Last year, the American Hospital Association convened a task force to examine the issue of variation in health care spending and develop recommendations. The task force, chaired by AHA President Richard Umbdenstock, studied the research, talked with experts and sought input of hospital members through the AHA governance process. Some of the key findings are:

Variation exists at all levels of the health care system.
Variation in health care spending and utilization not only occurs across geographic regions, but also within regions, within states and even across health care professionals within a single organization. The implication is that care must be taken to ensure that performance measures don't penalize good performers in poor performing areas and vice versa. To be fair and effective, performance incentives and measures must be provider-, not geographically based.

• Variation exists across multiple performance dimensions.
Spending is just one of the many dimensions of health system performance that vary. The Commonwealth Fund's state report card documents the high level of variation in access, use of prevention and treatment, cost, equity and health behavior. Additionally, measures of health status and behavior vary dramatically from region to region. The link between spending and these other performance dimensions is unclear, raising the possibility of unintended consequences if too much focus is on spending. This is why multi-stakeholder involvement is so important in addressing variation.

• Hospitals are not the only source of spending variation.
The AHA commissioned a study to examine variation across service types and care settings. High spending in an area did not necessarily imply high spending on hospital care. Often, levels of variation were higher in such settings or services as home health, ambulatory surgery centers and durable medical equipment. The Medicare Payment Advisory Commission's January 2011 report to Congress, "Regional Variation in Medicare Service Use," confirmed this finding. However, because hospitals represent the setting in which the greatest percentage of care dollars are spent—including physician and other professional fees—reducing variation in hospital care will be critical to reducing variation overall. And this only can be achieved by collaborating with physicians, who direct much of the care provided in hospitals.

• Many factors influence health care spending, some of which are beyond a provider's control.
A regression analysis of Medicare spending per beneficiary commissioned by the AHA found that the largest contributor to variation in spending is health status, but other factors also are significant. This is further complicated by interactions among the factors. For example, health behaviors and socioeconomic factors were found to be associated with health status. Once quantifiable factors are accounted for, about 55 percent of the variation remains unexplained. However, unexplained does not equate to inappropriate. Unexplained variation is that which cannot be statistically explained using quantifiable factors. What portion of unexplained variation is appropriate or inappropriate is unknown. Unexplained variation may be due to differences in practice patterns, patient preferences and other local factors. Sorting out the factors within and beyond a provider's control to make appropriate risk adjustments makes the development of performance measures based on spending levels challenging.

• Some degree of variation in medical practice will, and should, exist.
Not all variation is inappropriate. Protocols do not exist for every diagnosis, and patients tend to have multiple diagnoses that require tailoring those protocols that do exist. Innovation in care depends on testing new ways to care for patients. As policies to reduce variation are implemented, outcomes must be tracked carefully to guard against unintended consequences.

• Regional variation in service use is not the same as regional variation in spending.
In December 2009, MedPAC released an analysis of how the factors Medicare uses to adjust payment to account for wage differences, teaching intensity, care for low-income populations, and other special circumstances contribute to variation in Medicare spending. Adjusting spending data for these factors results in a measure that reflects service use and reduces the level of variation. While these policy adjustments deserve consideration in their own right, they should be evaluated separately from variation in service use.

• Regions that have high levels of spending are not always the regions with high spending growth.
Areas in the bottom quartile for spending can be in the top quartile for spending growth. Both the level and growth in spending are important to consider in addressing variation for the long term, especially in efforts to bend the cost curve.

• Financial incentives matter.
Changing financial incentives can influence provider behavior. On the one hand, physicians order more services when they have an ownership interest in an entity that will provide those services. On the other hand, capitation can result in the withholding of care. Experiences with payment models on either extreme illustrate the challenges of creating incentive systems that result in the right amount of care.

