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Answers to What Ails Health Care

By Dr. David C. Pate, News and Community
December 12, 2012

Editor's note: What follows is a white paper that attempts to pull together many of the disparate and complex challenges confronting health systems in the United States and highlights solutions St. Luke's Health System is developing to transform care.  


Health care costs continue to spiral out of control for multiple reasons, primarily:

  • Fragmented care delivery, with medical entities and providers operating independently and not in concert across a patient’s spectrum of needs ( Fragmentation is characterized by waste – examples would be duplication of tests and avoidable medication errors – and irrational variation in care, both of which contribute to increased costs. According to the Institute of Medicine, $2.5 trillion was spent on health care in the United States in 2009. Of that, $765 billion, or 30 percent was waste, including $210 billion in unnecessary services, $130 billion in inefficiently delivered services, and $55 billion in missed prevention opportunities.
  • Variations in relationships with multiple payers lacking a standard payment model, resulting in additional costs in overhead, administration, and myriad overlapping functions.
  • The costs of implementing and monitoring increasing regulation at all levels of government and by multiple oversight agencies.
  • The invariably increasing costs of medical technology, pharmaceuticals, and supplies; medical and pharmaceutical advances mean continuing expanded investments in technology and capital infrastructure, in marked contrast to the price declines seen in other industries.
  • Cost-shifting, whereby those who cannot or will not pay for their care leave payment to health providers. St. Luke’s covers more than $35 million in charity care and bad debt every year.
 This cost spiral has rendered health care unaffordable for many, resulting in a problem of access to care and complicating the problem of health care delivery exponentially. Health care is not consistently delivering to patients what they want. This paper discusses in detail the components of the problem, and solutions St. Luke’s Health System is developing to attempt to address those components within its spheres of competence.


Health care is changing because patients are changing, and demanding easier, more convenient, less burdensome services. New generations are becoming patients, and patients of all ages are expressing new wishes, driven in part by technological advances. 

Electronic health records are one example of this shift. St. Luke’s has responded to patients’ expressed desires to access their records online, email their providers, and schedule appointments electronically by implementing myStLuke’s electronic medical records. Implementation, which is costing St. Luke’s more than $100 million, is ongoing and occurring in waves of clinics and departments. For more detail, see


The current fee-for-service model reimburses for costly services, regardless of efficacy. Charges are generated for every service provided, whether necessary, whether successful, and despite the possibility of less costly options that would provide equally good or better outcomes. 

It logically follows that under the current model, patients with insurance receive those services supported by costly processes, medical infrastructure, pharmaceuticals, and related expenses, thus often inadvertently rewarding health care professionals and hospitals for providing low-value and no-value services. For how this works, watch TIME Magazine reporter Joe Klein’s video on how this played out in the care of his parents:

Fee-for-service provides no incentive for health care providers to address preventive care, population health, and the other upstream solutions to the complex health challenges faced by increasing numbers of people in Idaho, the region, and the U.S. Those providers that try, including St. Luke’s, are in fact financially penalized under fee-for-service. 

Health care, and health care payers, providers, and all others in the delivery chain, must evolve to a payment-for value methodology that takes into account investments in preventive health, population health, and team-based care. Payment must be for the value that comes with outcomes, rather than services.

Toward this end, St. Luke’s has entered into an alliance with an insurance company that is willing to overturn the payment model. In SelectHealth, St. Luke’s has found a non-traditional insurance company with which we will share data and be able to eliminate redundant administrative services. SelectHealth will be paid for the services it performs, partner with us to provide financial support for better health initiatives, and reward providers for eliminating low-value to no-value services according to evidence-based medicine. For more, see 2012/09/04/st-luke%e2%80%99s-health-system-and-selecthealth-innovate-with-breakthrough-strategic-alliance/.

SelectHealth also retains less of each insurance dollar for its own uses, which will free up resources to seed health initiatives. We would expect that over time, as initiatives take hold, an increasing percentage of each insurance dollar will be available for health promotion. For a more detailed explanation, view the video at


In health care, it has been estimated that nearly 30 percent of costs are related to waste. Waste takes many forms. Waste is anything that does not add value for customers. Defects, overproduction, waiting, and excess processing are all broad categories of waste. The fee-for-service reimbursement system does little to discourage waste, which is why the reimbursement system must evolve. 

