Journal of Plastic, Reconstructive & Aesthetic Surgery (2013) 66, 1824e1827
LETTER FROM AMERICA
Eight questions about cost Is Obamacare Medicare? At the Summer 2013 BAPRAS dinner, I sat next to a former BAPRAS president who was curious about the coming of Obamacare.a A major part of Obamacare provides health insurance for those who previously had no health insurance. This is different from Medicare, the federal program that has existed since 1965 which provides insurance for the disabled and those over 65 years old. Now that our Supreme Court has ruled that important parts of that law are not unconstitutional, the federal government continues to implement Obamacare in fits and starts. Some parts became effective in 2010, while other parts will not become effective until January 1, 2020. On January 1, 2013, our federal taxes on earned income increased and new taxes on investment income were levied to pay, in part, for Obamacare. Whether these taxes will be sufficient to fund Obamacare is unknown, but what is known is that since 1965 Medicare’s cost always has exceeded the government’s actuarial projections. With its inexorable growth, Medicare threatens to swallow an unsustainable proportion of our gross domestic product.
Is “Medicare reimbursement” an Oxymoron? Articles about Medicare spending dominate the news, and frequently reach a level of hysteria worthy of British tabloids. The frenzy has reached new heights with recent headlines in the States highlighting that hospital charges for the same treatment vary widely not only across the country, but even within the same county.1
a
The official name is The Patient Protection and Affordable Care Act. The commonly used acronym is ACA, but although his opponents have used Obamacare as a pejorative term, even Obama referred to it as Obamacare during the last presidential election. ht t p:/ /e n. wi ki pe di a. org /wi k i /Pa ti e nt _ Prot e ct io n_ an d_ Affordable_Care_Act. [Accessed August 8, 2013].
Medicare pays most hospitals a fixed amount based upon the discharge diagnosis.b In Table 1 you see data the results from Medicare in 2011 for patients discharged with the diagnosis: “Respiratory system diagnosis with ventilator support over 96 h”: for three hospitals in MiamiDade County. Jackson Memorial Hospital, owned by the local government, the UM Hospital, owned by the University of Miami, which is a 5 min walk away from Jackson Memorial, and Baptist Hospital, owned by a “not-forprofit” organization, which is less than a 30 min drive from bothc (Table 1). Note how Baptist, the hospital with the highest charge, received the lowest payment, while Jackson Memorial, the hospital with the lowest charge, received the highest payment. Remember that Baptist Hospital is a “not-for-profit” organization. It is one thing to not earn a profit; it is another to “lose” over $345,000 for the average patient. Even Jackson Memorial Hospital, that received over 35% more money than Baptist Hospital, still managed to “lose” money. Welcome to the world of Medicare reimbursement.
Does Alice know what cost is? A rational explanation for this exists that will make sense even to those readers who are unfamiliar with Lewis Carroll’s writings. Like The Adventures of Alice in Wonderland, hospital charges are a fiction. Writing recently in his institution’s newsletter, Brian Keeley, the President and Chief Executive Officer of Baptist Health said: “A hospital’s ‘charge’ is similar to the sticker price shown on windows of new automobiles. Rarely does anyone pay it... The hospital ‘charge’ or ‘chargemaster’ is a concept similar to the list price used in many other b Cancer centers such as MD Anderson, Memorial Sloan-Kettering and the University of Miami’s Sylvester Cancer Center are exempt from this reimbursement system and are paid based upon their charges to Medicare. c “Not-for-profit” means that an organization is exempt from state and federal taxes. The Internal Revenue Service classifies the hospital as a public charity.
1748-6815/$ - see front matter ª 2013 British Association of Plastic, Reconstructive and Aesthetic Surgeons. Published by Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.bjps.2013.09.020
Letter from America
1825
Table 1 2011 Average charges to and payments from Medicare for DRG code 207 “Respiratory system diagnosis with ventilator support 96þ hours”.