• Providers respond to data even without the use of financial incentives.
A collaborative effort between providers and Blue Cross Blue Shield of Michigan illustrates the power of data in changing physician behavior. This program involves consortia of providers using comparative performance reports to identify processes of care associated with optimal outcomes and using this information to guide improvement. Many other individual provider organizations and collaboratives have been successful using this approach. More money must be invested to develop and disseminate the data, tools and strategies that providers need to address variation successfully.

The link between quality and spending is disputed.
One area of continued controversy is the link between quality of care and spending. The Agency for Healthcare Research and Quality has compiled data that show that state spending levels and performance on AHRQ quality measures appear to be unrelated. On the other hand, a recent study by researchers at a consortium of California teaching hospitals that delves more deeply into the Dartmouth end-of-life research, found that when patients with similar characteristics were followed, the organization with the highest spending level had the lowest mortality level. More research is needed to explore this relationship further.

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Study finds MRSA screening saves hospitals money

Screening patients in the intensive care unit for methicillin-resistant Staphylococcus aureus produces cost savings for the whole hospital, according to a study that used a statistical simulation model. The findings were published in the February issue of the American Journal of Infection Control, the official publication of the Association for Professionals in Infection Control and Epidemiology.

Conducted by researchers at the Minneapolis Veterans Affairs Medical Center, a 279-bed teaching hospital and outpatient facility, the goal of the study was to determine the cost per hospital admission of screening ICU patients for MRSA and isolating patients who tested positive. Even under the most conservative assumptions, they found that screening would be cost-neutral if early detection of MRSA would lead to a reduced rate of infection and transmission within the hospital. Under optimal assumptions, screening could result in savings

The research was led by John A. Nyman, Ph.D., a health economist at the University of Minnesota School of Public Health. "This study presents evidence of the cost savings from implementing a program that targets the ICU population, but that has an effect that is hospitalwide," according to Nyman and colleagues. "Although we find that this program pays for itself through the MRSA infections prevented, it is important that hospitals also consider how this type of program fits into their overall institutional, infection-prevention programs and realize that this intervention is only one of many alternative interventions that are designed to prevent health care-associated infections."

The authors contend that this approach could complement other strategies to further reduce the incidence of MRSA infection.

MRSA is associated with approximately 19,000 deaths annually, according to the Centers for Disease Control and Prevention. A 2006 survey conducted by APIC showed that 46 of every 1,000 inpatients were either infected or colonized with MRSA, a rate eight times higher than previous estimates. The annual cost to treat MRSA in hospitalized patients is estimated at $3.2 billion to $4.2 billion.

Some policymakers have recommended universal screening to reduce health care-acquired MRSA infection. APIC has called for a more targeted, evidence-based approach that allows hospitals to tailor screening efforts based on their unique situations and recently published an updated Guide to the Elimination of MRSA Transmission in Hospital Settings, 2nd Edition, including a section on active surveillance testing.

"The findings from this research … are interesting, but also highlight the importance of application of these by infection preventionists, based on risk assessment at their affiliated facilities," said APIC President Russell Olmsted, MPH, CIC, epidemiologist in infection prevention and control services, St. Joseph Mercy Health System, Ann Arbor, Mich. "A broad focus that addresses prevention of all pathogens is critical. With the U.S. government's increased focus on preventing all HAIs, it will be even more important for facilities to make sure they are doing everything possible to reduce and ultimately eliminate these infections."

Full text of the article is available to journalists by contacting Liz Garman, APIC, 202-454-2604,

Old-fashioned weapons against MRSA may be best

Thorough hand washing may be the most cost-effective way to reduce the spread of methicillin-resistant Staphylococcus aureus in the emergency department and everywhere else. For patients who already have a MRSA infection, incision and drainage is a more effective treatment than ultrasound-guided needle aspiration, according to a new randomized, controlled trial. 

