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© 2014 Dow Jones & Company. All Rights Reserved. THE WALL STREET JOURNAL. Monday, February 24, 2014 | R1 JOURNAL REPORT IT’S A SIMPLE IDEA, but a radical one. Let people know in advance how much health care will cost them—and whether they can find a better deal somewhere else. With outrage growing over incom- prehensible medical bills and patients facing a higher share of the costs, mo- mentum is building for efforts to do just that. Price transparency, as it is known, is common in most industries but rare in health care, where “charges,” “prices,” “rates” and “pay- ments” all have different meanings and bear little relation to actual costs. Unlike other industries, prices for health care can vary dramatically de- pending on who’s paying. The list prices for hospital stays and doctor vis- its are often just opening bids that in- surers negotiate down. The deals insur- ers and providers strike are often proprietary, making comparisons diffi- cult. Even doctors are generally clue- less about what the tests, drugs and specialists they recommend will cost patients. Princeton economist Uwe Reinhardt likens using the U.S. health-care system to shopping in a department store blindfolded and months later being handed a statement that says, “Pay this amount.” The price-transparency movement aims to lift that veil of secrecy and em- power patients and other payers to be smarter health-care consumers. Federal and state agencies are gathering reams of price information from doctors and hospitals and posting them for the pub- lic. Health plans are offering online tools that let members calculate their out-of-pocket costs. Startup companies are ferreting out and publishing the long-secret rates that providers negoti- ate with insurers. When consumers can compare prices for doctor visits, hospital stays and other services, the theory goes, market competition will help keep them down. An Incentive to Change This is new territory for health care. Doctors and hospitals have rarely com- peted on cost. Third-party payers still foot the bulk of the bills, and many players in the health-care industry ben- efit from keeping their costs and profit margins murky. “The time for transparency has clearly arrived—but is everybody ready to have real pricing power brought to bear in a way that could destabilize the health-care sector?“ asks Susan Dentzer, a senior policy adviser at the Robert Wood Johnson Foundation. “It means upsetting a lot of apple carts.” The pressure to change is rising, however. Experts expect consumers to be much more price-sensitive as they shoulder a growing proportion of health costs themselves. Last year, 38% of Americans with employer-sponsored insurance had a deductible of $1,000 or more—up from 10% in 2006, according to the Kaiser Family Foundation. Silver and bronze plans created by the Affordable Care Act carry average family deductibles of $6,000 and $10,386, respectively. More than half of bronze plans also require patients to pay 30% of doctors’ fees, according to health-information site Health- Pocket.com. “Most of us still don’t have much financial incentive to shop around for cheaper care,” says Suzanne Delbanco, executive director of Catalyst for Payment Reform, a nonprofit that works on behalf of employers. “That’s changing rapidly.” Efforts to raise transparency are coming from a number of corners, in- cluding the Obama administration. But some have mainly shown how confus- ing health-care pricing is. Hoping to shine a light on the varia- tions in hospital charges, the Centers for Medicare and Medicaid Services, or CMS, grabbed headlines last May when it released a list of the average prices 3,300 U.S. hospitals charged Medicare for the 100 most common inpatient services during 2011. Huge Differences The variations were stunning. The average charge for joint-replacement surgery, for example, ranged from $5,300 in Ada, Okla., to $223,000 in Monterey Park, Calif. Even in the same city, there were huge swings. The charge for treating an episode of heart failure was $9,000 in one hospital in Jackson, Miss., and $51,000 in another. A month later, CMS released a sec- ond database comparing average hospi- tal charges for 30 common outpatient procedures, and the variations were just as great. A hospital in Pennington, N.J., charged $3,036 for a diagnostic and screening ultrasound, while one in Bronx, N.Y., billed just $88. Many hospital executives dismiss those list prices—also known as chargemaster prices—as meaningless and misleading, since few patients ever pay them. Commercial insurers often Please turn to the next page BY MELINDA BECK How to Bring the Price Of Health Care Into the Open There’s a major effort under way to make sure patients know what they’ll have to pay—before they make any decisions about treatment. Some people think it will make all the difference. Focus on the Back Office Hospital supplies are high-tech. The supply chain isn’t. R2 Where Hospitals Can Save How to find areas of possible waste R3 Solved: The Case of the Vanishing Drugs High-tech tools thwart theft by hospital employees R3 The Anatomy of a Hospital Bill An appendectomy ran nearly $30,000. Where did the money go? R4 The ACA vs. Health Costs Will the law curb spending? R4 A New Ending For terminally ill patients, palliative- care programs aim to both improve care and cut costs R5 How Health Outlays Got So High Hospital care tops spending charts R6 Emergency in the ER: Too Many Tests An emphasis on technology may speed things up, but at what cost? R6 A Simple Step to Reduce The Toll of Diabetes Foot checks reduce complications R6 INSIDE Follow The Experts An Online Conversation DETAILS, R2 Bloomberg News Getty Images *Sherman Oaks Hospital says it sets its list prices at the 75th percentile of prevailing charges of the geographic market. Cedars- Sinai says that it doesn’t use its list prices in negotiations with insurers and that it sig- nificantly discounts charges for low-income uninsured or under- insured patients. Source: Centers for Medicare and Medicaid Services Map: Google maps; Photos: The hospitals The Wall Street Journal All Over the Map Hospitals’ list prices for common procedures vary dramatically, even in the same area. Based on 2011 Medicare data, here are the average charges for four procedures at selected hospitals in greater Los Angeles. Hospitals say very few patients or insurers pay these list prices, which reflect many complex factors, but they oſten are starting points for negotiations. Sherman Oaks Hospital* 153 beds, affiliated with Prime Healthcare Services Brain hemorrhage $31,668 Heart failure and shock $39,795 Chest pain $13,133 Kidney failure $21,106 Cedars-Sinai Medical Center* 888 beds, nonprofit teaching hospital Brain hemorrhage $167,860 Heart failure and shock $125,036 Chest pain $43,715 Kidney failure $88,191 Los Angeles Community Hospital 130 beds, part of Prospect Medical Holdings Brain hemorrhage $60,176 Heart failure and shock $52,110 Chest pain $15,356 Kidney failure $21,864 Garfield Medical Center 210 beds, part of AHMC Healthcare Inc. Brain hemorrhage $178,435 Heart failure and shock $146,428 Chest pain $52,580 Kidney failure $77,719 LAC/Harbor-UCLA Medical Center 570 beds, teaching hospital, funded by Los Angeles County Brain hemorrhage $85,156 Heart failure and shock $57,735 Chest pain $15,835 Kidney failure $53,128 2 mi 5 km Most health plans now offer their members online tools that allow them to calculate their out-of-pocket costs. Ranked number one in the nation for cancer care, seven years in a row, by U.S. News & World Report. For more than 70 years, we’ve had one single mission. To learn how we’re Making Cancer History,® call 1-855-894-0145 or visit MakingCancerHistory.com. One goal: Cance r

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    2014 Dow Jones & Company. All Rights Reserved. THEWALL STREET JOURNAL. Monday, February 24, 2014 | R1

    JOURNAL REPORT

    ITS A SIMPLE IDEA, but a radical one.Let people know in advance how muchhealth care will cost themandwhether they can find a better dealsomewhere else.

    With outrage growing over incom-prehensible medical bills and patientsfacing a higher share of the costs, mo-mentum is building for efforts to dojust that. Price transparency, as it isknown, is common in most industriesbut rare in health care, wherecharges, prices, rates and pay-ments all have different meanings andbear little relation to actual costs.

    Unlike other industries, prices forhealth care can vary dramatically de-pending on whos paying. The listprices for hospital stays and doctor vis-its are often just opening bids that in-surers negotiate down. The deals insur-ers and providers strike are oftenproprietary, making comparisons diffi-cult. Even doctors are generally clue-less about what the tests, drugs andspecialists they recommend will costpatients.

    Princeton economist Uwe Reinhardtlikens using the U.S. health-care systemto shopping in a department storeblindfolded and months later beinghanded a statement that says, Pay thisamount.

    The price-transparency movementaims to lift that veil of secrecy and em-power patients and other payers to besmarter health-care consumers. Federaland state agencies are gathering reamsof price information from doctors andhospitals and posting them for the pub-lic. Health plans are offering onlinetools that let members calculate theirout-of-pocket costs. Startup companiesare ferreting out and publishing thelong-secret rates that providers negoti-ate with insurers.

    When consumers can compare pricesfor doctor visits, hospital stays andother services, the theory goes, marketcompetition will help keep them down.

    An Incentive to ChangeThis is new territory for health care.

    Doctors and hospitals have rarely com-peted on cost. Third-party payers stillfoot the bulk of the bills, and manyplayers in the health-care industry ben-efit from keeping their costs and profitmargins murky.

    The time for transparency hasclearly arrivedbut is everybody readyto have real pricing power brought tobear in a way that could destabilize thehealth-care sector? asks SusanDentzer, a senior policy adviser at theRobert Wood Johnson Foundation. Itmeans upsetting a lot of apple carts.

    The pressure to change is rising,however. Experts expect consumers tobe much more price-sensitive as theyshoulder a growing proportion ofhealth costs themselves. Last year, 38%of Americans with employer-sponsoredinsurance had a deductible of $1,000 or

    moreup from 10% in 2006, accordingto the Kaiser Family Foundation.

    Silver and bronze plans created bythe Affordable Care Act carry averagefamily deductibles of $6,000 and$10,386, respectively. More than half ofbronze plans also require patients topay 30% of doctors fees, according tohealth-information site Health-Pocket.com. Most of us still donthave much financial incentive to shoparound for cheaper care, says SuzanneDelbanco, executive director of Catalystfor Payment Reform, a nonprofit thatworks on behalf of employers. Thatschanging rapidly.

    Efforts to raise transparency arecoming from a number of corners, in-

    cluding the Obama administration. Butsome have mainly shown how confus-ing health-care pricing is.

