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How to keep Medicare costs down? Help the sickest.

Most of the nation’s medical costs come from a small fraction of very sick patients, so one way to tamp down on health-care spending is to look at who’s racking up the biggest bills. In 2012, the top 5 percent of patients accounted for half of all health-care spending. Less than 3 percent of costs came from the bottom 50 percent, who remained relatively healthy.

The story is the same for Medicare. The Congressional Budget Office estimated that the top 5 percent of Medicare patients represented 43 percent of expenditures in 2001. On average, these patients cost the system $63,000 a year — while the median patient cost Medicare only $1,620.

For years, Medicare has looked for ways to save on high cost patients. First, who are they? When the CBO compared Medicare patients in the top 25 percent and the bottom 25 percent, there didn’t seem to be any big demographic differences. The high-cost and low-cost patients were about the same age, about as likely to be female or black.

Instead, a better predictor was the presence of chronic health problems, such as diabetes, lung disease, or congestive heart failure. High-cost patients were twice as likely to have a chronic condition, and four times as likely to have two or more.

Here, from an article in the Journal of the American Medical Association, is a litany of the challenges that patients with multiple chronic conditions face:

The high Medicare expenditures generated by these beneficiaries are driven primarily by hospital admissions and readmissions.2 Several factors appear to contribute to the high rate of hospitalizations. Chronically ill patients may have received inadequate counseling on diet, medication, and self-care, or may find it hard to adhere to such regimens,3– 9 leading to acute exacerbations of their conditions.10– 15 Patients may lack the knowledge to recognize early warning signs of decompensation or the skills to respond to such signs, or they may not have ready access to medical help other than the emergency department.13,16Physicians may be unaware of patients’ deficits in knowledge and skills, or of patients’ barriers to adherence.17– 19 Chronically ill patients often see multiple physicians (1 study20 found a median of 7 different physicians per year) who may be incompletely aware of each others’ care, prescribe incompatible or contraindicated treatments, or provide conflicting advice; often no one physician is responsible for a beneficiary’s care.20 Reimbursement under the current Medicare fee-for-service program for education and counseling, care coordination, and ongoing monitoring is limited. Finally, chronically ill beneficiaries often do not receive treatment that has been shown to be effective for their conditions.21– 23

Long before the Affordable Care Act passed, Medicare had been testing out ways to keep people with chronic conditions healthy — with an eye on reducing hospitalizations, which are the priciest parts of medical bills. Many of these programs experimented with care coordination, which is the common-sense notion that patients do better when someone is keeping an eye on them, and when they are not bounced around willy-nilly from specialist to specialist.

One set of Medicare demonstration projects assigned care managers to check in with patients, mostly over the phone. A care manager might make sure that a diabetic patient was eating the right foods, for instance, or check to see that doctor’s appointments weren’t missed. The results were mixed. Four of the 34 participating programs saw hospital visits decline by 15 percent or more. The majority saw hospitalization rates stay within plus-or-minus five percent.

Why did most of these programs see such tepid results? One theory is that the care managers were not involved enough. Programs that had care managers meet face to face with patients and doctors, instead of just making phone calls, tended to see more success.

A more recent innovation ushered in by the ACA was the Accountable Care Organization. My colleague Danielle Paquette wrote about one last month. An ACO is a network of doctors (and sometimes hospitals) that get together with care coordination in mind. The idea is that doctors should work more closely with each other — and more closely with patients — to prevent people from falling through the cracks. If, in doing so, the network of doctors saves Medicare money, the government will give them a cut of the savings.

The various types of ACOs that have sprung up now provide health care to around 5.6 million Americans with Medicare. In their first year, they have saved Medicare about $817 million — of which $445 was returned to the ACOs as their cut of the savings. Not all of the ACOs saved money though; in fact, more than half didn’t manage to cut costs for Medicare, which shows that we still have a lot to learn about making health care more efficient.

On Thursday, I wrote about another ACA demonstration project called Independence at Home, which  operates on a similar payment scheme, but on a much smaller scale and with much different patients. An ACO will cover 5,000 or more patients. The 17 house-call practices participating in Independence at Home each look after a couple hundred patients. And though only about 10,000 Medicare patients in total are part of the IAH demonstration, they represent some of the sickest and most vulnerable people in the system. They are homebound, meaning it is difficult for them to leave the house. They also have multiple chronic conditions that require careful followup.

It’s expensive to look after these patients, but it’s much more expensive not to look after them. That’s the theory, at least, and so far it’s largely been borne out in the research. (See Thursday’s story for more.)

Medicare itself has not yet issued its calculations on whether the house-call programs have saved money, but the first-year results should come out soon. The physicians are crossing their fingers.