"MRSA is transmitted by touch, making clean hands essential to stopping the spread of this potentially deadly organism," said Kalpana Gupta, M.D., of the Boston Veterans Affairs Health Care System. "Ours is one of the first studies to test patients in the ER for MRSA regardless of their reason for being there. While the percentage of patients who tested positive for MRSA was only 5 percent, more than half of them carried MRSA in multiple sites on their bodies. It would be costly to make testing of all emergency patients for MRSA standard practice, but inexpensive to institute enhanced hand-washing precautions." 

Researchers screened 400 adult patients across gender, socioeconomic and racial lines. They took swabs from multiple sites on the body. Of those who tested positive for MRSA, 80 percent carried the organism somewhere other than the nose, such as the palms of the hand or the groin. 

Patients who tested positive for MRSA were more likely to have diabetes, be HIV positive, live in a nursing home or long-term care facility, have a recent hospitalization, have a recent incarceration in jail or play contact sports. However, 20 percent of the MRSA-positive subjects were otherwise healthy and had no known risk factors. Testing positive for MRSA does not necessarily mean that a patient has an active MRSA infection.

In a related paper, researchers tested ultrasound-guided needle aspiration against the standard practice of incision and drainage of skin abscesses, and found an overall success rate of 26 percent for the needle aspiration method versus 80 percent for the incision and drainage method. For patients with abscesses infected with MRSA, neither method was successful: the needle aspiration method was successful in only 8 percent of patients, and incision and drainage was successful in 61 percent of patients.

"We thought a less invasive method of treating abscesses would be preferable for both emergency physicians and patients," said lead study author Romolo Gaspari, M.D., Ph.D., of the Department of Emergency Medicine at the University of Massachusetts, Worcester.  "Even though it is more painful, we found instead that incision and drainage was required. Neither method was especially effective for treating MRSA-positive abscesses, but the failure rate for needle aspiration was unacceptably high, despite ultrasound guidance."

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Cancer costs projected to reach at least $158 billion in 2020

Based on growth and aging of the U.S. population, medical expenditures for cancer in 2020 are projected to reach at least $158 billion (in 2010 dollars), an increase of 27 percent over 2010, according to a National Institutes of Health analysis in the Jan. 12 issue of the Journal of the National Cancer Institute.

If newly developed tools for cancer diagnosis, treatment, and follow-up continue to be more expensive, medical expenditures for cancer could reach as high as $207 billion, said researchers at the National Cancer Institute, part of the NIH.

The projections were based on the most recent data available on cancer incidence, survival, and cost of care. In 2010, medical costs associated with cancer were projected to reach $127.6 billion, with the highest costs associated with breast cancer ($16.5 billion), followed by colorectal cancer ($14 billion), lymphoma ($12 billion), lung cancer ($12 billion) and prostate cancer ($12 billion).

However, the researchers also did analyses to account for changes in cancer incidence and survival rates and for the likelihood that cancer care costs will increase as new technologies and treatments are developed. Assuming a 2 percent annual increase in medical costs in the initial and final phases of care— which would mirror recent trends—the projected 2020 costs increased to $173 billion. Estimating a 5 percent annual increase in these costs raised the projection to $207 billion. These figures do not include other types of costs, such as lost productivity, which add to the overall financial burden of cancer.

"Rising health care costs pose a challenge for policymakers charged with allocating future resources on cancer research, treatment, and prevention," said study author Angela Mariotto, Ph.D., from NCI's surveillance research program. "Because it is difficult to anticipate future developments of cancer control technologies and their impact on the burden of cancer, we evaluated a variety of possible scenarios."

To project national cancer expenditures, the researchers combined cancer prevalence, which is the current number of people living with cancer, with average annual costs of care by age (younger than 65 or 65 and older). According to their prevalence estimates, there were 13.8 million cancer survivors alive in 2010, 58 percent of whom were 65 or older. If cancer incidence and survival rates remain stable, the number of cancer survivors in 2020 will increase by 31 percent, to about 18.1 million. Because of the aging U.S. population, the researchers expect the largest increase in cancer survivors over the next 10 years to be among Americans 65 and older.

