A Cost-Saving and Wellbeing-Improving Solution to Medical Spending

Palliative Care: A Cost-Saving and Wellbeing-Improving Solution to Medical Spending

Health care spending is one of the largest fiscal policy issues of the 21st century. US per capital health spending surpasses purchasing power parity adjusted spending for all other OECD database countries by massive margins. This is not driven by any single influence; significant factors include low physician-to-population ratios, a lack of focus on quality-adjusted life years (QALY), and pharmaceutical pricing, among others (Reinhardt 2004). This introduces an important conversation on the efficiency of our healthcare system and its viability into the future and demands an in-depth exploration into how a greater level of efficiency can be reached without compromising quality or innovation. It is essential that efficiency (which can be thought of in terms of cutting costs) is realized without affecting quality of care, a concept known as comparative effectiveness; healthcare spending must be focused on the ultimate goal of providing the best possible care for the largest number of people (Weinstein 2010).


Coordinated Care and Bundled Payment Systems

An overall improvement in healthcare efficiency is difficult to realize; a major area in which it can be applied is the expansion of coordinated care systems using bundled payments, as seen in the Veterans’ Affairs (VA) hospital system. Coordinated care keeps a patient within a single connected system from admission to outpatient that extends past discharge and charges a single fee for the service upon admittance, incentivizing hospitals to improve overall hospital efficiency both in quality and number of patients. This can be compared against the traditional fee-for-service model that adversely incentivizes hospitals to push expensive services when they may not be in the best interests of the patient. The bundled payment model encourages a whole patient viewpoint. “…the key determinant of coordination was self-management and not severity of illness [leading] to the development of the partners in health self-management assessment and care planning process to target education to the individual” (Battersby 2005) This highlights that the bundled payment model most effectively operates within a universally supported coordinated and must be appropriately presented to involved parties so its efficacy can be maximized. The VA’s payment structure, in combination with its coordinated care system, is uniquely effective and can serve as a model for private institutions and should drive future areas for expansion of care within the context of providing a well-funded and complete patient experience.


Palliative Care

Palliative care is a central area to apply this concept as it fits effectively into this structure. Although it may lack inherent profitability within the standard payment system, palliative care is a cost saving measure for a hospital due to the reduction in long-run expenses. The focus shifts to a more supportive pain management system focused on preventing readmittance and the complications associated with recurring symptoms. “Palliative care is the interdisciplinary specialty that focuses on improving quality of life for patients with advanced illness and for their families through pain and symptom management, communication and support for medical decisions concordant with goals of care, and assurance of safe transitions between care settings” (Morrison 2008). It is important to distinguish palliative care from hospice. Hospice is synonymous with end of life care, and is intended to ease the transition towards death. It carries with it a negative connotation among both patients and physicians (Aldridge 2016). Palliative care, however, focuses on non-curative symptom management, often used to treat post-illness symptom sequela, such as in the case of head and neck cancer patients that face significant complications associated with breathing and eating functions after the cancer is cured. Palliative care is ultimately used as an additional element to treatment; it does not indicate a “death sentence” as hospice suggests.

Palliative care is crucial to the overall patient experience and can contribute to increasing the efficiency of the healthcare system. “Hospital palliative care programs have been shown to improve physical and psychological symptom management, caregiver well-being, and family satisfaction,2,5-9 and … may reduce hospital and intensive care unit (ICU) expenditures by clarifying goals of care and assisting patients and families to select treatments that meet those goals.” (Morrison 2008). The benefits are multifaceted; palliative care provides an improved quality of post-treatment care, focused on managing pain and engaging spiritual and psychological elements to treat the whole patient, not just the aftermath of their disease, in a manner that is economically efficient. This provides benefits to the whole system, from patient to physician to administrator, through the design of a holistically better care program.


Outpatient Palliative Care

Palliative care is essential to improvements in healthcare coordination and resource utilization; however, it can be further narrowed in its scope to the outpatient setting. Outpatient care includes clinics, homes, and residential facilities, all of which are more comfortable and accessible to a patient than a hospital. Palliative care in this instance addresses the overall state of the patient, from spiritual to mental to physical, to offer comprehensive support in a personalized setting to improve quality of life after treatment. This does not come at the expense of the patients health outcome; no studies have proved negative changes in survival lengths, and some have proven positive effects (Rabrow 2013).

Outpatient palliative care, when compared to the inpatient alternative, is significantly less widespread among American hospitals due to the larger infrastructural requirements, yet the limited research shows the benefits of outpatient care are larger than those of inpatient care. This is in accordance with the overall movement towards an integrated healthcare system focused on coordinated care to follow a patient past discharge. Since patients already receive most of their care in the outpatient setting, palliative care attempts to better administer that process and prevent readmittance. This is most effective in hospitals already moving towards integration with bundled single pay systems, like the VA (Rabrow 2013). The lack of outpatient palliative care research does not completely nullify the application of the existing research on inpatient care. Inpatient focused research provides a framework on which to base the discussion on economic and health outcomes for the expansion of outpatient care, since it shares similar base tenets and differs mainly on setting and required investment. The philosophy of care is shared, so although extensions should be drawn carefully they still deserve consideration and should by used to drive future outpatient research.