    Hoping to shine a light on the varia-tions in hospital charges, the Centersfor Medicare and Medicaid Services, orCMS, grabbed headlines last May whenit released a list of the average prices3,300 U.S. hospitals charged Medicarefor the 100 most common inpatientservices during 2011.

    Huge DifferencesThe variations were stunning. The

    average charge for joint-replacementsurgery, for example, ranged from$5,300 in Ada, Okla., to $223,000 inMonterey Park, Calif. Even in the same

    city, there were huge swings. Thecharge for treating an episode of heartfailure was $9,000 in one hospital inJackson, Miss., and $51,000 in another.

    A month later, CMS released a sec-ond database comparing average hospi-tal charges for 30 common outpatientprocedures, and the variations werejust as great. A hospital in Pennington,N.J., charged $3,036 for a diagnosticand screening ultrasound, while one inBronx, N.Y., billed just $88.

    Many hospital executives dismissthose list pricesalso known aschargemaster pricesas meaninglessand misleading, since few patients everpay them. Commercial insurers often

    Pleaseturntothenextpage

    BY MELINDA BECK

    How to Bring the PriceOf Health Care Into the OpenTheres a major effort under way to make sure patients know what theyll have to paybefore they makeany decisions about treatment. Some people think it will make all the difference.

    Focus on the Back OfficeHospital supplies are high-tech.

    The supply chain isnt.R2

    Where Hospitals Can SaveHow to find areas of possible waste

    R3

    Solved: The Case of theVanishing Drugs

    High-tech tools thwart theft byhospital employees

    R3

    The Anatomy of a Hospital BillAn appendectomy ran nearly

    $30,000. Where did the money go?R4

    The ACA vs. Health CostsWill the law curb spending?

    R4

    A New EndingFor terminally ill patients, palliative-care programs aim to both improve

    care and cut costsR5

    How Health Outlays Got So HighHospital care tops spending charts

    R6

    Emergency in the ER:Too Many Tests

    An emphasis on technology mayspeed things up, but at what cost?

    R6

    A Simple Step to ReduceThe Toll of Diabetes

    Foot checks reduce complicationsR6

    INSIDE

    FollowThe ExpertsAn OnlineConversationDETAILS, R2

    Bloomberg

    New

    s

    Getty

    Images

    *Sherman Oaks Hospitalsays it sets its list pricesat the 75th percentile ofprevailing charges of thegeographic market. Cedars-Sinai says that it doesnt useits list prices in negotiationswith insurers and that it sig-nicantly discounts charges forlow-income uninsured or under-insured patients.

    Source: Centers for Medicare and Medicaid Services

    Map: Google maps; Photos: The hospitals

    The Wall Street Journal

    All Over the MapHospitals list prices for common procedures vary dramatically, even in the same area. Based on 2011 Medicare data,here are the average charges for four procedures at selected hospitals in greater Los Angeles. Hospitals say very few patientsor insurers pay these list prices, which reect many complex factors, but they often are starting points for negotiations.

    Sherman Oaks Hospital*153 beds, affiliated with PrimeHealthcare Services

    Brain hemorrhage $31,668

    Heart failure and shock $39,795

    Chest pain $13,133

    Kidney failure $21,106

    Cedars-Sinai Medical Center*888 beds, nonprot teaching hospital

    Brain hemorrhage $167,860

    Heart failure and shock $125,036

    Chest pain $43,715

    Kidney failure $88,191 Los Angeles Community Hospital130 beds, part of Prospect MedicalHoldings

    Brain hemorrhage $60,176

    Heart failure and shock $52,110

    Chest pain $15,356

    Kidney failure $21,864

    Gareld Medical Center210 beds, part of AHMC Healthcare Inc.

    Brain hemorrhage $178,435

    Heart failure and shock $146,428

    Chest pain $52,580

    Kidney failure $77,719

    LAC/Harbor-UCLA Medical Center570 beds, teaching hospital, funded byLos Angeles County

    Brain hemorrhage $85,156

    Heart failure and shock $57,735

    Chest pain $15,835

    Kidney failure $53,128

    2 mi5 km

    Most health plans nowoffer their membersonline tools that allowthem to calculate theirout-of-pocket costs.

    Ranked number one in the nationfor cancer care, seven years in a row,by U.S. News &World Report.

    For more than 70 years, weve had one single mission.To learn how wereMaking Cancer History, call1-855-894-0145 or visit MakingCancerHistory.com.

    One goal: Cancer

    CM Y K CompositeComposite

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    arthsSticky NoteAccepted set by arths

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  • YELLOW

    R2 | Monday, February 24, 2014 THEWALL STREET JOURNAL.

    Follow The Experts >>This Journal Report doesnt stop here. As part of an expanded Web presencefor the Journal Reports, we offer The Expertsan exclusive group of industry andthought leaders who engage in in-depth online discussions of topics raised in thisand all Reports. See what they have to say about how to pick a primary-care doc-tor, reducing end-of-life health-care costs and more, at WSJ.com/HealthReport.

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    use them as a starting point fornegotiating big discounts. Medi-care itself pays hospitals prede-termined rates based on diagno-ses, regardless of what theycharge.

    Industry experts say listprices vary so much in part be-cause hospitals use different ac-counting methods and have dif-ferent patient populations. Listprices also reflect all the costs ofrunning a hospital, includingkeeping ERs, burn units andother costly services running 24

    hours a day. Whats more, manyhospital executives say they haveto mark up charges for privatelyinsured patients because Medi-care and Medicaid reimburse-ments dont cover those pa-tients costa shortfall theAmerican Hospital Associationputs at $46 billion nationwidelast year.

    Hospitals are absolutely infavor of price transparency, saysAHA president Rich Umbden-stock, and they support a bill inCongress that would let individ-ual states determine price-disclo-sure rules. He also says hospitalswould like to end the confusingchargemaster and cost-shiftingpractices, but they cant do itwithout big changes in paymentpractices by both the govern-ment and the insurance industry.

    If this were in our power tosolve, we would have done it along time ago, Mr. Umbden-stock says. But its not some-thing we can do on our own.

    Shining a LightJonathan Blum, deputy ad-

    ministrator of the CMS, countersthat chargemaster prices domatter, particularly to uninsuredpatients who sometimes getstuck with those inflated bills.He says the administrations goalwas to spark discussion aboutprice variations, and that a tre-mendous number of visitorshad downloaded the data.

    Weve discovered that often-times, even health-care provid-ers dont fully realize the extent

    Continuedfromthepriorpage of those variations, he says.Our hypothesis is that a lot ofthe variations arent warranted.

    The prices insurers negotiatewith hospitals and doctors aremore important to consumers,experts say. Traditionally, thoserates have been proprietary. Nei-ther insurers nor providers wantcompetitors and other businesspartners to know what theyrewilling to settle for. Some con-tracts include gag clauses bar-ring disclosure.

    But states are increasingly re-quiring payers and providers to

    reveal that information. A fewstates specifically outlaw gagclauses in health-care contracts.Sixteen states have all-payerclaims databases designed tocollect insurance claims dataand use it to monitor trends andidentify high- and low-price pro-viders. And some 38 states nowrequire hospitals to report atleast some pricing information,although only twoMassachu-setts and New Hampshireratedan A in Catalyst for PaymentReforms annual report card formaking the information accessi-ble and usable by patients.

    Meanwhile, entrepreneurs aresleuthing out negotiated ratesfrom claims data and makingthem available to consumers andemployers in various forms.Healthcare Bluebook aims to dofor health care what the KelleyBlue Book does for used cars: Itanalyzes negotiated rates paidfor thousands of medical serv-ices in every ZIP Codesuppliedby employers and other clientsand posts what it considers afair price for each so consum-ers can evaluate what theyrebeing charged.

    Bluebooks founder and CEO,Jeffrey Rice, says the rates in-surers pay for, say, an MRI orknee surgery can vary as muchas chargemaster prices do, par-ticularly if a local hospital isdominant or prestigious.

    The difference may not bemuch between Nashville andChicagothe big difference maybe just down the block, he says.

    Mr. Rice says the employersHealthcare Bluebook works withhave saved as much as 12% ontheir health-care costs by mak-ing price information availableto their employees, with mostsavings coming on imaging stud-ies, endoscopies, cardiac testingand other outpatient procedures.

    Another service, Pric-ingHealthcare.com, asks usersto anonymously supply informa-tion from their own medical billsto help it amass the list prices,cash prices and negotiated ratesfor common procedures. It cur-

    rently shows rates for some 500procedures in 11 states. FounderRandy Cox says some providersare furious when asked whattheir rates are, while others areeager to have their entire pricelist posted. I get calls from hos-pital CEOs who know people areconcerned about price and thinkthis is an opportunity for theirbusiness, he says.

    A Hand From InsurersOne of the most widespread

    initiatives comes from insurersthemselveswho say they areeager to help plan members andemployers cut their health-carebills. Some 98% of health plansnow offer their members someonline tool that lets them calcu-late their out-of-pocket costs,according to a survey by Cata-lyst for Payment Reform. A fewlet users compare different pro-viders in the same network.

    UnitedHealth Group Inc. hasone of the most extensive tools.More than 21 million memberscan log into myHealthcare CostEstimator and compare the ne-gotiated rates for more than 500individual services at in-networkproviders across the country, aswell as their individual out-of-pocket costs for each one. Hun-dreds of thousands of plan mem-bers have used the tool since itlaunched in 2012, the companysays.

    Nationwide, only about 2% ofhealth-plan members who haveaccess to such tools have usedthem, according to Catalyst for

    Payment Reform. But Ms. Del-banco expects that number torise as more patients becomeaware of the tools and see theirout-of-pocket costs growing.