St. Luke’s has used lean principles, often identified with Toyota’s manufacturing processes, for the past two years to try to identify and eliminate waste throughout the health system. We call our approach TEAMwork: timely, effective, accountable, and measureable work. For more on our efforts, see

We’re also adopting evidence-based medicine, which reinforces best practices and eliminates the waste that comes with irrational variation in approaches to care. We would question the need if, for example, a competitor in the market is advertising new technologies that no one else in the region has. If our physicians subsequently study these same technologies and we opt against them because there is no evidence that they improve outcomes over less-expensive technology already available, that is a broad application of lean principles. The “arms race” by health systems to gear up with the latest technology often only serves to drive up costs; in several recent instances, we have chosen not to participate. 

Our diabetes care, transitions of care, readmissions reduction efforts, and clinical integration efforts are other areas in which we are applying evidence-based medicine across the system and eliminating irrational variation. For more on our clinical integration work, see There is variation in medical treatment, and there needs to be. Therapy for one patient with a particular treatment may not be the right treatment for a different patient with the same condition. 

That said, we must eliminate irrational variation, variation where there is no reason for it. We identify best practices from within our industry and those parts of the health system that are performing the best and then standardize those practices across the system unless there is a reason not to.

We’ve taken this approach successfully in treating sepsis, a life-threatening blood stream infection (, and we are doing this with our stroke care; because of these efforts, St. Luke’s Treasure Valley recently was accredited by The Joint Commission as a Primary Stroke Center. And as a best practice, the approach is spreading; our Magic Valley Regional Medical Center is preparing for its survey to become accredited in 2013. For more on these efforts, see

These efforts, individually and collectively, are succeeding. Since we have taken a systemwide approach to quality, the morbidity (complication rates) and mortality (death rates) for all of our hospitals have dramatically improved ( We realize we can always get better. We are transparent about our progress, as well as our shortcomings. And we use national benchmarks to help us identify next areas of focus. 

A case study

From 1992 to 2003, the national rate of spine surgeries per 1,000 Medicare enrollees increased 63 percent. Medicare spending for inpatient spine surgery more than doubled during that time; Medicare spending for spine fusion increased more than 500 percent. 

During this same period, there was substantial variation in the rate of spine surgery from region to region of the United States, varying six-fold at the extremes. The rate of back surgery in some parts of the country was as low as 1.6 surgeries per 1,000 Medicare beneficiaries. 

The rate of spine surgery in Boise was fourth-highest in the United States, at 8.2 surgeries per 1,000 Medicare beneficiaries.[1]

It must be noted that spine surgery is very lucrative for both the physician and the hospital, and it is widely believed that the fee-for service reimbursement model has fueled over-reliance on such operations. Physical therapy and other non-surgical approaches to the management of back and neck pain are reimbursed at a fraction of the rate as surgery.

To try to ameliorate this situation, and even though it is costing St. Luke’s in additional infrastructure and the decrease in revenues caused by a reduced rate of back surgery, in 2009 St. Luke’s established a Center for Spine Wellness, through which patients are evaluated to determine whether non-surgical approaches are appropriate and receive assessment, education, and a treatment plan. 

Our results have been impressive, and again underscore the necessity of reversing the fee-for-service model and taking a population health approach. Only 12 percent of patients seen by center physicians and staff required costly advanced imaging, and less than 1 percent have required surgery.

Significant cost savings have been realized through the avoidance of expensive imaging, the surgeries themselves, and the complications that often result from and are associated with spine surgery. In addition to the cost savings to patients, employers, and insurance companies, avoidance of surgery often means less time away from work for employees and greater productivity.

But it is the value to the patient that is most critical. Our patients experienced significant improvements in physical pain, disability, and functional status and these were measured using two different assessment tools that are widely used in this field.  

Such initiatives are worthy and needed. And at the same time, St. Luke’s cannot continue to launch such initiatives, which lower total health care costs but which also lower St. Luke’s revenue, without changes to the payment model. Physicians cannot afford to give up these procedures; the fact that St. Luke’s offers employment to physicians allows them to be fairly compensated and keeps them in Idaho, but physicians cannot be expected to act contrary to their own economic interests if we ask them to reduce services for which they are rewarded under the current reimbursement system. 

