Health & Medicine

California’s health care spending is actually hurting our health, researchers say

In a report released Tuesday, community health advocates at Oakland’s Well Being Trust warned California’s leaders that they must curb prices and waste in health care spending or risk a dangerous paradox where soaring medical costs gobble up funding that should go to essential social programs.

To illustrate that point, researchers noted that the state of California paid out $1.22 on education, public health, environmental protections and social services for every dollar it spent on health care in 2007 but 11 years later, only 68 cents went toward those four areas for each dollar spent on health care.

When it comes to health, those four areas of social care matter as much as access to medical treatment, said Ben Miller, chief strategic officer at the Well Being Trust, and if more money is spent on public health, on education, on environmental protections and on social services, then the state will spend less money downstream on medical treatment.

About a year ago, Miller and other leaders of the Well Being Trust gave funding to researchers at the Lown Institute, a nonpartisan think tank in suburban Boston, to look at California’s budget, assess the impact of health care spending and make recommendations on ways to reduce health care disparities between affluent and disadvantaged Californians. The Lown Institute findings are published in a report titled “California’s health paradox: Too much health care spending may lead to poor community health.”

The report praised California’s leaders for expanding Medi-Cal, which provides access to treatment and care for millions of indigent residents, but it added that meager increases in spending on social care have devastating consequences in places like the San Joaquin Valley. Rates of poverty and chronic disease are high there and education levels low, researchers said.

“In (Madera), Kings and Fresno counties, for example, the rates of asthma-related emergency room visits by young children is twice that of the state overall,” they wrote. “Health disparities are stark even within counties. In the poorer Edison neighborhood of Fresno, the rate of hospitalization for diabetes is 39 for every 10,000 people. In the affluent Woodward park neighborhood, the rate is one for every 10,000.”

Miller said: “Where you live determines how healthy you’re going to be. We can’t just apply a general framework and say, ‘Spend more on health care’ because it’s not going to help those kids in the ER’s in Kings and Fresno and (Madera).”

California has to break from its current spending policies if it’s going to improve health for everyone, Miller insisted, but that doesn’t mean it has to do away with Medi-Cal expansion. It does mean that state leaders must focus on reducing waste and controlling costs, enforcing laws that prohibit anti-competitive business practices, and giving health providers incentives to maintain a healthy population rather than just paying a fee for service.

“If you’re going to reduce waste and control some of the cost, then you need to have some type of price containment, some kind of price control,” Miller said. “The governor has proposed some ideas around that — around negotiating prices with manufacturers, around creating a state-run pharmacy benefit manager to negotiate prices for all Californians. Those are wonderful ways to begin to control some of these costs and set more realistic prices.”

Efforts also are underway to bring transparency to hospital charges and physician fees, costs that are highly inflated, the report noted, but the strongest measure for controlling prices would be vigorous enforcement of anti-trust practices by monopoly hospitals. The Health Care Pricing Project has reported that monopoly hospitals charge as much as 12 percent more for their services than hospitals with four or more local rivals, the Lown researchers wrote.

The governor and legislators also should ensure a way to eliminate waste from the system, Miller said, because studies have shown that health providers are recommending low-value heath care services that provide little or no benefit to the patient.

The Well Being Trust and Lown also urged state leaders to use their positions to convene conversations on payment models that give incentives to eliminate low-value treatments. Their report suggested a model known as global budgeting, which pays providers an agreed-upon amount for meeting certain targets.

Some targets could be related to health outcomes, Miller said, so a plan gets paid a higher rate if a certain percentage of its diabetic patients maintain blood glucose at normal ranges. Or, targets could be more process-oriented – for example, ensuring that patients don’t have to return to the hospital within a few days of being discharged. Targets also could be related to cost outcomes — ensuring, for instance, that costs remain at a certain level within a system.

The report noted that these measures could result in substantial savings and recommended finding a way to redirect any recouped funds toward social care.

The Lown-Well Being report also suggested that the governor and Legislature find a way to reward health care companies that invest in improving community conditions — affordable housing or helping to make neighborhoods more walkable, for instance.

“The incentives are somewhat backward because we pay when people are unhealthy, not when they are healthy,” Miller said. “When you begin to shift who you’re investing in and where we’re investing the dollars, then we’re investing in things that are not about me delivering a service to someone who’s sick.”

Health consumer advocate Anthony Wright and UC Berkeley health economist Richard Scheffler said soaring health care costs do have to be addressed.

“Health care costs are way too much, and we need to be able to control them,” said Wright, executive director of Health Access California, “so that we can make those preventive public health investments that actually help people’s health on the front end rather than just treating illnesses on the back end.”

The report, however, did not note that California’s spending overall continues to be affected by the economic downturn 10 years ago or that the Affordable Care Act established a public health fund that pays for state and community projects in such areas as tobacco prevention, chronic disease self-management and promoting breastfeeding in hospitals, Wright said. Congressional leaders cut a third of the fund, but even so, $931 million went toward public health programs in 2017.

While the report noted that spending for health care for the incarcerated has climbed, it didn’t explain that a federal judge ordered California in 2006 to improve the level of care it offered prisoners and gave a court-ordered receiver authority over medical care. That oversight continues today.

Scheffler said he thinks it will be challenging to capture the savings from eliminating waste or controlling costs and to redirect it toward social care. There’s plenty of evidence, though, that investments in social services, public health education and the like will lead to better health outcomes long-term, he said.

“The biggest problem in California to me, as a health care economist who’s studied this, is really the prices,” Scheffler said. “California pays some of the highest prices for hospital services.”

Scheffler liked the idea of offering a payment model that rewards health providers for keeping patients well, but he said he has been more impressed with the Kaiser Permanente model of paying providers a set fee per patient per month to manage care than with the global budgeting model.

Global budgeting is “kind of like giving someone an allowance,” Scheffler said. “Do you know how hard it’s going to be to give an allowance to Stanford and UCSF and UCLA and figure out exactly what that will be?”

While global budgeting has worked for Maryland, he said, it has failed in other states that have tried it for a couple of reasons.

“Let’s say you’re Stanford hospital,” Scheffler said. “I give you a budget, and I say, ‘Do the best you can with it, but all of a sudden, there’s an epidemic in Palo Alto. A lot of people come to the hospital, and the hospital spends a lot of money and runs out of money….The second thing that happens is more and more people decide to go to Stanford because they have great care, and they say, ‘Well, I can’t take care of you because I’ve got a global budget.’ If they’re paid per person, like Kaiser, then they get more money. If more people join, they have an increase in their budget.”

While Wright and Scheffler disagreed with some aspects of the report, they said it raised important points for state leaders to consider.

Miller said: “As the public becomes more aware that the factors that really matter in achieving overall health and well-being have very little to do with health care and a lot to do with the community they live in, you’ll see people begin to talk about this in more forceful ways. I can’t think of a better incentive for someone to ultimately change than when an entire community rallies around a new cause.”

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Cathie Anderson covers health care for The Bee. Growing up, her blue-collar parents paid out of pocket for care. She joined The Bee in 2002, with roles including business columnist and features editor. She previously worked at papers including the Dallas Morning News, Detroit News and Austin American-Statesman.