    Proponents say it is too earlyto tell how much impact trans-parency efforts will have oncosts overall. California has re-quired hospitals to make theirchargemaster prices public since2003, with little effect on prices.

    But one approach called ref-erence pricing has yielded somesavings. Where local prices differsubstantially for a service like acolonoscopy, an insurer pub-lishes a list of providers ratesand agrees to pay a set amount.If patients choose a providerthat charges more, they mustpay the difference themselves.

    In one pilot project, the Cali-fornia Public Employees Retire-ment System, found prices forhip and knee replacements rang-ing from $15,000 to $110,000 inthe San Francisco area. It agreedto pay up to $30,000, and some40 hospitals cut their prices tomatch. Such initiatives havehelped Calpers save nearly $3million in the past two years,one study found.

    What Comes Next?Experts say that as consumers

    increasingly compare prices, itscritical to provide them with in-formation about quality of careas wellotherwise, they mightassume high cost equates withhigh quality.

    A growing body of researchhas found that there is no clearconnection between price andoutcomes such as mortalityrates, blood clots, bed sores andhospital readmission. Until youbreak that connection in peo-ples minds, there is a perverseincentive for hospitals andhealth systems to continue toraise prices, Ms. Dentzer says.

    Indeed, critics fear that someprice-transparency efforts couldbackfire and spur higher prices:If providers see that insurers arepaying competitors more, theymight hold out for higher rates,and insurers might be less in-clined to give some providers fa-vorable deals.

    Some skeptics think thatwithout fundamental changes inhow health care is priced andpaid for, transparency may con-fuse consumers more than it em-powers them.

    But theres a growing consen-sus that while price transpar-ency alone cannot transform thehealth-care system, it is neces-sary to help reveal which costsare excessive and let consumersmake better-informed choices.

    At the end of the day, its ourmoney, Ms. Delbanco says. Wehave a right to know what ourhealth care is going to cost.

    Ms. Beck covers health careand writes The Wall StreetJournals Health Journal col-umn. She can be reached [email protected].

    ANewEra forHealth-CarePrices

    JOURNAL REPORT | HEALTH CARE

    *Neither Oakwood nor insurers would disclose negotiated rates. The Wall Street Journal

    One Test, Many PricesWhat does an MRI cost? It depends on whos paying.Heres the range of prices for an MRI of the knee, hipor ankle, without contrast, at Oakwood HealthcareSystem in Dearborn, Mich., as collected byPricingHealthcare.com.*

    Sorting Them OutHealthcare Bluebook gathered information on pricesthat insurers and patients actually paid for 37colonoscopies in the Nashville, Tenn., market, includingthe cases below. From that data, the Bluebook arrivedat a fair price for the area of $1,588.

    List or chargemaster price $2,844

    Cash price $695

    UnitedHealthcare negotiated price $1,990

    Blue Cross negotiated price $617

    Aetna negotiated price $520

    Cigna negotiated price $341-$362

    Medicare rate $3350

    500

    1,000

    1,500

    2,000

    2,500

    3,000

    3,500

    4,000

    4,500

    $5,000

    Professional

    Facility

    Fair price$1,588

    Most doctors and hospitals have only a vague idea what itcosts them to deliver care, experts say. Prices are generallybased on what payers will pay, with little relation to cost.

    Several leading health systems aim to replace that chaoticpricing system with one based on the true cost of deliveringcare. Armed with that information, they believe they can reducehealth-care costs from the inside, by identifying inefficiencies,rather than accepting arbitrary payment cuts.

    The philosophy is: If you can measure it, you can manage it.

    Step by StepM.D. Anderson Cancer Center, the Cleveland Clinic, the

    Mayo Clinic and other top hospitals have embraced a process,advanced by two Harvard Business School professors, calledtime-driven activity-based costing. TDABC involves mapping outevery step involved in delivering a medical service, from a simpleblood draw to a complex surgery. Researchers determine whatpersonnel and equipment are needed, what their costs are perminute and how many minutes are involved. They tally the costsfor all the steps, allocate a share of overhead expenses and addin a profit margin to determine the true cost.

    None of this is rocket science. It isnt even calculusits reg-ular math, says Thomas W. Feeley, an anesthesiologist whoused TDABC measure the cost of treating head-and-neck cancerpatients at M.D. Anderson from 2009 to 2011.

    He and his colleagues identified and calculated the cost ofdelivering 160 different services patients might receive duringthe course of their treatment, usually about a year. The resultswere eye-opening, says Dr. Feeley, who heads M.D. AndersonsInstitute for Cancer Care Innovation.

    For one thing, a patients first visit cost M.D. Anderson signif-icantly more than it charged patients, due to the extended dis-cussions and testing involved. Another revelation was that somehospital staffers were performing tasks that could be done byothers for much less.

    By reducing such inefficien-cies in one area of care, thepreoperative anesthesia center,M.D. Anderson was able totrim the centers staff by 17%,increase the number of pa-tients assessed by 19% andlower cost by 46% withoutchanging the quality of care.

    M.D. Anderson plans to usethe same process to assessthe cost of every kind of can-cer care it delivers. But it isnot yet prepared to disclosethose dollar amountsor to

    use them to change billing procedures. We have to make thistransition very carefully, he says.

    One Size Doesnt Fit AllIndeed, integrating that approach into the current health-care

    payment system with all its price negotiation and cost shiftingwont be easy. Critics argue that hospital overhead costs are toocomplex to allocate accurately and that patients are too varied intheir needs to fit neatly into standardized units of time and care.

    Michael E. Porter and Robert S. Kaplan, the Harvard profes-sors who pioneered using TDABC in health care, say that ideallyprices should be based on the value for patientsnot the vol-ume of services provided. Value should be measured by dividingthe real cost by outcomes over an extended cycle of care.

    Under such a system, a primary-care physician might bepaid $10,000 a year to manage a diabetes patientand preventa $100,000 emergency-room visit, says Mr. Kaplan.

    This is a big leap for the field, says Mr. Porter. Weve beenflying without instruments and rewarding the pilot for crashing.

    A growing array of health systems are experimenting withvalue-based methods in pilot projects. Profs. Porter and Kaplansteam at the Harvard Business School have used TDABC to eval-uate the cost of repairing cleft lips and palates at ChildrensHospital in Boston, torn rotator cuffs at Brigham and WomensHospital in Boston and heart problems at the Mayo Clinic. Theteam is also working with the Cleveland Clinic to measure effi-ciency and outcomes in a variety of programs and is studyinghip and knee replacement costs at 30 sites around the country.

    For now, such projects arent practical for many hospitals.Cost-accounting systems are exceedingly complex and expen-sive for hospitals to perform, says Rich Umbdenstock, presidentof the American Hospital Association. But eventually thats theonly way youll be able to price things on a realistic basis.

    Melinda Beck

    In Search of aTrueCost

    U.S. HOSPITALS spend tens ofbillions of dollars annually onhigh-tech surgical implants. Butthe supply chain for the devicesis anything but high-tech. Andthat drives up costs both for hos-pitals and implant makers.

    Now, some hospitals and med-ical-device companies are team-ing up to modernize and auto-mate the supply chain. Theyreaiming to bring down costs un-der pressure from Medicare andprivate insurerspressure that isexpected to intensify with thecontinuing implementation of thefederal governments health-in-surance overhaul this year.

    Johnson & Johnson andMedtronic Inc., the two largestU.S. makers of implantable medi-cal devices, are among the com-panies collaborating in a pilotprogram with four hospitals touse an experimental softwaresystem developed by Global

    Healthcare Exchange LLC forthe ordering of implants.

    Stickers and FaxesOne problem with the tradi-

    tional ordering system is thatmuch of it is manual. For in-stance, in many cases, operating-room nurses peel bar-code stick-ers from empty product boxesduring surgeries, paste the stick-ers onto a clipboard and latertype the information into an or-der form that wends its waythrough the hospitals adminis-trative channels. Suppliers alsodo much of the paperwork fororders manually, and complica-tions often arise when someoneon either side of the transactionincorrectly records a productcode. The transmission of ordersand bills is often done by fax.

    Hospitals dont appreciatethe cost of these back-office op-erations, and device makers ha-vent had to think about it be-cause their profit margins havebeen so great, says Steven

    Chyung, vice president at Sistersof Charity Leavenworth HealthSystem Inc., a nonprofit based inDenver that is using the newsoftware. But, now, he says,were all in a declining reim-bursement situation.

    The software lets operating-room nurses or other hospitalpersonnel electronically scan thebar codes of surgical implants togenerate a purchase order andinvoice automatically.

    Order ControlGlobal Healthcare Exchange,

    the Louisville, Colo., companythat developed the software,plans to make it widely availablein the second half of this year, ata starting price of $40,000 annu-ally for device makers and about$1,000 for hospitals, says GHXschief commercial officer, DerekSmith.

    GHX, which was acquired byprivate-equity firm ThomaBravo LLC on Feb. 5 for an un-disclosed sum, says the software

    can help hospitals cut costs notonly by reducing paperwork butalso by giving administratorsgreater control over which im-plants are ordered.

    Hospitals increasingly negoti-ate price discounts by contract-ing with two or three suppliersfor particular types of products,like hip implants, instead of five

    or six. But doctors dont alwaysuse the discounted implants,says SCL Healths Mr. Chyung.The nature of the supply chaintoday is these reps today openup their trunk, bring in the de-vices to the doctor, and thatswhat gets implanted, he says.

    By automatically recordingthe devices used in surgery, the

    GHX software makes it easier forhospital staff to flag the use ofdevices that arent on the list ofcontractually discounted prod-ucts, Mr. Chyung says.

    Mr. Walker is a Wall StreetJournal staff reporter in NewYork. He can be reached [email protected].

    Focus on theBackOfficeHospital supplies are high tech. The supply chain isnt.

