Health care industry looks to cure rising costs - East Valley Tribune: Business

Health care industry looks to cure rising costs

Font Size:
Default font size
Larger font size

Posted: Sunday, August 20, 2006 9:41 am | Updated: 3:05 pm, Fri Oct 7, 2011.

When people think of technology in health care, usually what comes to mind are rapidly advancing treatments that could one day cure diseases like diabetes and AIDS.

But technology, as well as innovation, has the potential to play a big role in controlling increasing health care costs, say professors in the School of Health Management and Policy in the W.P. Carey School of Business at Arizona State University.

Technology and innovation also offer the best hope for easing the ongoing conflict between health care providers and consumers over health care costs.

Bradford Kirkman-Liff, a professor of health policy and biotechnology, said rising health care costs can be attributed to:

• Hospitals raising their fees in response to lower payments from Medicare, Medicaid and managed care.

• Hospitals paying more for labor because of the ongoing health care worker shortage.

• Increases in malpractice insurance.

• Higher costs for new drugs and larger investments in new technology to improve care.

But another fundamental part of the equation involves how the industry itself operates, he said.

“We provide patients with, in a sense, many, many choices,” Kirkman-Liff said. “Because of that choice, we have a very complex system and that means it is in some ways a system that is more complex, requires more administration, more paperwork, more telephone calls, etc. There’s no centralized decision making. There’s very little coordination or planning. So our system, in terms of how it’s organized in some ways, is inefficient because everyone has all these choices.”

Hospitals are “very much behind” in using technology to improve their supply chain, said Eugene Schneller, a professor who focuses on health care supply chain management. Supply chain management involves improving the way a company gets the materials it needs to make a product or service, and deliver it to customers.

“If you think of the companies that have been most successful in the last few years, like and Dell Computer, those companies have really improved because they’ve really used so many new information technologies to reduce transaction costs and to become much more efficient.”

Banner Health spokesman Bill Byron said his organization is implementing several systems that use technology to help control costs.

“The proper description would be technology that improves efficiencies to better control costs,” he said. “That doesn’t mean costs aren’t going to rise.”


Many people say they’re experiencing rising health care costs, according to an August 2005 report by the Henry J. Kaiser Family Foundation, a Menlo Park, Calif.-based, nonprofit organization that focuses on major health care issues.

Sixty-six percent of Americans with health insurance say their premiums have increased over the past five years, including 38 percent who say their premiums have gone up “a lot.” About half of insured adults say their copayments for provider visits and health insurance deductibles have risen during that period, the Kaiser report said.

Rising health care costs are leaving more Americans without health insurance and that in turn is creating higher premiums for those with health insurance, said Kathleen Stoll, director of health policy for Families USA, a national, nonprofit organization that advocates “high-quality, affordable health care for all Americans.”

“Because about 65 percent of health insurance is provided by employers, as health care costs rise and health insurance costs rise, that impacts employers,” she said. “Probably the impact is felt more by small employers than large employers, and that does lead employers to do a number of things. They may reduce the amount of coverage they provide or they may drop coverage. They can reduce benefits they cover and they can ask their employees to pay more out of pocket.”

Nearly 48 million Americans were uninsured last year, including about 973,000 Arizonans, according to Families USA.

“More people are going to show up in emergency rooms,” Stoll said. “They’re still going to get sick and they’re going to need health care, and in turn the folks who do have health insurance feel the impact of people who are uninsured in their premiums. Those costs get passed on by hospitals in part in how they negotiate rates with insurance companies, and then insurance companies pass those on to (their policyholders).”

In 2005, health insurance premiums in Arizona for a family with private, employersponsored coverage were nearly $1,300 higher because of the unpaid cost of health care for the uninsured. Premiums for individual health insurance coverage in Arizona were $477 higher.

By 2010, health insurance premiums for families in Arizona with private, employersponsored coverage are expected to be $2,028 higher, while premiums for individual health insurance coverage in Arizona are expected to be $726 higher.


Hospitals in general are way behind other industries in investing in technology to improve the way they do business, Schneller said.

“Hospitals have been very slow to link up clinical, managerial and financial data, whereas other industries . . . they’ve totally integrated those aspects of their supply chain and the health care system hasn’t,” he said.

When it comes to fostering innovation and experimentation, the health care industry should be at the front of the curve rather than at the back, Schneller said.

“For example, there’s been a real resistance to build specialty hospitals,” he said. “What we see in speciality hospitals is frequently they’re managed much more efficiently and they take advantage of many of the kinds of supply chain advantages that others don’t.”

Information technologies can play a crucial role in increasing efficiency, said Michael Surukawa, an assistant professor in the School of Health Management and Policy.

“There’s big interest in electronic health records, or electronic medical records instead of all of the paperbased records and charts, and test results and other things,” he said. “They’re accessible and we can perhaps reduce duplicate tests. We can provide information about drug allergies where we can maybe prevent medication errors and so forth.”

Banner Health is in the process of implementing electronic medical records in all of its hospitals, Byron said. All Banner hospitals in the East Valley will have electronic medical records by the end of 2008.

“We’re trying to improve how information is documented and gathered, and certainly retrieved in a single system, and that can include tests, medical histories and medical images,” he said. “They’re available all in one place via your bedside electronic medical record as opposed to having to go down to radiology to try to get a hold of an image, or waiting to get the chart that has the lab report.”

Banner also has introduced I Care ICU, a virtual intensive care unit with a control center adjacent to Banner Desert Medical Center in Mesa. “It assists in the care of ICU patients at five facilities, including one in Colorado,” Byron said.

“Not only does it visualize patients who are in selected I Care ICUs, but it has monitoring that all comes into this central location. Toward the end of 2007 to early 2008, every single ICU bed is going to be a part of our I Care ICU system. You will have command with a single source every single ICU bed in Banner Health.”

There’s growing interest in the health care industry in implementing computerized physician order entry, where doctors directly enter drug orders, and medical errors from bad handwriting and wrong dosage can be avoided, Surukawa said.

“There’s some of the new preventive technologies, the new genetic testing for breast cancer and Alzheimer’s disease,” he said. “If we can catch diseases much, much earlier, then we can treat them earlier and avoid a lot of the costly surgeries and nursing homes, and institutionalization of people if these diseases aren’t caught until the later stages of progression.”

Help on the Web

• Hospital Compare ( Provides information on how well hospitals in this area care for all their adult patients with certain medical conditions.

• Families USA ( Features health policy reports describing the problems facing health care consumers and outlining steps to solve them. (See the publications list).

  • Discuss

'EV Women in Business'

A PDF of the Tribune special section, featuring a mix of sponsored content from our loyal advertisers and newsroom coverage of the East Valley business community.

Your Az Jobs