Jackson Memorial UM Hospital Baptist Hospital
Average charge
Average payment
Difference
$169516 $187126 $391029
$62087 $40332 $45715
$107429 $146794 $345314
industries. The Medicare laws require hospitals to maintain a “chargemaster” showing the list price of all items for which we charge. Unfortunately, there is no set of comprehensive standards for the chargemaster e no rulebook on what to include, what not to include or on the relationship between the charge and the underlying cost”.2 This distinction between cost and charge is not new. Over 30 years ago, Finkler warned: “Charges may bear little resemblance to economic cost, and use of charges as a proxy for economic cost may lead researchers to draw unwarranted conclusions about economic efficiency”.3 Unfortunately, even recent studies fail to make that distinction.4
15, 2012. I extracted the number of times the words “cost” and “cost-effective” appeared in either the titles or abstracts for all human reports published in this journal, Plastic and Reconstructive Surgery and Annals of Plastic Surgery.5,6
Can we do a better job of studying cost and “cost-effectiveness”? Certainly. The reason that I chose June 15, 2012 was to match the time period of a recent systematic review of plastic surgical economic evaluations by Thoma’s group.7 Despite my having found that the word “cost” had appeared in 390 articles in these three journals, Thoma’s group found that only 34 articles had any type of economic analysis. Similarly, despite my having found that the phrase “cost-effective” had been used in 78 articles, Thoma’s group found that only 10/95 (11%) of the articles measured cost-effectiveness. This suggests that there was much mention of “cost-effectiveness” with little documentation. Sadly, Thoma’s group found that only 6/95 (6%) articles were of the preferred cost-utility analysis. Most of the articles that they found 78/95 (82%) were cost analyses. Notwithstanding our increased curiosity about the economics of our specialty, we have not been very accurate in our economic analyses.
Who pays for the cost? Are plastic surgeons interested in cost and “cost-effectiveness”? Yes. Cost has gained greater frequency in both our plastic surgery literature and in the popular media. Figures 1 and 2 are the results of my PubMed searches from 1986 to June
Theoretically there is a common denominator in any economic analysis be it -analysis, cost-benefit analysis, costeffectiveness analysis or, cost-utility analysis. The common denominator is cost. You may ask, “Cost to whom?” Who pays for it? In 1996, the mavens who met to ponder
Figure 1 PubMed search results for “cost” in titles or abstracts of all human studies published in JPRAS, Annals of Plastic Surgery and Plastic and Reconstructive Surgery 1986-June 15, 2012.
1826
M.F. Freshwater
Figure 2 PubMed search results for “cost-effective” in titles or abstracts of all human studies published in JPRAS, Annals of Plastic Surgery and Plastic and Reconstructive Surgery 1986-June 15, 2012.
recommendations for cost-effective analysis decided that cost must be calculated on a societal basis. They wrote: “The analyst considers everyone affected by the intervention, and all health effects and costs that flow from it are counted, regardless of who would experience them. Health effects include both benefits and harms, even when these occur in people who are not the intended recipients of the intervention.”8 It may surprise you to learn that this definition of cost is still preferred.9
Are economic analyses fungible? Since cost is determined on a societal basis, therein lies the problem in comparisons. Costs from one country may not be fungible to other countries. Compare this to analyzing cleft lip procedures or the prevalence of postoperative infection where the results can be compared from one country to the next. Indeed, I am skeptical that cost can be determined on a societal basis even within the United States. Not only do we lack a single payer system, but also there are disparate elements within our society and there are very different benefits and harms that have been determined by legislation. Despite our having Medicare and Obamacare, other groups within society receive health care that is restricted by separate legislation. Some examples include our military who receive care in a system of military hospitals and clinics, our military veterans who receive care in the veterans health system, road traffic accident victims and injured workers. Further complicating any analysis is the reality that the legislation that governs the medical care of road traffic accident victims and injured workers is produced by fifty different state legislatures.
What should we learn? Long before the Great Recession of 2008, Warren Buffett railed against the use of creative accounting terms to distort financial results by writing: “When companies or investment professionals use terms such as ‘EBITDA’ and ‘pro forma’, they want you to unthinkingly accept concepts that are dangerously flawed. (In golf, my score is frequently below par on a pro forma basis: I have firm plans to ‘restructure’ my putting stroke and therefore only count the swings I take before reaching the green)”.10 We should heed Buffett’s admonition about creative accounting when we perform or study economic analysis in plastic surgery: “Bad terminology is the enemy of good thinking”.10
Funding None.