    BY JOSEPH WALKER

    Sources: Evaluate Medtech (chart); FactSet Research Systems Inc. (average gross margin);McKinsey (supply-chain costs); Health Affairs (doctors estimates) The Wall Street Journal

    Parts SuppliersAnnual spending world-wide on medical devices

    010090807062005 11 12 13 14 15 16 17 18

    50

    100

    150

    200

    250

    300

    350

    400

    450

    $500 billion 69%Average gross prot margin offour largest device makers

    40%Percentage of medical-device

    spending that goes tosupply-chain costs

    21%Doctors who correctly estimated

    price of orthopedic implant

    Note: Average gross prot margin is for Medtronic,Stryker, Boston Scientic and St. Jude Medical intheir most recently completed quarters. Grossmargin is gross income divided by net sales orrevenue.

    46%Cost savings in onearea of care at M.D.Anderson CancerCenter after doctorsstudied each step.

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  • YELLOW

    THEWALL STREET JOURNAL. Monday, February 24, 2014 | R3

    JOURNAL REPORT | HEALTH CARE

    HOSPITALS HAVE a drug prob-lem. And theyre looking to tech-nology to solve it.

    The problem is the way medi-cations are being handledandmishandledby the hospitalpharmacies and out on thewards. Inventory management isinefficient, drugs are too oftenmisplaced, and narcotic medica-tions are prone to theft.

    So hospitals are turning tohigh-tech solutions. In additionto password-protected dispens-ing machines, radio-frequencyidentification tags and roamingrobots to deliver prescriptionssecurely to units, hospitals areadopting software that tracks

    every dose of medication toidentify suspicious activity. Evenolder pneumatic-tube systemsused to zip drugs around hospi-tals are being retrofitted withcanisters that can only be un-locked when the intended recipi-ent swipes a badge and enters aPIN at the receiving station.

    The new systems help stream-line operations and free pharma-cists from the constant need totrack down errant medicationdoses and sometimes to redis-pense the drugs. By making iteasier for nurses to track medi-cines as well, the changes givenurses more time to spend withpatients. Mercy Hospital in St.Louis, for example, estimatesthat a medication-tracking sys-tem developed by Aethon Inc.sMedEx unit can save the hospital$600,000 a year just in time lostfrom pharmacists, techniciansand nurses locating lost meds.

    Robots DeliverThe cost of such systems var-

    ies. Aethon Chief Executive AldoZini says the MedEx trackingsystem costs about $1,000 amonth but can cost more de-pending on use and the type ofdeliveries being tracked. Thecompanys Tug robots, whichnavigate their way around hospi-tals to deliver medications andother supplies, are leased for$1,500 to $2,000 a month.

    Pharmacy chiefs say the newsystems also help improve pa-tient safety by helping to iden-tify staffers who are siphoningdrugs for their own use, a prob-lem known as diversion. Bysome estimates, 15% of health-care professionals may be ad-dicted to prescription drugs atsome point in their career. Drugsmay also be stolen by patientsand visitors. Secure dispensingsystems and tracking programsmake it easier to meet increas-ingly strict federal regulationsfor documenting chain of cus-tody for controlled substances.

    Although there are no precisefigures for drug diversion fromhospitals, industry experts saydrug-inventory losses cost hos-pitals millions of dollars a year.

    The most commonly diverteddrugs are narcotic painkillerssuch as hydrocodone and mor-phine and the sedative fentanyl.In Minnesota, there were 250 re-ports to the Drug EnforcementAdministration concerning theftor loss of controlled substancesfrom 2005 to 2011. Reports grewto 52 in 2010 from 16 in 2006.

    A 2011 study in the AmericanJournal of Health-System Phar-macy noted that widespreadadoption of automated dispens-ing machines has greatly im-proved the security of controlledsubstances and made it possibleto electronically document thedispensing of doses and the dis-posal of unused medications andexpired medications.

    Catching AbusersKim New, a compliance spe-

    cialist in charge of controlled-substance surveillance at theUniversity of Tennessee MedicalCenter, says her programcatches about one staffer amonth diverting drugs. She re-lies on medication-surveillancereports prepared with softwarefrom Pandora Analytics, a unit ofOmnicell Inc., which also makessecure medication cabinets andother medication-dispensing andinventory-management systems.Pandora extracts data from med-ication-dispensing systems andpresents it on a dashboard-style

    report.When I sit down and go over

    the medication-surveillance re-ports, I am looking for patternsof suspicious transactions, Ms.New says.

    For example, drugs now comein single-use vials, and if a pa-tient is administered a smallerdose than what is in the vial,hospital staff are required toproperly dispose of the rest, orwaste it, following a protocolthat includes a signature from awitness. In one case, Ms. Newsays, a nurse was waiting untilthe end of her shift, then dispos-ing of multiple syringes at atime without following proce-dures. The nurse was warned,but the Pandora surveillance re-ports indicated that she starteddoing it again. Further investiga-tion discovered that she was col-lecting leftover medication andinjecting it in the parking lot be-fore driving home, says Mr. New.

    This was also a communitysafety issue, she says.

    Joseph Adkins, a clinicalpharmacist at Springhill MedicalCenter, in Mobile, Ala., says us-ing Pandora is much faster thanporing through spreadsheets toexamine medication data. His fa-cility conducted five investiga-tions of suspicious activity inthe first six months of using thesoftware, and in three of thosecases found diversion was takingplace. Audits of the records ofone nurse showed she was ac-cessing an automated-medica-tion cabinet when the unit wasclosed.

    If I am a patient, I dontwant a nurse who is potentiallytaking narcotics taking care ofme, and as a pharmacist I dontwant that person working in myhospital, Mr. Adkins says.

    Eyes on InventoryThe software systems also al-

    low Springhill to better manageinventory, for instance, by notstocking medications that arenever used, or by keeping justenough of expensive drugs onhand to meet needs. We wantto keep enough so the nursesdont run out, but not so muchthat we end up with the drugsexpiring, Mr. Adkins says.

    At the University of MarylandMedical Center, Aethons Tugmobile robots deliver certainmedications to nursing units.Pharmacy staffers print a label,scan and place the medication inone of the robots locked draw-ers, and then enter a destinationinto a software program thatcommunicates wirelessly withthe robot. The robot then navi-gates its way to the right unit,where a nurse uses a passcodeand fingerprint scanner to re-trieve the medication.

    The centers chief medical of-ficer, Jonathan Gottlieb, says thesystem is part of a drive to re-design the whole medication ad-ministration workflow, minimizedefects, maximize safety and re-duce costs. Delivery reliabilityhow often the drugs arrive at

    the unit as promisedhas in-creased by 23%, and deliverypredictabilityhow often theyget there within the time prom-isedhas risen by 50%. The per-trip cost with a robot averages$2.40, down from $5.50 for hand

    delivery, hospital data shows,and in its first year the systemfreed up 6,123 hours that nursespreviously spent tracking or re-trieving medications.

    Dr. Gottlieb says the robots,with names like Walter, Eddie

    and Gladys, go out several timesa day. As they make their wayaround the hospital, visitors andstaffers who arent familiar withthem are often surprised, hesays. Jaws drop when they seethem in the elevator.

    Solved: The Case of theVanishingDrugsHigh-tech tools help hospital pharmacies manage inventories and thwart employee drug theft

    BY LAURA LANDRO

    University of Maryland Medical Center nurses use passcodes and finger-print scanners to take delivery of drugs from Aethons Tug mobile robots.

    Aethon

    AMERICAS HOSPITALS need togo on a diet.

    Hundreds of billions of dollarsare wasted in our health-caresystem each year. In 2009 alone,$750 billion was spent in theU.S. on unnecessary health serv-ices, according to a 2012 reportfrom the Institute of Medicine.

    Now, a waste index devel-oped for hospitals is giving themthe information they need toeliminate waste without compro-mising care.

    The waste index was devel-oped by Premier Inc., a purchas-ing alliance among hospitals thatconducts quality-improvementprograms for its members. Theindex was created to calculatethe average savings that couldbe generated each year by a typ-ical 200- to 300-bed hospital ineach of 15 efficiency measures,including labor productivity,overuse of blood transfusionsand unnecessary lab tests.

    From respiratory therapy toradiology, providers are lookingfor savings big and small. Theyare switching to less-costlydrugs, eliminating unnecessarycare and paring staff. At fourAdventist Midwest Health hospi-tals, for instance, patients withasthma and other respiratoryconditions were often treatedwith prepackaged metered-doseinhalers. By switching some toequivalent generic drugs deliv-ered via a nebulizer that turnsmedications into a fine mist for

    inhalation, Adventist shaved$100,000 in costs last year.

    Looking for StandardsThere has been no standard

    framework to identify, measureand then eliminate waste inhealth care, says Susan DeVore,Premiers chief executive. Wecan show exactly where theremay be inefficiencies, and thedollars that can be saved whilemaintaining quality. Hospitalsand doctors are facing dramati-cally reduced reimbursements,she adds, and reclaiming thesefunds is essential to ensure fi-nancial success.

    Since 2011, Premier says hos-pitals have used the index toidentify where they can cutwaste, and have taken steps todo so, resulting in average sav-ings of $1.1 million in improvedlabor productivity, $869,784 inreduced readmissions, $613,632in reduced use of lab testing,and $147,018 in avoided surgical-safety events. Some of the gainshave been offset, however, byaverage cost increases in otherareas of focus for the waste in-dex, including $435,338 in lengthof hospital stays, $211,768 inovertime pay, $198,230 in theuse of intensive-care units and$24,227 in respiratory therapies.

    Premier says some of the in-creases may be due to unavoid-able factors, such as increasedovertime costs due to staffingreductions in an economic down-turn. But often the increases areindicators that specific hospitalshave to further explore why

    their costs are higher in certainareas, according to Ms. DeVore.

