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Will Pawlenty health alliance generate 43% savings?
by Tom Scheck, Minnesota Public Radio
December 7, 2004

A 2003 study by the Midwest Business Group on Health estimates that 30 percent of health care treatments are unnecessary, ineffective or poor. (Photo by Don Murray/Getty Images)

Gov. Tim Pawlenty says he hopes to improve the quality and lower the cost of health care by combining the buying power of the state and Minnesota's largest employers. Health care industry observers say that's large enough to pull some weight with providers, but are skeptical of the size of the potential savings.

St. Paul, Minn. — Pawlenty put a precise figure on how much he thinks his plan could reduce health care costs - 43 percent. Thirty percent would come from improving treatments, bringing technology up to date would cut another 10 percent from costs, and reducing fraud would knock three percent off the bill. Several health care analysts say Pawlenty's looking in the right places for savings. Harvard health economist David Cutler, for one, agrees too much money is spent on poor treatment.

"There's a lot of money going for things that are not really so necessary," Cutler said. "If we did better, there could be a significant pot there that one could have access to."

	Roger Feldman

But Cutler and others say Pawlenty faces hurdles to achieving savings of the size he wants.

Many studies show inefficiencies in the health care system. A 2003 study by the Midwest Business Group on Health estimates that 30 percent of health care treatments are unnecessary, ineffective or poor. It says too many surgeries, tests and medications are overused. It also says doctors often decide not to prescribe known effective treatments.

But despite evidence that savings can be had by improving treatments nationally, some say they may be harder to find in Minnesota. University of Minnesota health economist Roger Feldman says Minnesota health care providers are already more efficient than their counterparts in other states.

"There's a lot of money going for things that are not really so necessary. If we did better, there could be a significant pot there that one could have access to." - Harvard's David Cutler

"We already have eliminated a lot of unnecessary care," Feldman said. "So it's probably going to be more difficult achieving further improvements in Minnesota than some other states."

Feldman says there is some waste in the system. He says the challenge for Pawlenty's alliance is to convince health care professionals to forego traditional treatment options and move to new treatment guidelines. He says many providers may believe a traditional treatment is useful and ignore new guidelines.

In terms of technology, Pawlenty says the health care field is one of the more innovative sectors when it comes to treating patients. He says the problem is hospitals and clinics still use paper records for patient files and billing information.

Pawlenty wants to cut unnecessary state paperwork for providers. He also wants providers to improve their billing and office technology so every provider has instant access to patient records.

"By having purchasers demand things like the availability of electronic cards," Pawlenty said. "Those cards contain insurance eligibility information in real time that will make significant progress towards making the system more efficient."

The U.S. Department of Health and Human Services estimates that improved office technology could cut ten percent in health care costs.

But installing the needed technology requires someone to pay upfront costs. Providers would shoulder the cost under Pawlenty's plan. A Harvard study estimates a ten percent increase in health care costs over the next five years to pay for such an upgrade.

	Allina's David Orbuch

Leaving the upgrade to providers could also mean some limits on the efficient sharing of patient data. David Orbuch with Allina Health Systems says they're spending about 200 million dollars to create a patient database.

But he doesn't ensure that Allina's system will communicate with other hospitals. He says the state and federal government may need to spend money if they want all of the systems to communicate.

"Allina is working with other providers to see if that could happen," Orbuch said. "It would behoove the governor and the Legislature to support the efforts to have a standard platform for automated medical records in the state of Minnesota."

The rest of the savings in Pawlenty's plan would come from tougher enforcement of health care fraud. Some experts say eliminating fraud is costly and difficult to prosecute.

Another challenge to seeing longterm savings is keeping the health care alliance together. The U of M's Roger Feldman says business leaders often have trouble agreeing over the long term because board rooms change.

"This is especially the case nowadays when so many businesses are bought by others," Feldman said. "The original founders of the alliance may be bought out and then the new owner loses interest."

One expert points out that even if Pawlenty's plan does reduce costs it doesn't contain any mechanism to make sure the savings get passed on to consumers.

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