Competing interests None.
References 1. https://data.cms.gov/Medicare/Inpatient-Prospective-PaymentSystem-IPPS-Provider/97k6-zzx3 [accessed 08.08.13]. 2. https://dl.dropboxusercontent.com/u/47460616/Keeley copy. pdf [accessed 08.08.13]. 3. Finkler SA. The distinction between cost and charges. Ann Intern Med 1982;96:102e9.
Letter from America 4. Lynch MP, Chung MT, Rinker BD. Dermal autografts as a substitute for acellular dermal matrices (ADM) in tissue expander breast reconstruction: a prospective comparative study. J Plast Recon Aesthetic Surg 2013. http://dx.doi.org/10.1016/j.bjps. 2013.07.002. 5. http://www.ncbi.nlm.nih.gov/sites/myncbi/collections/public/ 12kq7yz8cWxzgTkyogZi2it/ [accessed 08.08.13]. 6. http://www.ncbi.nlm.nih.gov/sites/myncbi/collections/public/ 1fysg-CBYytlZKkazcSNi2d/ [accessed 08.08.13]. 7. Ziolkowski NI, Voineskos SH, Ignacy TA, Thoma A. Systematic review of economic evaluations in plastic surgery. Plast Reconstr Surg 2013;132:191e203. 8. Russell LB, Gold MR, Siegel JE, Daniels N, Weinstein MC., for the Panel on Cost-Effectiveness in Health and Medicine. The role of cost-effectiveness analysis in health and medicine. J Am Med Assoc 1996;276:1172e7.
1827 9. Kotsis SV, Chung KC. Fundamental principles of conducting a surgery economic analysis study. Plast Reconstr Surg 2010;125: 727e35. 10. Buffett WE. 2001 Chairman’s letter. http://www.berkshire hathaway.com/2001ar/2001letter.html [accessed 08.08.13].
M. Felix Freshwater Voluntary Professor of Surgery, University of Miami School of Medicine, 9155 S. Dadeland Blvd., Suite 1404, Miami, FL 33156-2739, USA E-mail addresses: [email protected], [email protected]
9 August 2013
LETTER FROM AMERICA
Eight questions about cost Is Obamacare Medicare? At the Summer 2013 BAPRAS dinner, I sat next to a former BAPRAS president who was curious about the coming of Obamacare.a A major part of Obamacare provides health insurance for those who previously had no health insurance. This is different from Medicare, the federal program that has existed since 1965 which provides insurance for the disabled and those over 65 years old. Now that our Supreme Court has ruled that important parts of that law are not unconstitutional, the federal government continues to implement Obamacare in fits and starts. Some parts became effective in 2010, while other parts will not become effective until January 1, 2020. On January 1, 2013, our federal taxes on earned income increased and new taxes on investment income were levied to pay, in part, for Obamacare. Whether these taxes will be sufficient to fund Obamacare is unknown, but what is known is that since 1965 Medicare’s cost always has exceeded the government’s actuarial projections. With its inexorable growth, Medicare threatens to swallow an unsustainable proportion of our gross domestic product.
Is “Medicare reimbursement” an Oxymoron? Articles about Medicare spending dominate the news, and frequently reach a level of hysteria worthy of British tabloids. The frenzy has reached new heights with recent headlines in the States highlighting that hospital charges for the same treatment vary widely not only across the country, but even within the same county.1
a
The official name is The Patient Protection and Affordable Care Act. The commonly used acronym is ACA, but although his opponents have used Obamacare as a pejorative term, even Obama referred to it as Obamacare during the last presidential election. ht t p:/ /e n. wi ki pe di a. org /wi k i /Pa ti e nt _ Prot e ct io n_ an d_ Affordable_Care_Act. [Accessed August 8, 2013].