    Premiers efficiency reportsand index dont cost hospitalsanything, and non-Premier hos-pitals can use them to help eval-uate their own performance.Premier gets revenue from pro-grams through which memberhospitals submit data andthrough advisory services forimprovement opportunities.

    Ekta Punwani, a vice presi-dent for performance enhance-ment at Adventist Midwest, partof Adventist Health System,based in Altamonte Springs, Fla.,says the index and related ana-lytic tools provide us with ahigh-level view of where we po-tentially have cost-savings op-portunity, and enable her to fo-cus on the top conditions andprocedures where the costs aresignificantly higher than the re-

    imbursement.

    Comparing CostsBenchmarks provided by Pre-

    mier allow Adventist to betterunderstand how it compareswith other hospitals in treatingcertain kinds of patients, such asthose with the infection sepsis.Adventist also provides reportsto its individual physicians sothey can see how their use of re-sources compares with that ofpeers around the country.

    Cutting costs is what we allhave to do in health care, but wewant to do it right, and not justslash and burn, Ms. Punwanisays. Including the savings fromthe switch to nebulizers, Adven-tist Midwest saved $300,000 lastyear. For example, it switched tooral versions of the painkillerand fever-reducer acetamino-phen (best known as Tylenol)

    from an intravenous medicationseveral times more costly. Ad-ventist also opted not to add along-acting anesthetic that is in-jected during surgery to preventpostoperative pain but is moreexpensive than alternatives.

    Ms. Punwani emphasizes thatcosts arent always the decidingfactor. While Adventist continu-ally evaluates ways to trim anti-biotic costs, for example, if adoctor decides a more expensiveantibiotic is the best treatmentfor a patients infection, the pa-tient will absolutely get it.

    Ken Turner, vice president ofoperational effectiveness at Uni-versity Hospitals, a Cleveland-

    based health system with 14medical centers, says the wasteindex helped his team lower la-bor costs. Using predictive ana-lytics, he says, University Hos-pitals calculates staffing needsbased on numbers of patients indifferent units tied to variationssuch as flu season. The hospitalmaintains a core staff and drawsfrom a part-time staffing pool asneed fluctuates. Over the pasttwo years, Mr. Turner says, thesystem was able to cut $135 mil-lion in labor costs.

    New protocols remind doctorsto follow guidelines, such as notordering blood before a surgeryjust on the chance that a trans-fusion might be necessary. Theblood often is discarded. And if atransfusion is needed, surgeonscan order blood quickly. Premierestimates the average hospitalcould save $280,000 a year byreducing blood overuse.

    University Hospitals has alsosaved $4.6 million by makingchanges including a switch togeneric drugs, and having phar-macists work with doctors to en-sure that patients are not kepton expensive drugs longer thannecessary.

    Waste reports can identifyall of these opportunities to im-prove care and lower costs, Mr.Turner says, and then we drilldown.

    Ms. Landro is a Wall StreetJournal assistant managingeditor and writes the InformedPatient column. Email her [email protected].

    WasteNot BecomesEasier forHospitalsA new index allows them to target areas where their costs appear to be out of whack

    BY LAURA LANDRO

    Source: Premier Inc. The Wall Street Journal

    Where to SaveThe average hospital could cutmillions of dollars in annual costs byreducing unnecessary tests and pre-ventable readmissions and deploy-ing its employees more efciently.Here are leading areas of potentialsavings, in millions, identied byPremier Inc., a hospital alliance:

    Labor productivity $5.1

    Length of stay $3.1

    Readmissions $3.0

    Employee skill mix $1.8

    Use of overtime $1.8

    Laboratory tests $1.7

    Respiratory therapies $1.5

    Diagnostic imaging tests $1.4

    Unnecessary lab tests cost an average hospital $1.7 million a year.

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    R4 | Monday, February 24, 2014 THEWALL STREET JOURNAL.

    THE 2010 Affordable Care Actincludes more than a dozen pro-visions aimed at bringing downcosts in government health pro-grams and private insurance.

    Some of those provisions al-ready have kicked in; otherswont take effect for a few moreyears.

    Heres a look at some of theways the legislations cost-cut-ting initiatives already have af-fected health-care pricing, andsome of what still lies ahead.

    Whats already begun?About 360 health systems

    have signed on as accountablecare organizations, a treatmentmodel created by the AffordableCare Act.

    In accountable care organiza-tions, hospitals or groups of doc-tors agree to provide care for aparticular group of Medicare pa-tients and to be paid, at least inpart, on how well they do atkeeping them healthy and lower-ing the costs of care. If they re-duce Medicare outlays by a cer-tain amount or more, they get tokeep a portion of the savings.

    Fewer ACOs have been cre-ated than had been expected atthis point, but they do cover atotal of around five millionMedicare patients. The resultsfor the first full year of the pro-gram: Nearly half of the 114 pro-vider groups that began ACOs in2012 managed to slow Medicarespending in their first year, butonly 29 of them saved enoughmoney to qualify for bonus pay-ments, the federal governmenthas reported.

    Meanwhile, hospitals havebeen assessed on several qualitymeasures, including readmis-sions and patient satisfaction,

    since Oct. 1, 2012, and billions ofdollars in reimbursements fromthe federal government are tiedto how well they do. Those pro-grams are still phasing in,though the American HospitalAssociation says hospitals havealready made significant prog-ress on reducing readmissions.

    It isnt clear yet how much ofan effect that program is having.

    The law also established theCenter for Medicare and Medic-aid Innovation and the Patient-Centered Outcomes Research In-stitute to organize and fundresearch into health-care im-provements. The many pilotprojects they have helped launchare still too new for the resultsto be known.

    Whats still to come?Assessment of hospitals will

    ramp up over the next few years,with government payments tiedmore closely to the results, andsome new measures will kick in,including hospital-acquired con-ditions.

    Starting in 2018, employersthat offer particularly generous,high-cost health-care plans willhave to pay a 40% tax on theamounts they spend on thoseplans beyond set limits.

    Some companies already havestarted paring down theseplansreducing benefits andpassing more of the costs on toemployeesto get their costsdown gradually as they seek toavoid the penalty, though specu-lation remains that the tax willbe delayed.

    Meanwhile, the IndependentPayment Advisory Board, a com-mission meant to recommendspending cuts if Medicares costgrowth exceeds certain targets,was intended to start work onJan. 15, but currently has noboard members.

    Federal officials say growth iswithin the prescribed limits sotheres no need for the board tobe doing anything yet.

    Whats happened tohealth-care spending in theU.S. since the law waspassed?

    Health-care spending growthhas stayed around record lowsfor the most recent four years ofdata, through 2012. Total U.S.health-care spending grew 3.7%in 2012 to $2.8 trillion, similarto the 3.6% increase in 2011 and3.8% increases in 2010 and 2009,according to the Centers forMedicare and Medicaid Services.In the preceding 10 years, spend-ing growth was over 6% mostyears and as high as 9.7%.

    Is that because of thefederal health-care law?

    Supporters of the law say theslowed spending growth is dueat least in part to the health-careoverhaul. For years, health-carecosts in America skyrocketed,said Jeanne Lambrew, a top ad-viser in the White House, whenthe latest spending numberscame out. The Affordable CareAct, for the first time in decades,has helped to stop that trend.

    The supporters argument isthat the cost provisions in thelaw, such as the establishment ofaccountable care organizations,may seem small but they buildon existing trends in health careand even accelerate them.

    Skeptics say theres scant evi-dence to support that claim. Alikelier bet, they say, is that peo-ple and providers cut back onspending during the economicdownturn and it has yet tobounce back.

    Sen. Orrin Hatch of Utah, theranking Republican on the Sen-ate Finance Committee, was

    quick to respond to Ms. Lam-brew when she made her claimin January. The reality is thatour weak economy, coupled withmillions of Americans gettingkicked off of their health insur-ance, has led to a dip in nationalhealth-care costs, he said.

    The political debate isntlikely to be settled soon, butsome of the factors in the slow-ing of health-care inflation are

    clear. For one, prices for medicalcare as measured by the Com-merce Department for its con-sumer price indexincluding thefees of doctors, dentists and hos-pitals and the cost of medica-tionsare rising at their slowestpace in half a century.

    Also, less generous healthplans, which have spread inde-pendently of the health-care law,are forcing patients to become

    more cost-conscious. And thefederal government as well ascommercial insurance companiesare ratcheting back the amountthey will pay to health-care pro-viders for their services, also in-dependent of the new law.

    Ms. Radnofsky is a Wall StreetJournal staff reporter in Wash-ington. She can be reached [email protected].

    How theACAMayAffect Health CostsSome provisions already have taken effect, but others wont kick in for several years

    BY LOUISE RADNOFSKY

    JOURNAL REPORT | HEALTH CARE

    Source: Congressional Budget Ofce and Joint Committee on Taxation, 2010 projections The Wall Street Journal

    Source: Centers for Medicare and Medicaid ServicesAverage annual change for 10-year period.

    Awaiting the Bills | Health cost trends and the ACAs possible impact

    Slower RiseAnnual percentage change in health spending in the U.S.

    Cost CurbsProjected federal savings or revenue gains through 2019 from provisions in the Affordable Care Act

    Accountable care organizations

    Penalizing hospitals that have too many readmissions

    Center for Medicare and Medicaid Innovation

    Patient Centered Outcomes Research Institute

    Excise tax on high-cost insurance plans

    Penalties for hospitals that don'treduce incidence of acquired infections

    Independent Payment Advisory Board

    $4.9 billion

    $7.1 billion

    $1.3 billion

    $2.2 billion

    $32 billion

    $1.4 billion

    $15.5 billion

    19912000

    198190

    197180

    196170

    2001 02 03 04 05 06 07 08 09 10 11 120

    2

    4

    6

    8

    10

    12

    14%

    The Anatomy of a Hospital BillFor an appendectomy, 76 items added up to nearly $30,000. Where did the money go?

