A Formula for Cutting Health Costs
New York Times Editorial
July 21, 2012
No matter what happens to President Obama’s health care reforms after the November
elections, the disjointed, costly American health care system must find ways to slow the
rate of spending while delivering quality care. There is widespread pessimism that
anything much can be achieved quickly, but innovative solutions are emerging in
unexpected places. A health care system owned and managed by Alaska’s native people
has achieved astonishing results in improving the health of its enrollees while cutting the
costs of treating them.
At a recent conference for health leaders from the United States and abroad at the native-
owned Southcentral Foundation in Anchorage, the Alaskans described techniques that
could be adopted by almost any health care organization willing to transform its culture.
Such a transformation would require upfront financing for training, data processing and
the like, but the investment should rapidly pay off in reduced costs.
The foundation, established in 1982, provides primary outpatient care to Alaska natives
and American Indians who had previously been the responsibility of the federal
government’s Indian Health Service. It serves 45,000 enrollees in the Anchorage area and
10,000 more scattered in remote villages, most reachable only by air, on an annual
budget of $200 million. It also jointly owns and manages (with a consortium of native
tribes) a small hospital, and has built a modern campus of outpatient clinics with the help
of loans, grants, bonds and retained earnings.
About 45 percent of its revenue comes in what amounts to an annual block grant from the
Indian Health Service, a source unavailable to most health systems; another 45 percent
comes from Medicaid, Medicare and private insurers, and the rest from philanthropy and
As the Commerce Department noted when it gave Southcentral a national quality award in
2011, known as the Malcolm Baldrige award, the foundation has achieved startling
efficiencies: emergency room use has been reduced by 50 percent, hospital admissions
by 53 percent, specialty care visits by 65 percent and visits to primary care doctors by 36
percent. These efficiencies, in turn, have clearly saved money. Between 2004 and 2009,
Southcentral’s annual per-capita spending on hospital services grew by a tiny 7 percent
and its spending on primary care, which picked up the slack, by 30 percent, still well below
the 40 percent increase posted in a national index issued by the Medical Group
Patients have not been shortchanged; in fact, care and access to services have improved
greatly. Patients are virtually guaranteed a doctor’s appointment on the day they request
it, and their calls are answered quickly, usually within 30 seconds. The percentage of
children receiving high-quality care for asthma has soared from 35 percent to 85 percent,
the percentage of infants receiving needed immunizations by age 2 has risen above 90
percent, the percentage of diabetics with blood sugar under control ranks in the top 10
percentile of a standard national benchmark, and customer and employee satisfaction
rates top 90 percent.
The staff is trained to treat patients courteously, not with the disdain often reserved for
the poor or ethnic minorities. The atmosphere is so welcoming that natives routinely
congregate in waiting areas to swap stories and meet old friends even when they do not
need medical care.
Although Southcentral has unique attributes (it even refers cases to traditional tribal
healers if doctors agree), here are some of its techniques that almost any health care
system can adopt:
¶Assigning small teams — consisting of a doctor, a nurse, and various medical,
behavioral and administrative assistants — to be responsible for groups of 1,400 or so
patients. The team members sit in the same small work area and communicate easily.
When a patient calls, the nurse decides whether a face-to-face visit with a doctor or other
health care provider is required or whether counseling by phone is sufficient. The doctors
are left free to deal with only the most complicated cases. They have no private offices
and the nurses have no nursing stations to which they can retreat.
¶Integrating a wide range of data to measure medical and financial performance.
Southcentral’s “data mall” coughs up easily understood graphics showing how well doctors
and the teams they lead are doing to improve health outcomes and cut costs compared
with their colleagues, their past performance and national benchmarks, and it provides
them with action lists of what they can do to improve and mentors to guide them. That
almost always spurs the laggards. One doctor whose team ranked well behind 10 others
in scheduling annual eye exams for diabetics jumped to first place within two months once
she became aware of how poorly her team was performing.
¶Focusing on the needs and convenience of the patients rather than of the institution or
the providers. The facilities feature rooms where providers and families can chat as
equals on comfortable chairs, in sharp contrast to examination rooms where a doctor
looms over a patient. Every patient visit is carefully planned so the patient can get in and
out quickly without being delayed because, say, a needed lab test result is not available.
¶Building trust and long-term relationships between the patients and providers.
¶Changing from a reactive system in which a sick patient seeks medical care to a
proactive system that reaches out to patients through special events, written and
broadcast communications, and telephone calls to keep them healthy or at least out of the
hospital and clinics.
Visionary health care systems elsewhere are already adopting Southcentral’s techniques,
usually after visits to Anchorage to observe them in action.
CareOregon, a small Medicaid managed-care plan in Portland, sent not only its own
people but also delegations from the clinics that serve its patients. It then paid the clinics a
subsidy to get started and found that, within two years, Southcentral’s tactics greatly
reduced the use of costly emergency departments and hospital admissions while
improving health outcomes. Dr. David Labby, CareOregon’s medical director, said in an e-
mail that the example set by Southcentral was “hugely inspirational” and “remains the
model that guides us.”
Similarly, Maxine Jones, the service manager of a primary care practice in the county of
Fife, Scotland, is supervising a pilot study for the National Health Service using techniques
adapted from Southcentral that almost immediately produced a sharp decline in visits to
the practice because many problems could be handled by an integrated team of doctors
and nurses by phone. “I can see that this model has the potential to transform the face of
primary care in Scotland,” she said in an interview at the conference.
Many other health care organizations in the United States and elsewhere have consulted
with Southcentral on how to make their delivery of care more efficient and less costly while
maintaining or improving quality. If enough of them summon the energy to transform their
operations, their combined impact could help slow the rising curve of health care costs, or
even bend it downward.
This is part of a continuing examination of ways to cut the costs of medical care while
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