterns among providers. Healthcare is fraught with information asymmetry and provider-induced demand. Doctors know more about the diagnosis and interventions than the patient they are treating. Patients cannot reliably determine which services are costly or ineffective. Furthermore, providers have differing opinions on appropriate intervention strategies. Returning to our patient with knee arthritis, one provider may order x-rays and injections, another may order physical therapy, while another may refer the patient to an orthopedic surgeon.

Even when there are established clinical guidelines, it can take almost two decades before such guidelines become the standard of practice. If we don’t have standardized practice patterns, it becomes difficult to quality assure each patient and predictably achieve outcomes, ergo we cannot employ cost-cutting measures with a high degree of accuracy.

A Glimmer of Hope

To be fair, researchers have identified some specific areas of high cost and low value that we can target, such as diagnostic imaging for non-specific low back pain or antibiotic use for uncomplicated viral infections. There are also algorithms and decision-support tools that help providers avoid prescribing low-value services. However, adoption of suggested practices is not universal, and implementation of standardized recommendations is confounded with external factors in patient care such as individual patient preferences, availability of alternatives, insurance coverage, and social determinants of health.

Put simply, until we develop regular tracking of clinical outcomes and standardized practices tied to quality assurance programs, cuts in spending will only serve as a blunt instrument to solve a problem that requires surgical precision.

Paul Mostoff, PT, DPT, is a board-certified clinical specialist in orthopedic physical therapy. He currently serves as the director of physical therapy for the New York Hotel Trades and its network of health centers, and will complete his masters in health administration from Columbia University’s Mailman School of Public Health in May 2023.