    Decoding a hospital bill can feel like spycraft.Most people cant read a bill, says Nancy Davenport-

    Ennis, chairwoman of the Patient Advocate Foundation,a nonprot that helps patients solve insurance and health-care access problems. They dont understand what the ab-breviations and billing codes mean, she says, so they canttell whether they received particular services theyre beingcharged for.

    Billing practices vary, but typically a patient will be chargedfor medications, room and board, doctors time, anesthe-

    sia, and specialized units such as operating and emergencyrooms. Lab work and other tests, like CT scans, are also likelyto show up on a bill. You pay for every single thinginclud-ing the disposable cap on the electronic thermometer, Ms.Davenport-Ennis says.

    There is a movement afoot in the industry to simplify hos-pital bills and draw the eye to what often matters most to thepatient: how much you owe.

    But for now, patients may nd themselves on their ownwith a complicated statement. Though no two bills are ex-

    actly alike, the following rundown offers a revealing glimpseat some of the signicant, surprising or unusual charges thatcan show up on a hospital billin this case, from among the76 items that added up to $29,380.48 for an appendectomyperformed in the Southeast. The patients insurer had negoti-ated a rate for the hospital stay of $13,588.25. The patientwas responsible for a 10% co-insurance payment on top of a$100 deductible.

    Avery JohnsonEmail: [email protected]

    PATIENT BILL FOR SERVICES

    Patient Name Account Number Service From Service To Statement Date

    Xxxxx Xxxxx 10/08/11 10/09/11 01/06/12

    Total Charges (76 items)

    $29,380.48

    SUPPLIES These surgical sup-plies, while costly, are typical for thistype of procedure, experts say. Itsdisposable surgical equipment thathas got to work right every time,says Neel Shah, a Harvard MedicalSchool-affiliated doctor and founderof Costs of Care, a nonprot focusedon making billing more transparent.

    RADIOLOGY Costs of a CT scancan vary because of the machineor technology used. In this case,a CT scan was used to determinewhether an operation was neces-sary, says Richard Gundling, vicepresident of the Healthcare FinancialManagement Association, a groupof health-industry nancial profes-sionals, says. (A member of theorganization whose relative had anappendectomy provided this bill.)The patient had some symptomsof appendicitis, Mr. Gundling says,but other factors didnt support thediagnosis.

    EMERGENCY ROOM ER careis billed in many hospitals by levelof severity, Mr. Gundling says.Five is typically a top tier requiringurgent care.While in the ER you can be

    charged for things like the IV dripand its contents because it is apatient-specic item and not everypatient in the ER requires one,Mr. Gundling says.

    PHYSICIAN(S) FEE This is aline item for doctors fees. The mainsurgeons charges, totaling $1,468,were billed separately (the patient paid$221.46 after insurance). The level fourcharge shown here covers a physicianwho can assist with procedures such asan appendectomy and is on a commonlyused scale of one to ve.

    LABORATORY Hospitals chargefor drawing blood, as well as fortests such as a basic metabolicworkup, which evaluates kidneyfunction and blood-sugar levels.Lab tests can easily be overdone;

    for instance, daily blood testingis often unnecessary. But whencomplications arise, lab bills can goway up because hospitals have tomeet care guidelines based on thepatients symptoms.

    Department Date Description Charge QTY Total

    PHARMACY 10/08/11 Hydromorphone 2mg inj $35.00 1 $35.0010/08/11 Ciprooxacin 500mg tab $22.40 2 $44.8010/08/11 Famotidine 20mg tab $7.90 1 $7.90

    SUPPLIES 10/08/11 Staple Reload Lin Cut Echelon $661.80 1 $661.8010/08/11 Stapler Ets Flex Art Regular $1,065.70 1 $1,065.7010/08/11 Staple Reload Endo Lin Cut $585.30 2 $1,170.60

    LABORATORY 10/09/11 CBC, Auto, Auto Diff $138.10 1 $138.1010/09/11 Basic Metabolic (Tot CA) $256.00 1 $256.0010/09/11 Venipuncture $28.00 1 $28.0010/09/11 Gross & Micro Lev III $235.70 1 $235.70

    RADIOLOGY 10/08/11 CT ABD & Pelvis w/Contrast $3,962.80 1 $3,962.80

    OBSERVATION 10/08/11 Observation Private $35.42 5 $177.1010/09/11 Observation Private $35.42 14 $495.88

    EMERGENCY ROOM 10/08/11 ED Fee Level V $1,600.00 1 $1,600.0010/08/11 ER Therapypro/DX IV Push INI $221.90 1 $221.9010/08/11 THPY/Pro/DX IV Push Addl Seq $129.50 5 $647.50

    10/08/11 ER TherapyPro/DX IV Push Same $185.70 1 $185.70

    ANESTHESIA 10/08/11 Anesthesia General Intl 30 Min $795.00 1 $795.00

    10/08/11 Anesthesia General 31-90 Min $1,080.00 1 $1,080.00

    OPERATING ROOMSERVICES

    10/08/11 OR Time 061-090 Min Lev IV $8,744.80 1 $8,744.8010/08/11 Recovery Rm 061-090 Min Lev 3 $1,498.70 1 $1,498.70

    PHYSICIAN(S) FEE 10/08/11 99284 ER MD-Level IV $350.00 1 $350.00

    PHARMACY Commonly knownas Cipro, this medication is anantibiotic typically given to treat orprevent infection. It was one of 35medications listed on the patientsbill that amounted to $1,878.90 inpharmacy charges during thetwo-day hospital stay. The cost ishigher in the hospital than it wouldbe in a local pharmacy, because ahospital pharmacy has lower volumeand a different cost structure.

    OBSERVATION Observation bedsin emergency departments arereserved for patients whose situa-tions arent yet clear and who needcareful monitoring. As such, theyare billed by the hour as separatetime from the emergency room.Observation typically lasts until

    the decision is made to admit ordischarge the patient. It may goas long as 24 to 48 hours. In thispatients case, observation wasbilled on the day of the surgery andthe day after.

    OPERATING ROOM SERVICESThe operating room is the mostexpensive place in the hospital to be,requiring a huge amount of supportstaff and equipment. How hospitalscharge for it varies. This bill usesa time and intensity/resourcecharging approach, which is oftenbased on how much time andresources a specic case needs,he says; level 4 is typically thesecond-highest level of severity.

    ANESTHESIA Anesthesia istypically billed in 30-minuteintervals, Mr. Gundling says.After the initial 30 minutes, pricestypically fall since the initial admin-istration is typically the most labor-intensive part of the process.

    The Wall Street Journal

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    THEWALL STREET JOURNAL. Monday, February 24, 2014 | R5

    JOURNAL REPORT | HEALTH CARE

    INSURERS ARE establishing pro-grams that give the sickest pa-tients the chance to receive ex-tra care for their pain, sufferingand emotional needs, in a movethat turns out to cut spendingsubstantially.

    Such palliative-care programsaim to provide assistance to pa-tients with chronic or terminalillnesses, and go beyond thedrug prescriptions and surgeriessuch patients typically receive.Under the programs, doctors areoften called in to prescribe drugstreating pain, anxiety and de-pression, while home-care aidesvisit residences to give bathsand change sheets. Social work-ers may try to resolve conflictsbetween estranged siblings.

    The programs have their crit-ics, who say the insurers realgoal is to bolster profits bypushing patients to forgo costlytreatments that could prolongtheir lives. But supporters coun-ter that the lowered costs aresimply a fortunate side effect,and that fulfilling patientswishes and needs is the maingoal.

    By improving quality of carefor that group, it can also reducethe number of repeat hospital-izations and other emergency in-terventions, which is extremelyexpensive for payers, says Em-ily Warner, a senior policy ana-lyst at the Center to AdvancePalliative Care at the IcahnSchool of Medicine at Mount Si-nai.

    More to ComeIn recent years, insurers in-

    cluding UnitedHealth GroupsOptum unit and Highmark Inc.have created such programsatrend that is likely to continueas the population ages and ef-forts are made to both cut costsand improve care for patients atthe end of their lives.

    Studies show that treatmentof the most complex patientsduring their final months ac-counts for a disproportionate

    amount of health-care spending.About 25% of Medicare costscover the last year of patientslives, while 80% of the govern-ment health programs spendingduring the last month is for hos-pitalization. A visit to an inten-sive-care unit alone can costmore than $4,000 a day.

    Evidence suggests that thepalliative-care programs canmake a major dent in thosecosts. Studies by Kaiser Perma-nente, for instance, found thatsuch programs can save $5,000to $7,000 a patient by prevent-ing costly trips to emergencyrooms and avoidable readmis-sions to hospitals. Aetna Inc.says it saved $55 million in 2012among its Medicare Advantagepatients.

    If there is an opportunity toimpact at the intersection ofquality and cost, this is themother lode, says RandallKrakauer, Aetnas director ofmedical strategy, who helped es-tablish his companys program.

    Typical candidates for pallia-tive care include patients suffer-ing from congestive heart fail-ure, chronic obstructivepulmonary disease and demen-tia. Many participants have can-cer, typically at an advancedstage. Dedicated teams of doc-tors, nurses, chaplains and socialworkers step in to interview thepatients to assess their needsand develop a plan for their ex-tra care.

    Team EffortOften team members sit in on

    meetings between patients andtheir doctors, help explain medi-cal conditions, and help the pa-tients and families reach deci-sions about the course oftreatment. A palliative-care teammight also help coordinate a pa-tients treatment among differ-ent doctors.

    Many programs offer helpdrawing up wills and do-not-re-suscitate orders. Such orders letdoctors and nurses know the pa-tient wants to forgo cardiopul-monary resuscitation, being puton a ventilator and other mea-sures if there is a low chance forrecovery. Sometimes, the pa-tients get care in hospices orfrom visiting hospice nurses fortheir pain, suffering and emo-tional needs but give up aggres-sive medical treatment.