St. Luke’s also is incorporating an advanced illness program, to try to provide patients with the care they want at the end of life, but not additional care that is unwanted and excessively expensive. When we take the time and make the effort to find out what services patients really want at the end of life, they routinely report a desire for comfort, safety, and security, rather than the exorbitantly costly measures health care providers resort to in the absence of reasoned, thoughtful discussions well in advance of the need for such decisions. See and The Wall Street Journal’s report, linked to from that blog post, “Why Doctors Die Differently:”

In both instances, the answer is to tailor the treatment to the individual patient and to apply the principles of evidence-based medicine and lean methodology in preferring lower-cost alternatives that provide the same or better outcomes and achieve the goals of the patient. 

To ensure that health care providers will choose lower-cost alternatives, the reimbursement system must be changed so that providers are rewarded for their choices rather than financially hurt by those decisions. And it’s harder than you would think. Health care providers and insurers have figured out how to make the current dysfunctional reimbursement system work for them. Why change? Change entails risk that perhaps they will not do as well financially under a new model. 

The future  

While health care costs are high today, and health care spending consumes a disproportionate share of the nation’s Gross Domestic Product (GDP), the health care industry is only experiencing the proverbial tip of the iceberg. 

Childhood obesity in the United States has more than tripled in the past 30 years. The percentage of children aged 6 to 11 in the U.S. who are obese increased from 7 percent in 1980 to nearly 20 percent in 2008. As of 2008, overall, one third of children and adolescents are overweight or obese.[2] Today, 70 percent of obese youth have at least one risk factor for the development of cardiovascular disease. And the evidence suggests that this situation is only getting worse.

Due to the alarming increases in obesity among children, and in fact, all age groups in the United States, and the resultant increases in diabetes, high blood pressure, high cholesterol, heart disease, and a host of other conditions, the disease pipeline will overwhelm health care providers, hospitals, and all other pieces of the delivery chain if upstream solutions, such as those St. Luke’s has begun and those we intend to launch or expand, aren’t implemented quickly.

The consequences of inaction are grave. Businesses face the direct costs they pay in health care benefits and the indirect costs of loss of worker productivity, estimated to be 2 to 3 times the costs of the health care itself. And we can expect far more impact in the form of lost productivity from these children as they enter the workforce if we don’t rebuild health care now.

Again, fee-for-service reimbursements do not reward efforts at health, wellness, fitness, and disease prevention. Most of these efforts are not reimbursable.   

Further, and ironically, any success with these initiatives means that patients develop fewer illnesses for which care is reimbursable. This is the perversity of fee-for-service – health care providers benefit from services for sick people, not for efforts to keep people from becoming patients. And most health systems, St. Luke’s included, have yet to develop the capabilities and competencies to manage health.

We are learning, however. St. Luke’s developed a pilot program, Healthy U, to see whether we could first provide preventive health services with our own employees before launching such a program more broadly in the communities we serve. To that end, we screened employees and then established goals to reduce pre-diabetes, diabetes, pre-hypertension, hypertension, and tobacco use in those determined to have any of these risk factors by 10 percent each.

Healthy U is in its second year and is showing impressive successes. In the program’s first year, pre-diabetes was reduced by 70 percent, 29 percent of participants who were diabetics were brought into acceptable blood sugar ranges, pre-hypertension was reduced by 40 percent, hypertension was cut by more than half, and more than 19 percent of tobacco users successfully stopped their use of tobacco.

We have also entered into an innovative arrangement with Regence BlueShield of Idaho to incorporate our Healthy U program and our other innovative care management programs to manage their highest-cost, highest-utilization members to demonstrate that we can achieve better outcomes and lower the cost for this population of patients. 


This is not an exhaustive look at all that St. Luke’s is doing to transform health care, and we realize that we have far to go. But the St. Luke’s Health System has concluded that it must lead the way. We must improve health, because we are headed to a far worse health care crisis than we have today. We must provide better care, because the lives and well-being of our patients are at stake. And we must lower costs, because health care is not affordable and not sustainable. 

We believe better health, better care, and lower costs are attainable. This report details some of the ways we are trying to reach these aims and how we are attempting to lead the way to fixing what is wrong with health care in America, in our region, and in Idaho.

[1] Dartmouth Atlas of Health Care: Studies of Surgical Variation

[2] Centers for Disease Control – Obesity – Facts

About The Author

David C. Pate, M.D., J.D., is president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.