Health Care Savings to Come From Unlikely Places
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The Fiscal Times
March 2, 2014

Let's say that the U.S. health care industry really is embarking upon a major wave of innovation and cost cutting. Where would you expect that most of those savings occur? In hospitals? Clinics? Outpatient centers?

The best bet might be in so-called "non-traditional" settings — perhaps even your local drug store.

Much of the nascent movement to push health care outside of hospitals and clinics isn't being driven by the industry. It's an outgrowth of the formation of Medicare Accountable Care Organizations (ACOs), an obscure part of Obamacare that seeks to reward organizations for efficiency and high-quality care.

The premise is simple: Create new health care organizations that promote quality care at a lower cost. Savings will be split between the providers and Medicare. According to the National Institutes of Health, some 55 percent of the U.S. population lives within an area served by 227 ACOs. These groups can be organized by doctors or hospitals.

A recent study by three researchers with the Dartmouth Institute for Health Policy and Clinical Practice found that there are early signs that ACOs are "driving innovation in the marketplace." For example, one way of lowering costs is to simply move treatment and health monitoring out of a hospital or clinic. The Dartmouth researchers cited an example where a "high touch care management system" run by Beth Israel Deaconess Care Organization used nurse practitioners to visit its sickest patients at home. That strategy is designed to reduce hospital readmissions.

Other forms of non-traditional health care are available in retail pharmacies like CVS and Walgreens. The latter pharmacy chain has just launched three ACOs to provide low-cost care. In an indirect move designed to boost its share and re-orient its business model around in-store clinics, CVS recently announced that it will stop selling cigarettes and focus more on its 750 "MinuteClinics."

The bigger trend is pushing traditional pharmacy chains deeper into primary care. Although they have long offered advice on prescriptions and flu shots, they are offering a broader array of services. According to The Washington Post:

With 750 MinuteClinics, CVS has the country's largest chain of pharmacy-based health clinics. The clinics have allowed the company to pursue contracts with hospitals and health plans, often to provide primary care services weekends and evenings, when doctors' offices tend to be closed. CVS Chief Medical Officer Troyen A. Brennan estimates that the company has 30 to 40 partnerships with health-care systems across the country and is in talks with a similar number about starting arrangements.

The Larger Trend
Fueled by ACOs, will non-traditional health care providers make an inroad into the most basic level of care? They've already gained a following due to their "first come, first served" approach. Although they clearly gain additional revenue from prescriptions, over-the-counter and other retail sales, they are convenient, open weekends and generally accessible. 

Clinics at both Walgreens and CVS have become first-line primary care stops for my family. They are generally thorough and easy to visit when our family doctor's office is closed. They charge a flat fee ($89 in our area), which is roughly what our primary care physician would charge us after an insurance discount.

Although in-store clinics are no substitute for emergency rooms for acute care situations, they are at least competitive. More research is needed, though, to see if their lack of diagnostics — you can't get a CT-scan or MRI at a pharmacy — will play a factor in reducing the overall cost of primary care. 

More importantly, will non-traditional models curb rising health care insurance costs, an issue that Obamacare does not fully address? Of special concern is what small business employers pay for health insurance. According to a new report by the Centers for Medicare and Medicaid Services, some 11 million workers may face higher premiums due to the ACA.

There's also a concern that technology may continue to inflate costs. While tech will also play a part in reducing costs — perhaps through electronic medical records — providers that have invested heavily in new diagnostic and treatment tools will want to use them as much as they can, which could raise costs over time. 

At present, there are more incentives to overuse technology in testing and procedures than there are to employ low-cost primary care.  As David Carr observes at InformationWeek HealthCare:

Reformers refer to these as "perverse incentives" that drive overutilization, resulting in episodic "sick care" rather than a systematic effort to improve people's health. If what we want instead is a healthcare system that makes people healthier at a reasonable price, the incentives should reward preventive care that reduces the need for those visits, admissions, and surgeries.

In the accountable care model, critics of the fee-for-service system claim, most roads to cost saving lead back to strong, primary care to head off the costly implications of unmanaged chronic diseases and hospitalizations. 

Not every ACO-based model will thrive, however. Many institutions, with large fixed costs, will find it difficult to depart from the old, fee-for-service model where compensation is based on the number of tests, treatments and procedures — and not overall health outcomes.

Nevertheless, where this care is provided is important. If it's in the home or a retail store, medicine might move away from an expensive focus on institutional diagnostics and treatments and concentrate on a more fundamental approach to care. This "back to the basics" model might be the most powerful idea in lowering costs over the long term.

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Journalist and speaker John F. Wasik has written 14 books on subjects that range from wealth to ecology to retirement. He writes for Reuters and contributes to Forbes, The New York Times and other publications.