    During the 2009-10 health-care-overhaul debate, a proposalto pay doctors for providingcounseling about end-of-lifeservices drew fire from some Re-publicans about death panelsdetermining care.

    But Thomas Smith, director ofthe Johns Hopkins PalliativeCare Program, points to studiesthat show patients in such pro-grams do better on quality mea-sures like hospital readmissionrates than people who dontelect palliative care. Patient sat-isfaction levels improve as well.Dr. Smith also cites studiesshowing members who receivethese benefits live as long as orlonger than those who arentparticipants.

    Aetna, which first tried pallia-tive care in 2004, now offers itto anyone with medical coveragein both its commercial andMedicare plans.

    In 2012, the company savedan average of $12,600 for eachpatient who chose to participate,while improving the quality ofand satisfaction with their care,Dr. Krakauer says. Aetna basesits data on hospital admissions,survival rates and other dataabout medical treatment, as wellas surveys of patients and theirfamilies.

    About 90% of eligible mem-bers choose to participate, Dr.Krakauer says. And membersdont have to give up aggressivetreatment in order to partici-pate, though Dr. Krakauer sayssome ultimately do so. Medicarerequires it for patients electingto receive hospice care.

    We will not steer them to-ward a decision, adds Dr.Krakauer. If they want the max-imum aggressive therapy to thelast, we will support them.

    To identify members whomight be candidates, Aetna usesalgorithms to sift through billingand other records. Doctors andnurses also make referrals.

    Tough DecisionsThen case managers like Mar-

    garet Warnock call the patients.Case managers ask questions tosee what the patients wishesand needs are and whether theymight be eligible. They explainwhat participation would mean.

    The decision can be difficultfor members like Paula GibsonMassey, an avid hiker and yogastudent from Sylvania, Ohio,who died at age 51 after battlingcancer.

    Mrs. Massey was diagnosedwith lymphoma in 2007, andchemotherapy and other treat-ments progressively lost effec-tiveness, recalls her husband,Stan Massey. By early 2013, thecancer had spread to Mrs.Masseys spine, causing fracturesin her lower back. She was pre-scribed narcotics for the painand physical assistance to helpher move.

    Mrs. Warnock says she spokewith Mrs. Massey about thistime, explained the benefitsavailable under her plan andconcluded she would be a goodcandidate for Aetnas palliative-care program. Mrs. Warnocksays she explained that Mrs.Massey could receive the pro-grams benefits while continuingwith treatment aiming to cureher. But Mrs. Massey didnt wantto go on the program.

    She felt it meant admittingshe was dying, recalls Mr.Massey, 56, who works in mar-keting public relations in the To-ledo, Ohio, area, including repre-senting hospices and health-caresystems.

    Mr. Massey says at first he ig-nored Aetnas calls. The idea ap-pealed to him that his wife couldstick with aggressive treatmentof her cancer and receive regularvisits from hospice nurses whowould adjust her medicines,manage her pain and provideother care. Still, he respected hiswifes wishes.

    Mrs. Warnock stayed in touch.Then, last March, Mrs. Masseyscancer doctor said she probablywouldnt live another 12 months.Later that month, Mrs. Masseysigned up for Aetnas programand agreed to start receivingpalliative care in her home, Mr.Massey says.

    A day later, she suffered apulmonary embolism. Althoughshe was taken to an emergencyroom, she had indicated throughAetnas program that she wantedto forgo treatment if her condi-tion was hopeless, and she con-firmed her choice with an emer-gency doctor at the hospital, herhusband recalls.

    After 90 minutes at the hospi-tal, Mrs. Massey was taken to ahospice center, where she passedaway about 36 hours later.

    Mr. Rockoff is a staff reporterfor The Wall Street Journal inNew York. He can be reachedat [email protected].

    ANewEndingFor terminally ill patients,palliative-care programs aim toboth improve care and cut costs

    BY JONATHAN D. ROCKOFF

    $50 billion Annual spending,about 10% of Medicare funds, on thelast month of patients lives

    65% The share of health-carespending that goes toward thesickest 10% of patients, an averageof $157,510 annually per patient

    65% The share of poor-prognosiscancer patients who are hospital-ized during the last month of life

    25% The share of poor-prognosiscancer patients who use a hospitalintensive-care unit during the lastmonth of life

    30% Pct. of poor-prognosis cancerpatients who die in the hospital

    54% The share of cancer patientswho use hospice during the lastmonth of life

    $5,000 to $7,000 The annualsaving per patient when palliativecare is provided alongside usualcare, according to studiesSource: Thomas J. Smith, director ofthe Johns Hopkins Palliative Care Program

    Costs of Care

    The Wall Street JournalPaula Gibson Massey, once an avid hiker, initially resisted signing up for palliative care while fighting lymphoma.

    MasseyFamily

    Aetna customersdont have to give upaggressive treatmentto participate inpalliative care.

    2014 Dow Jones & Company, Inc. All rights reserved. 4DJ1123

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    R6 | Monday, February 24, 2014 THEWALL STREET JOURNAL.

    DIABETES IS the fastest-grow-ing chronic disease in the U.S.,but experts says there is a rela-tively simple and inexpensiveway to reduce the soaring costof treating it: Get patients totake better care of their feet.

    Almost 26 million Ameri-cansjust over 8% of the popu-lationare identified as havingdiabetes, and roughly two mil-lion people are newly diag-nosed each year, according tothe Centers for Disease Controland Prevention. More than halfof those patients are at risk fordeveloping diabetic neuropa-thy, or nerve damage, whichcan cause a loss of feeling inlegs and feet and in severecases lead to lower-extremityamputations.

    Foot problems take a bigtoll: As a common cause of hos-pitalizations among diabeticpatients, they help drive up di-abetes-related costs, which to-taled $245 billion in 2012, ac-cording to the AmericanDiabetes Association, up 41%from 2007.

    The good news, doctors say,is that daily inspection andcleansing of the feetwhichisnt complicated or expen-sivecan go a long way towardpreventing foot ulcers, whichcan lead to amputations. TheCDC estimates that good footcare could reduce the risk ofamputation in diabetic patientsby 45% to 85%.

    Because blood flow is re-duced in those with diabetes,

    feet lack feeling and thechances of stepping on sharp orother damaging objects with-out knowing it are increased.Blisters, bunions, calluses andabrasions may go unnoticed,and a minor foot blister caneasily become gangrenous,which is why diabetic patientsmust check their feet and toesdaily. Its also important for pa-tients to wash their feet in mildto tepid water, dry them thor-oughly and apply lotion to pro-tect against fissures in the skin,which can become a breedingground for infection, accordingto the Joslin Diabetes Center inBoston.

    Other simple changes toprotect feet include neverwearing shoes without socksand never walking in bare feet.Shoes that give the foot roomto breathe, such as tennis-typeshoes or special shoes that dis-tribute pressure evenly on thefeet and dont squeeze the toes,help keep feet healthy. Regularvisits to a doctor for foot ex-ams and to a podiatrist to havenails trimmed without damag-ing the feet can reduce costsper patient by up to $20,000annually, says Alex Kor, a podi-atrist at Johns Hopkins and anexpert in diabetic foot care.

    Most of the cost associatedwith diabetes is due to compli-cations, says Robert Gabbay,chief medical officer and seniorvice president at Joslin Diabe-tes Center, but more than anyother chronic disease, if pa-tients make changes in theirlifestyle, long-term complica-tions can be prevented.

    ASimple Step to CutThe Cost of Diabetes

    UNDER PRESSURE to rein inhealth-care costs, some physi-cian groups and hospitals areturning to an area that has sofar received little attention: cut-ting down on what many say isexcessive diagnostic testing inthe emergency room.

    Studies have shown that theuse of advanced imaging tech-niques and the costs associatedwith them have grown rapidly inemergency rooms since the1990s, partly because of thewidespread availability of thetechnology and an emphasis ongetting patients out of the ERquickly. For instance, data fromthe National Center for HealthStatistics show that between2000 and 2010, the use of ad-vanced imaging scanseithercomputed tomography (CT) ormagnetic resonance imaging(MRI)increased to 17% from 5%of all emergency-room visits.

    But with concerns growingnot only about the cost but alsoabout the consequences of ex-cessive testing on patientssome CT scans, for example, candeliver 100 times or more theradiation dose of a regular X-raysome physicians, hospitalsand medical societies are push-ing for a better balance betweenthe use of high-tech imaging inthe ER and simpler, lower-risktechniques for making a diagno-sis.

    A Fine LineIn our medical culture, doc-

    tors often talk about what morecould have been done, but rarelytalk about what less could havebeen done, says David Newman,director of clinical research inthe department of emergencymedicine at Mount Sinai Hospi-tal in New York. When too manydiagnostic tests are ordered,many false-positive results oc-cur, he says, which can lead tomore testing with risks to pa-tients from radiation, dye injec-tions and other unnecessarytreatment.

    Many ER doctors say the chal-

    lenge for them is finding a rea-sonable balance between over-testing and missing a diagnosisin an atmosphere that puts themat high risk for medical liability.

    ER doctors have been trainedto rely on medical-imaging tech-niques, and many worry that re-ducing their use will affect thequality of care. Patients, too, of-ten demand tests, widely believ-ing that more testing is equiva-lent to better care. Underserious time pressures to meetpatient-satisfaction goals, it canbe easier for a doctor to ordertesting rather than spend timediscussing the pros and cons ofdoing so with patients. The factthat ER doctors havent seenmany of their patients before,may not have access to theirmedical records and typicallyarent involved in follow-up carealso creates more urgency topinpoint problems immediatelyin the ER, many of them say.

    Momentum GrowsDespite those concerns, ef-

    forts to reduce unnecessary ERtesting are gaining traction.

