U.S. News

For Hospitals and Insurers, New Fervor to Cut Costs

Reed Abelson|The New York Times

Giselle Fernandez is only 17 but she has had more than 50 operations since she was born with a rare genetic condition. She regularly sees a host of pediatric specialists, including an ophthalmologist, an endocrinologist and a neurologist at UCLA Health System. Her care has cost hundreds of thousands of dollars so far, and she will need special treatment for the rest of her life.

Adam Gault | Getty Images

While UCLA Health System has long prided itself on being at the forefront of treating patients like Giselle, it is now trying to lower sharply the cost of providing that care. By enrolling young patients with complex and expensive diseases in a program called a medical home, the system tries to ensure that doctors spend more time with patients and work more closely with parents to coordinate care. The program has cut emergency room visits by slightly more than half.

The effort is part of a much broader ambition by UCLA Health System to reduce its costs by 30 percent, or hundreds of millions of dollars, over the next five years, according to Dr. David T. Feinberg, the system’s president.

“We have definitely found religion,” Dr. Feinberg said.

After years of self-acknowledged profligacy, hospitals, doctors and health insurers say there is a strong effort under way to bring medical costs under control. Their goal is to slash the rate of growth in the nation’s $2.7 trillion health care bill by roughly half to keep it more in line with overall inflation .

Private insurers, employers and government officials are providing urgency to these efforts, and the federal health care law passed two years ago helped accelerate them.

Even if the Supreme Court decides next month to declare the entire law unconstitutional, many experts in the field say the momentum is likely to continue.

“Regardless of what happens to the law, the market will force the system to become more efficient,” said Paul H. Keckley, the executive director of the Deloitte Center for Health Solutions, a research arm of the consultant Deloitte.

The drive to lower costs is resulting in numerous efforts. UCLA Health System is scrutinizing its use of imaging procedures on patients in the cardiothoracic intensive care unit. Over the last year, the average number of X-rays per patient each day was reduced to two, from 10.

The Cleveland Clinic, another medical powerhouse that has little difficulty attracting patients and demanding high prices, is trying group visits for diabetic patients so more people can be seen at a lower cost. The clinic has started reminding its surgeons about the $400 price of a unit of blood as a way of discouraging unnecessary transfusions, which along with other changes in patient care last year helped save $4 million. The clinic’s medical residents also can no longer order as many expensive tests as they want. “What we’re talking about is driving the value equation,” said Dr. Delos M. Cosgrove, the chief executive for the clinic.

These efforts include trying to keep the health system’s own employees healthy by enlisting them in wellness programs or, as at UCLA, eliminating fried food in the cafeteria.

“Nobody has died because the Tater Tots are gone,” said Dr. Feinberg.

Many of those involved say the impetus should come directly from hospitals and doctors.

“The medical community needs to transform care,” said Dr. Thomas L. Simmer, the chief medical officer of Blue Cross Blue Shield of Michigan, the state’s largest insurer.

By collaborating with Michigan hospitals to share best practices, Blue Cross estimated it achieved savings of $233 million over three years.

Despite the flurry of activity, many caution that these efforts may not succeed in saving money. Many previous programs failed in the end to reduce costs or improve care. And many people within the industry are still wedded to the status quo, said Dr. Michael W. Cropp, the chief executive of Independent Health, an insurer in Buffalo. Dr. Cropp has been vocal about the need to address rising costs.

“The mind-set shift is beginning, albeit too slowly,” he said.

Experts also warn that many of these initiatives will take time to work, especially since the more tests and procedures they do, the more money doctors and hospitals get. But there are also signs that insurers, which traditionally have focused on paying hospitals and doctors the least they can, are working much more closely with providers to improve care.

In Michigan, for example, Blue Cross financed an effort to have the state’s major hospitals compare results in areas like bariatric or general surgery so that they could reduce infection rates and surgical complications. The insurer never sees data that identifies individual hospitals, and the hospitals meet regularly to discuss how they can learn from one another to improve care.

“There’s basically a ‘leave your guns at the door’ attitude,” said Dr. Darrell Campbell, the chief medical officer for the University of Michigan Health System.

The program’s benefits extend far beyond Blue Cross’s own customers, according to the insurer’s calculations. Only a third of the savings was attributable to patients it insured. Unlike previous attempts by insurers to reward individual hospitals for quality and efficiency, the program tries to help all hospitals improve.

The earlier efforts, which focused on overly specific measures or reporting on individual hospitals, “tended to inspire providers to do the least necessary to achieve the incentive rather than the most to transform care,” said Dr. David Share, a senior executive at Blue Cross.

In other cases, health insurers are collaborating with hospitals and doctors through new models like so-called accountable care organizations, which coordinate the care for a group of people. In early 2010, Blue Shield of California teamed with a San Francisco-based hospital system, now Dignity Health, and a large medical group, Hill Physicians, to provide coverage for 40,000 members of the California Public Employees’ Retirement System in Sacramento. Blue Shield promised to keep premiums flat the first year and increase them as little as possible afterward.

Simply by working together, the three were able to reduce the number of times patients had to be readmitted to the hospital by 15 percent. Previously, the insurer, the hospital and the medical group had each assigned a case manager to the same patient, but patients were still failing to schedule follow-up visits with their doctors and were not getting clear instructions about their care when they left the hospital.

“None of the case managers from the three organizations were talking to each other,” said Paul Markovich, an executive vice president of Blue Shield.

In the end, the hospital was deemed responsible for follow-up care, even though it had the least incentive to prevent a patient from returning, he said.

Before the program, “there’s no way we could even contemplate doing that,” Mr. Markovich said.

The hospital system says it is committed to more affordable care, which is why it agreed to work with Blue Shield in the first place.

“We do think there is a problem with cost,” said Michael D. Blaszyk, the chief financial officer for Dignity Health.

“Our goal was not to ramp up our profits,” he said. “Our goal was not to lose money on this.”

Patients also benefit. Sandra Fernandez, Giselle’s mother, said she appreciates that the doctors at Mattel Children’s Hospital UCLA are now well versed in her daughter’s condition so that she does not have to go through the complicated history repeatedly. Giselle’s condition involves developmental delays, and she has also been treated for hypothyroidism and seizures, and the program ensures that she is connected to all the right specialists.

“For me as a mother, it was easier to communicate,” said Ms. Fernandez, who speaks Spanish, through an interpreter.