Medicare pays most hospitals a fixed amount based upon the discharge diagnosis.b In Table 1 you see data the results from Medicare in 2011 for patients discharged with the diagnosis: “Respiratory system diagnosis with ventilator support over 96 h”: for three hospitals in MiamiDade County. Jackson Memorial Hospital, owned by the local government, the UM Hospital, owned by the University of Miami, which is a 5 min walk away from Jackson Memorial, and Baptist Hospital, owned by a “not-forprofit” organization, which is less than a 30 min drive from bothc (Table 1). Note how Baptist, the hospital with the highest charge, received the lowest payment, while Jackson Memorial, the hospital with the lowest charge, received the highest payment. Remember that Baptist Hospital is a “not-for-profit” organization. It is one thing to not earn a profit; it is another to “lose” over $345,000 for the average patient. Even Jackson Memorial Hospital, that received over 35% more money than Baptist Hospital, still managed to “lose” money. Welcome to the world of Medicare reimbursement.
Does Alice know what cost is? A rational explanation for this exists that will make sense even to those readers who are unfamiliar with Lewis Carroll’s writings. Like The Adventures of Alice in Wonderland, hospital charges are a fiction. Writing recently in his institution’s newsletter, Brian Keeley, the President and Chief Executive Officer of Baptist Health said: “A hospital’s ‘charge’ is similar to the sticker price shown on windows of new automobiles. Rarely does anyone pay it... The hospital ‘charge’ or ‘chargemaster’ is a concept similar to the list price used in many other b Cancer centers such as MD Anderson, Memorial Sloan-Kettering and the University of Miami’s Sylvester Cancer Center are exempt from this reimbursement system and are paid based upon their charges to Medicare. c “Not-for-profit” means that an organization is exempt from state and federal taxes. The Internal Revenue Service classifies the hospital as a public charity.
1748-6815/$ - see front matter ª 2013 British Association of Plastic, Reconstructive and Aesthetic Surgeons. Published by Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.bjps.2013.09.020
Letter from America
1825
Table 1 2011 Average charges to and payments from Medicare for DRG code 207 “Respiratory system diagnosis with ventilator support 96þ hours”.
Jackson Memorial UM Hospital Baptist Hospital
Average charge
Average payment
Difference
$169516 $187126 $391029
$62087 $40332 $45715
$107429 $146794 $345314
industries. The Medicare laws require hospitals to maintain a “chargemaster” showing the list price of all items for which we charge. Unfortunately, there is no set of comprehensive standards for the chargemaster e no rulebook on what to include, what not to include or on the relationship between the charge and the underlying cost”.2 This distinction between cost and charge is not new. Over 30 years ago, Finkler warned: “Charges may bear little resemblance to economic cost, and use of charges as a proxy for economic cost may lead researchers to draw unwarranted conclusions about economic efficiency”.3 Unfortunately, even recent studies fail to make that distinction.4
15, 2012. I extracted the number of times the words “cost” and “cost-effective” appeared in either the titles or abstracts for all human reports published in this journal, Plastic and Reconstructive Surgery and Annals of Plastic Surgery.5,6
Can we do a better job of studying cost and “cost-effectiveness”? Certainly. The reason that I chose June 15, 2012 was to match the time period of a recent systematic review of plastic surgical economic evaluations by Thoma’s group.7 Despite my having found that the word “cost” had appeared in 390 articles in these three journals, Thoma’s group found that only 34 articles had any type of economic analysis. Similarly, despite my having found that the phrase “cost-effective” had been used in 78 articles, Thoma’s group found that only 10/95 (11%) of the articles measured cost-effectiveness. This suggests that there was much mention of “cost-effectiveness” with little documentation. Sadly, Thoma’s group found that only 6/95 (6%) articles were of the preferred cost-utility analysis. Most of the articles that they found 78/95 (82%) were cost analyses. Notwithstanding our increased curiosity about the economics of our specialty, we have not been very accurate in our economic analyses.
Who pays for the cost? Are plastic surgeons interested in cost and “cost-effectiveness”? Yes. Cost has gained greater frequency in both our plastic surgery literature and in the popular media. Figures 1 and 2 are the results of my PubMed searches from 1986 to June
Theoretically there is a common denominator in any economic analysis be it -analysis, cost-benefit analysis, costeffectiveness analysis or, cost-utility analysis. The common denominator is cost. You may ask, “Cost to whom?” Who pays for it? In 1996, the mavens who met to ponder
Figure 1 PubMed search results for “cost” in titles or abstracts of all human studies published in JPRAS, Annals of Plastic Surgery and Plastic and Reconstructive Surgery 1986-June 15, 2012.