    Last year, the American Col-lege of Emergency Physiciansjoined the American Board of In-ternal Medicines ChoosingWisely campaign, a physician-ledinitiative designed to encourageconversation between doctorsand patients about the risks and

    benefits of performing certaintests and procedures. One of theAmerican Colleges first recom-mendations was that ER doctorsshould avoid doing CT scans onpatients with minor head inju-ries who are at low risk for skullfracture and bleeding in thebrain. By performing a thoroughhistory and physical examina-tion, doctors can safely deter-mine who is at low risk, thegroup said.

    Brigham and Womens Hospi-tal in Boston, meanwhile, isamong a group of hospitals thathave embraced computer toolscalled decision support thathelp doctors determine what, ifany, imaging tests are most ap-propriate for patients in the ERbased on the latest scientific evi-dence. Jeremiah Schuur, an ERphysician at the hospital, saysdoctors consult the tools whenconsidering tests such as CTscans of the chest for pulmonaryembolus and CT scans of thehead for trauma.

    According to Ramin Khoras-ani, vice chairman of the depart-ment of radiology at Brighamand Womens, the tools have ledto a 33% reduction in the use ofCT scans for every 1,000 pa-tients that have visited the ER inthe past five years. He expectsprograms like the one atBrigham and Womens to be-come more widespread over the

    next decade.

    Big SavingsDavid Newman-Toker, associ-

    ate professor of neurology atJohns Hopkins School of Medi-cine, says if the goal is to cutdown on overtesting in the ER,more funding is needed for stud-ies that show doctors how tocorrectly diagnose patients withthe fewest tests, like the one heconducted on the use of imagingin patients who arrive at the ERcomplaining of dizziness.

    That study, published lastyear in the journal AcademicEmergency Medicine, found thata large percentage of the pa-tients who come to the ER withsevere dizziness are actually suf-fering from inner-ear problems,while only about 5% are having astroke. Yet nearly half of themare given a CT scan of the headto rule out a strokeeventhough CT scans arent the besttool for diagnosing the vast ma-jority of strokes early on, miss-ing them more than 80% of thetime, according to the study.

    The researchers concludedthat a simple bedside physicalexam could identify the smallnumber of patients who trulyneed imaging. By altering thisone protocol of routinely order-ing CT scans for dizziness, abouta half-billion dollars could besaved every year, according toresearchers, who said the cost ofER visits for dizziness totaledabout $3.9 billion in 2011 andcould reach $4.4 billion by 2015.

    A doctors touch can often bemore revealing, more helpful andmore healing than any scan,says Mount Sinais Dr. Newman.At the bare minimum, a com-prehensive history and physicalexamination, a typically benignexercise that creates bondingand occasionally makes diagno-ses, should be a gateway to test-ing, allowing physicians to avoidthe harms and excesses thatgenerally accompany technologi-cal testing.

    Ms. Sadick is a writer in NewYork. She can be reached [email protected]

    Emergency inER:TooManyTestsAn emphasis on technology may speed things up, but at what cost?

    BY BARBARA SADICKBY BARBARA SADICK

    JOURNAL REPORT | HEALTH CARE

    Medicare spending on hospital services,

    actual and projected, on cash basis (in

    billions)

    In the Hospital

    Source: Bureau of Labor Statistics

    U.S. Health Spending by Category

    Hospital care

    Nursing-home care, home health

    care, other health/residential care

    Physician, clinical and other

    professional services

    Medical equipment

    (durable and nondurable)

    Net cost of health insurance

    Research, government public-health

    activities and administration TOTAL

    Prescription drugs Structures and equipment Dental services

    J

    J

    J

    J

    J

    J

    J

    60 70 80 90 2000 10 201260 70 80 90 2000 10 201260 70 80 90 2000 10 201260 70 80 90 2000 10 201260 70 80 90 2000 10 2012

    60 70 80 90 2000 10 2012 60 70 80 90 2000 10 2012 60 70 80 90 2000 10 2012 60 70 80 90 2000 10 2012 60 70 80 90 2000 10 2012

    0

    100

    200

    300

    400

    500

    600

    700

    800

    900

    $1,000

    0

    5

    10

    15

    20

    25

    30

    35

    40

    45

    50%

    J

    J J

    J

    J

    J

    J

    100

    200

    300

    400

    500

    600

    $700

    0

    5

    10

    15

    20

    25

    30

    35%

    0

    J

    J

    J

    J

    J

    J

    J

    50

    100

    150

    200

    250

    $300

    0

    2

    4

    6

    8

    10

    12%

    0

    J

    J

    J

    J

    J

    J

    J

    0

    20

    40

    60

    80

    100

    $120

    0

    20

    40

    60

    80

    100

    $120

    0

    2

    4

    6

    8

    10

    12%

    0

    2

    4

    6

    8

    10

    12%

    J

    J

    J

    J

    J

    J

    J

    J

    J

    J

    J

    J

    J J

    0

    50

    100

    150

    200

    250

    300

    350

    $400

    0

    2

    4

    6

    8

    10

    12

    14

    16%

    J

    J

    J

    J

    J

    J

    J

    0

    10

    20

    30

    40

    50

    60

    70

    80

    90

    $100

    0

    1

    2

    3

    4

    5

    6

    7

    8

    9

    10%

    J

    J

    J

    J

    J

    J

    J

    0

    20

    40

    60

    80

    100

    120

    140

    $160

    0

    1

    2

    3

    4

    5

    6

    7

    8%

    0

    500

    1,000

    1,500

    2,000

    2,500

    $3,000

    Source: Centers for Medicare and Medicaid Services

    J

    Percentage of U.S. health spending, right scale

    Spending in billions, left scale

    J

    J

    J

    J

    J

    J

    J

    0

    20

    40

    60

    80

    100

    120

    140

    160

    180

    $200

    0

    1

    2

    3

    4

    5

    6

    7

    8

    9

    10%

    In the ER

    Emergency-department spending per visit,

    by age, in 2010 dollars (excludes visits

    resulting in inpatient admission)

    Costly Conditions

    Spending on some of the most expensive kinds of health problems in the U.S., 1996 and 2011, in billions

    $1,200

    0

    200

    400

    600

    800

    1,000

    Source: Agency for Healthcare Research and Quality

    TotalUnder 18 18 to 64 65 and over

    2000 2010

    1996

    Heart conditions $58.0

    Cancer $37.7

    Trauma-related disorders $37.1

    Chronic obstructive pulmonary disorder, asthma $28.6

    Mental disorders $28.2

    Normal birth/live born $22.0

    Osteoarthritis and other nontraumatic joint disorders $18.3

    Hypertension $17.3

    Diabetes mellitus $14.1

    Cerebrovascular disease $12.6

    2011

    Heart conditions $116.3

    Cancer $88.7

    Trauma-related disorders $81.8

    Mental disorders $77.6

    Osteoarthritis and other nontraumatic joint disorders $76.2

    COPD, asthma $75.2

    Diabetes mellitus $55.2

    Hypertension $42.7

    Normal birth/live born $39.4

    Hyperlipidemia $38.9

    How Health-Care Spending Got So High

    Hospital care tops the charts but nursing-home care consumes growing share; dread diseases get costlier

    Source: Medicare Board of Trustees Source: Agency for Healthcare Research and Quality The Wall Street Journal

    0

    100

    200

    300

    400

    $500

    1960 70 80 90 2000

    10

    Going Separate Ways

    The consumer price index for medical care

    and for everything except medical care, all

    urban consumers; 1982-84 = 100

    0

    200

    400

    600

    800

    1,000

    $1,200

    1970 90 10 2030

    Where have the increases in health-care costs

    come from?

    Though the pace has slowed recently, medical

    prices have climbed more rapidly than the consumer

    price index over the past several decades

    Hospital care still represents the lions share of

    health spending, at around a third of the nations

    health dollar, though that has fallen from a high of

    nearly 40 cents in every dollar in 1980. And if you look

    at Medicares spending on hospital servicesactual

    and projectedits clear that this will remain a

    daunting challenge.

    Meanwhile, nursing-home care and other services

    for older Americans make up a growing portion of

    costs. Big increases also show up in treatment costs

    for so-called dread diseases such as cancer and

    heart conditions. Spending on heart conditions,

    including emergency-room and clinic visits,

    prescriptions and other costs, doubled to $116 billion

    in 2011 from $58 billion in 1996.

    Emergency rooms offer another snapshot of how

    things have changed in recent years: The cost of the

    average ER visit rose by more than three-quarters, to

    $969 in 2010 from $546 in 2000.

    Whats shrinking in the nations medical dollar?

    Medical equipment has decreased its share since 1960.

    Doctors have stayed at just under a quarter in every

    dollar, and prescription drugs are still about a dime

    Louise Radnofsky

    Email: [email protected]

    CPI, all items except

    medical care

    CPI, medical care

    Higher Traffic

    The annual number of emergency-

    room visits

    Sources: Avalere Health analysis of American

    Hospital Association data; Census Bureau

    AndMore Scans

    The percentage of ER visits that

    included a CT or MRI scan, 2000 vs.

    2010, by patient age

    The Wall Street Journal

    Source: National Center for Health Statistics

    30%

    0

    5

    10

    15

    20

    25

    Under 18 18-64 65 and

    over

    Total

    2000

    2010

    2000 02 04 06 08 10

    100

    105

    110

    115

    120

    125

    130

    300

    325

    350

    375

    400

    425

    450

    Visits

    per 1,000

    population

    (right scale)

    Total visits

    in millions

    (left scale)

    Source: Centers for Disease Control and Prevention The Wall Street Journal

    Sharp Impact

    The annual cost of diabetes in the U.S., in billions

    2002 2007 2012

    Medical spending

    due to diabetes

    Lost/reduced

    productivity

    due to diabetes

    Total cost

    $132

    $40

    $92 $116 $176

    $69$58

    $174 $245

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