To develop their cost projections, the authors used average medical costs for the different phases of cancer care: the first year after diagnosis, the last year of life, and the time in between. For all types of cancer, per-person costs of care were highest in the final year of life. Per-person costs associated with the first year after a cancer diagnosis were more varied, with cancers of the brain, pancreas, ovaries, esophagus and stomach having the highest initial costs and melanoma, prostate and breast cancers having the lowest initial-year costs.

These new projections are higher than previously published estimates of direct cancer expenditures, largely because the researchers used the most recent data available—including Medicare claims data through 2006, which include payments for newer, more expensive, targeted therapies that attack specific cancer cells and often have fewer side effects than other types of cancer treatments. In addition, by analyzing costs according to phase of care, which revealed the higher costs of care associated with the first year of treatment and last year of life (for those who die from their disease), the researchers were able to generate more precise estimates of the cost of care.

The researchers used 2005 incidence and mortality data from NCI's Surveillance, Epidemiology and End Results program to estimate cancer prevalence for 2010 and 2020. Population estimates were obtained from the U.S. Census Bureau's National Interim Projections for 2006 to 2020. Medical cost estimates were obtained using the SEER-Medicare database which links SEER data to Medicare claims data from the Center for Medicare & Medicaid Services.

More information about these cost projections is available at: <>

Changing delivery of care requires more time and money

An examination of provider efforts to improve patient care illustrates that changing care delivery requires substantial investments in both time and money—even among groups of providers affiliated with one another for many years, according to a new study conducted by the Center for Studying Health System Change for the nonpartisan, nonprofit National Institute for Health Care Reform.

Policymakers hope that the development of accountable care organizations—organized groups of physicians, hospitals or other providers jointly accountable for caring for a defined patient population—can improve health care quality and efficiency by changing how patient care is delivered. Although there is considerable interest in ACOs, there has been limited experience with arrangements, organizational structures and care delivery models similar to what ACOs might constitute.

The study focused on the care improvement activities of seven provider organizations: the Billings (Mont.) Clinic; the Carilion Clinic, Roanoke, Va.; Physician Health Partners, Denver; ProHealth Physicians, Farmington, Conn.; Sharp HealthCare, San Diego; UniNet, Omaha, Neb.; and Westshore Family Medicine/Mercy Health Partners, Muskegon, Mich. The study examined: activities that future ACOs likely will undertake to be successful, such as improved coordination of care for people with chronic conditions; the challenges confronted by the organizations; and the ways those challenges were addressed.

"Even for large, sophisticated provider organizations, changing care delivery is challenging and requires substantial financial and time investments," said Paul B. Ginsburg, Ph.D., HSC president and NIHCR research director, who coauthored the study with Timothy K. Lake, Ph.D., and Kate A. Stewart, Ph.D., both researchers at Mathematica Policy Research.

Based on telephone interviews with 34 people between March and May 2010 who either worked in or were affiliated with the seven organizations, the study's findings are detailed in a new NIHCR Research Brief, "Lessons from the Field: Making Accountable Care Organizations Real," available online.

While the activities studied are not unique to the seven organizations, the study showed that many of the changes pursued by these or other large provider organizations are unusual among the many small, independent physician practices that still provide a large portion of patient care in the United States.

All the organizations were engaged in multiple efforts to improve care coordination and quality of care—activities likely to be pursued by ACOs. The activities generally fell into two categories: interventions to improve care delivery; and investments in infrastructure or other organizational changes to encourage or facilitate care delivery improvements. And, the clinicians within the organizations studied generally have had long-standing affiliations with one another.

Even though each organization faced different challenges to care delivery and infrastructure improvements, some were nearly universal, including: financing new efforts; addressing staff concerns and productivity problems during implementation; and developing appropriate and sustainable infrastructure to support improvement efforts.

To overcome challenges, organizations typically developed multifaceted strategies, including use of physician leaders and more open lines of communication to engage and reassure staff, enhanced financial incentives, and infrastructure support.