In healthcare, why cost and quality don't match up

Everything you think you know about healthcare price and quality is probably wrong. 

We all know that high quality comes with a higher price. A Mercedes Benz automobile costs more than a Ford. Designer and custom clothing costs more than off-the-rack apparel. A room at the Ritz-Carlton costs more than one at a Holiday Inn.

Similarly, we expect a higher price to mean higher quality, which is why most patients want the most expensive healthcare facility to receive the highest quality care. Whatever you are buying, there almost always is a direct correlation between price and quality: higher quality means higher price, lower price means lower quality.

Except in healthcare. 

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Although it's counterintuitive, price and quality in healthcare usually have an inverse correlation (i.e., higher quality means lower price; higher price means lower quality). Want to pay less for healthcare? Then look for the highest quality care. Simply put, quality costs less. 

This inverse relationship between healthcare price and quality is easily seen with surgeons. The best surgeons — measured objectively by the quality of their surgical outcomes, not bedside manner — provide both direct and indirect cost savings over lesser surgeons. In other words, better surgeons cost less.

These high-quality surgeons have the best outcomes, in part, because of their high volume of procedures, performing that surgery regularly and frequently. Let's take total knee replacement (TKR), for example. TKR surgery takes between one to three hours, but a skilled and experienced surgeon, who might perform three or four TKRs a week, will take far less time per surgery than a surgeon who does only five TKR surgeries a year. Not only is the experienced surgeon more efficient, but her surgical team is also highly practiced and efficient, contributing to the superior outcomes and shorter surgery time.

The surgeon who performs a high volume of surgeries completed in less time can charge a lower professional fee per surgery than the surgeon who performs only a small number of the same procedure annually. The high-quality surgeon's lower professional fee represents direct savings to the health plan.

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The top surgeons, however, also produce bigger, indirect savings for a health plan because of fewer surgical complications and readmissions. Adverse reaction to anesthesia is a common complication, which becomes more likely the longer the patient is under anesthesia. By completing the surgery in less time, these surgeons reduce their patients' time under anesthesia, and thus the risk of complications. Inexperienced surgeons will keep a patient under the gas longer, risking complications, as they take longer to complete the surgery.

High-quality surgeons rarely produce other common surgical complications, such as bleeding, infections and injury to surrounding organs. With few — if any — complications, their patients rarely require costly treatment and prolonged hospitalization or readmission to treat complications. These surgeons provide substantial indirect savings to the health plan that bears the cost of complications. 

By adopting a next-generation health plan that uses outcomes data to identify high-quality healthcare providers and educates patients to choose a high-quality physician, an employer can ensure better medical outcomes for the patient while ensuring lower costs for the health plan.

In their search for high quality care, it's natural for many patients needing healthcare to seek out the most expensive facility. For example, due to its reputation, the world-famous Cleveland Clinic attracts patients from across the country and around the world.

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For years, the Cleveland Clinic has topped the annual U.S. News & World Report list of best U.S. hospitals for cardiology and heart surgery. And, in fact, this research shows Cleveland Clinic does have better outcomes for major cardiac surgery than almost 97% of all other U.S. hospitals.

Most Americans are aware of Cleveland Clinic's reputation because it also ranks among the top U.S. hospitals in another key category: marketing budget, which promotes the famed clinic as one of the nation's best facilities. The clear implication is that the Cleveland Clinic, one of the nation's more expensive hospitals, provides patients with the highest quality care, not only for heart disease, but every other condition.

There are other important factors to consider. While the Cleveland Clinic ranks at the top in marketing budget, in the more meaningful category of "overall hospital care," it actually ranked fifth out of half a dozen — next to last — for "composite quality score." It also ranked next-to-worst for "readmissions" and dead last by a wide margin for "complications." 

In fact, despite its overall top rank for heart surgery, the clinic ranks at the very bottom of U.S. hospitals on this list for complications from heart surgery. Complications and readmissions drive up a plan's health care costs and are largely avoidable by using high-quality providers. 

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Cleveland Clinic's high prices for healthcare clearly do not always produce the expected high-quality outcomes. By comparison, the list found that the nearby Lutheran Hospital is 40% less expensive than Cleveland Clinic, yet boasts some of the area's best outcomes, ranking second in "composite quality score," second for its low "readmissions," and first for fewest "complications." One interesting side note is that Cleveland, Ohio, boasts six major hospitals and hospital systems. These two Cleveland hospitals perfectly illustrate the inverse relationship between quality and price in healthcare.

A similar story has unfolded in my hometown of Nashville, Tennessee, where most residents consider Vanderbilt University Medical Center to be the premier hospital in the middle of the state, with prices that are in line with its top-20 national ranking from U.S. News & World Report.

Vanderbilt's stellar reputation, however, hides a potentially deadly threat that lurks in every one of its operating theaters and patient rooms. The Leapfrog Group, which monitors healthcare safety, found that healthcare-acquired infections (HAIs) that occur while being treated at a medical facility are rampant at Vanderbilt, in their case especially dangerous blood infections and MRSA. When undergoing what very well might be a high-quality procedure at Vanderbilt, any patient is at high risk for the serious complications of a HAI, which would lead to prolonged hospitalization or readmission for treatment of the infection.

A Vanderbilt patient's high risk of infection, with its attendant treatment costs to the plan, is another prime example of the inverse relationship of quality care and high care prices.

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When hospitals perform high-risk surgical procedures without enough experience, patients "are more likely to suffer complications, harm, or even death," according to the Leapfrog Group. A problem especially for rural hospitals, the opportunity to perform a high-risk surgery despite too little experience with the procedure is difficult for hospitals to turn down because of the substantial revenue it represents. 

In California, for example, the Leapfrog Group noted that Adventist Health Bakersfield, which is part of the expensive and highly regarded Adventist Health system, performs high-risk, open-heart surgeries without the adequate, ongoing experience necessary to ensure safe outcomes for the patients. Heart patients trust the perceived quality of the Adventist Health brand, based in part on its high prices, only to put themselves at grave risk due to the hospital's lack of experience with open-heart surgery. 

Price repeatedly proves to be a false indicator of quality when it comes to healthcare.

Given that health insurance premiums have tripled in the past 20 years, employer-sponsored health plans understandably focus on the cost of care. Yet, employers have seen little to no progress in slowing down the rate of annual premium increases. Insurance premiums are expensive and keep increasing in price because healthcare is also expensive and keeps increasing in price.

Instead of focusing on the price of healthcare in a futile effort to control costs, savvy employers instead are emphasizing the quality of care. By choosing providers on the basis of their outcomes quality, employees receive high-quality medical outcomes at a lower cost. Working with next-generation benefits advisers, employers are adopting innovative plan designs that incentivize employees to use high-quality physicians and facilities, while still allowing total employee choice of providers.

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Health insurers have access to the same reliable provider outcomes data deployed by these next-generation advisers, but they refuse to provide their plan members with information or guidance around provider quality. Thus, it's inarguable that the insurance companies have chosen to protect dangerous physicians and unsafe hospitals from their own bad outcomes data rather than protect their members from these dangerous doctors and unsafe hospitals. 

Faced with this clear disregard for the life and health of their employees, more employers are cutting out insurance-company middlemen and choosing healthcare plans that start with quality for better medical outcomes, with the added benefit of lower healthcare costs for everyone.

These employers recognize the healthcare quality and price paradox and its exciting implications for their healthcare plan. Companies that embrace "quality-first" next-generation health plans are creating a winning formula for both their employees and their bottom line.