1826
M.F. Freshwater
Figure 2 PubMed search results for “cost-effective” in titles or abstracts of all human studies published in JPRAS, Annals of Plastic Surgery and Plastic and Reconstructive Surgery 1986-June 15, 2012.
recommendations for cost-effective analysis decided that cost must be calculated on a societal basis. They wrote: “The analyst considers everyone affected by the intervention, and all health effects and costs that flow from it are counted, regardless of who would experience them. Health effects include both benefits and harms, even when these occur in people who are not the intended recipients of the intervention.”8 It may surprise you to learn that this definition of cost is still preferred.9
Are economic analyses fungible? Since cost is determined on a societal basis, therein lies the problem in comparisons. Costs from one country may not be fungible to other countries. Compare this to analyzing cleft lip procedures or the prevalence of postoperative infection where the results can be compared from one country to the next. Indeed, I am skeptical that cost can be determined on a societal basis even within the United States. Not only do we lack a single payer system, but also there are disparate elements within our society and there are very different benefits and harms that have been determined by legislation. Despite our having Medicare and Obamacare, other groups within society receive health care that is restricted by separate legislation. Some examples include our military who receive care in a system of military hospitals and clinics, our military veterans who receive care in the veterans health system, road traffic accident victims and injured workers. Further complicating any analysis is the reality that the legislation that governs the medical care of road traffic accident victims and injured workers is produced by fifty different state legislatures.
What should we learn? Long before the Great Recession of 2008, Warren Buffett railed against the use of creative accounting terms to distort financial results by writing: “When companies or investment professionals use terms such as ‘EBITDA’ and ‘pro forma’, they want you to unthinkingly accept concepts that are dangerously flawed. (In golf, my score is frequently below par on a pro forma basis: I have firm plans to ‘restructure’ my putting stroke and therefore only count the swings I take before reaching the green)”.10 We should heed Buffett’s admonition about creative accounting when we perform or study economic analysis in plastic surgery: “Bad terminology is the enemy of good thinking”.10
Funding None.
Competing interests None.
References 1. https://data.cms.gov/Medicare/Inpatient-Prospective-PaymentSystem-IPPS-Provider/97k6-zzx3 [accessed 08.08.13]. 2. https://dl.dropboxusercontent.com/u/47460616/Keeley copy. pdf [accessed 08.08.13]. 3. Finkler SA. The distinction between cost and charges. Ann Intern Med 1982;96:102e9.
Letter from America 4. Lynch MP, Chung MT, Rinker BD. Dermal autografts as a substitute for acellular dermal matrices (ADM) in tissue expander breast reconstruction: a prospective comparative study. J Plast Recon Aesthetic Surg 2013. http://dx.doi.org/10.1016/j.bjps. 2013.07.002. 5. http://www.ncbi.nlm.nih.gov/sites/myncbi/collections/public/ 12kq7yz8cWxzgTkyogZi2it/ [accessed 08.08.13]. 6. http://www.ncbi.nlm.nih.gov/sites/myncbi/collections/public/ 1fysg-CBYytlZKkazcSNi2d/ [accessed 08.08.13]. 7. Ziolkowski NI, Voineskos SH, Ignacy TA, Thoma A. Systematic review of economic evaluations in plastic surgery. Plast Reconstr Surg 2013;132:191e203. 8. Russell LB, Gold MR, Siegel JE, Daniels N, Weinstein MC., for the Panel on Cost-Effectiveness in Health and Medicine. The role of cost-effectiveness analysis in health and medicine. J Am Med Assoc 1996;276:1172e7.
1827 9. Kotsis SV, Chung KC. Fundamental principles of conducting a surgery economic analysis study. Plast Reconstr Surg 2010;125: 727e35. 10. Buffett WE. 2001 Chairman’s letter. http://www.berkshire hathaway.com/2001ar/2001letter.html [accessed 08.08.13].
M. Felix Freshwater Voluntary Professor of Surgery, University of Miami School of Medicine, 9155 S. Dadeland Blvd., Suite 1404, Miami, FL 33156-2739, USA E-mail addresses: [email protected], [email protected]
9 August 2013