            At the core of administrative macro healthcare decision-making is the economic viability of the institution. No hospital can continue without proper funding, and bundled payment methods, as opposed to fee-for-service, provide incentives to improve efficiency. Every dollar spent has a large opportunity cost in the hospital setting, as it could be put towards another potentially life saving or quality improving measure. These administrative stakeholders are crucial for the future expansion of outpatient palliative care, as investment requires their buy-in to the system at the level of its bottom-line efficiency so that these benefits can be maximized for patients.


Economic Exploration

 From an economic perspective, it is critical that the shift to an outpatient palliative care service from the standard hospital system is considered using the marginal gains and costs achieved. This can be demonstrated by a standard derivative utility maximization, with U(p) = utility of palliative care, B(p – s) = benefit function of palliative care minus standard care, and C(p – s) = cost function of palliative care minus standard care: 


B(p – s) – C(p – s) = U(p)

B’(p – s ) – C’(p – s) = 0

B’(p – s ) = C’(p – s)


Or, that the marginal benefit of outpatient palliative care compared to standard care is equal to the marginal cost. Utility is used here in the abstract but holds in principle that the overall derived benefit for the hospital for the total program is the difference between the additional benefits (medically and holistically) and pure costs (economically). Marginal analysis is key; as common in economic theory, equating marginal benefit and marginal cost achieves the greatest combined gain in surplus for both the consumer (the patient) and the producer (the hospital), assuming a competitive market. The basis of competitive market can perhaps be disputed regarding healthcare, but that is beyond the scope of this paper and as a whole does not undermine the premise of the following arguments.

As an exercise to demonstrate the viability of the creation of an outpatient palliative care program, it can be assumed that B(p – s) = 0, or that the “benefit” of palliative care above standard care is negligible. This is to develop a baseline that palliative care offers no additional benefit to the hospital or the patient; that outcomes, both medical and psychological, are indifferent. As previously discussed, this is a extremely conservative baseline to set, as numerous studies have proven the beneficial effects of palliative care on quality of life, comfort, and overall health outcomes (Rabrow 2013). Given this baseline, the utility of palliative care programs is then dependent solely on the reduction in costs, – C(p – s) = U(p); This has been shown in numerous studies (Rabrow 2013). First, from a qualitative and intuitive point of view, the mere reduction in inpatient hospital resource use must account for some economic savings. “The displacement and reduction in acute care beds represents a real economic saving to the health care system due to the fact that … palliative care programs operate in an environment characterized by chronic hospital bed shortages” (Fassbender 2005).

There are various factors that factor into the costs of an outpatient palliative care program as compared to a standard hospital model. These include, but are not limited to: labor for in-hospital versus outpatient staff, medication cost, acute care including admission processes and surgical interventions, and resource consumption. These can build into a more general theoretical total cost function summed over the desired profitable range of service:



where w = wages, L = labor, AC = acute care costs, HC = home care costs, and m = medication or pharmaceuticals, and which can be extended to include other relevant cost factors. The decision to invest in palliative care should be made considering the initial cost of investment and the total additional cost:


Ip ≤ TCp – TCs


where Ip is investment in palliative care. This is to say that the decision to invest in palliative care should be made with the long-run total savings in mind. Given again the base assumption that benefits are equal between palliative and standard care, investment should be made as long as the cost of that investment is less than or equal to the long run savings in total costs.

            These equations are theoretical in nature and not based in data analysis; however, they support general findings from other papers and function to provide a mathematical framework for thinking about investment in outpatient palliative care programs. “The median operating margin for a hospital is 2% ($27-$40 per day), thus the $174-per-day savings in direct costs for live discharges associated with palliative care consultation in this study could have a significant impact on hospital performance, particularly as the proportion of older, complex, and chronically ill admissions increases over the coming years.” (Morrison 2008). Even small savings are significant in aggregate medical institutions over both time and total patients. When viewed in the larger context of medical spending across the United States, the importance of economic efficiency is abundantly clear both within and beyond settings like the Veterans’ Affairs Hospital, and palliative care is a well-defined case in which the benefits of investment can be shown to be worthwhile. However, for these benefits to be realized, the involved stakeholders from administration to physicians to patients must be made aware of the multifaceted benefits and cots reductions. Cost reductions is merely a single way in which to involve necessary parties and should not be considered in isolation but rather used as a single method in which to maximize the efficacy of implementing these improved healthcare strategies.



Despite the clear economic benefits of palliative care, it is not widespread among American hospitals. This economic data is not a novel concept; a more structural barrier must exist that is blocking its further adoption in hospitals. This is important to consider within the context of the given economic benefits because implementation requires the commitment and dedicated buy-in of nearly all involved stakeholders, from hospital administration to physicians to patients. Failing to address the systematic barriers towards outpatient palliative care has grave consequences and proves that they cannot be ignored. (Rabrow 2013)

One major structural barrier to palliative care adoption is simply a lack of understanding regarding the system and terminology surrounding palliative care. To begin, the average patient simply does not know the meaning of the term “palliative care.” This puts the physician in a powerful position, as they serve as the gatekeeper for sensitive information and the referral process (Aldridge 2016) Built into this barrier is the perceived similarity of palliative care and hospice care, as previously differentiated. This perceived similarity allows the perpetuation of the belief that palliative care is synonymous with end of life care. (Aldridge 2016) This is especially pronounced in outpatient care, as the act of leaving a hospital setting can be misrepresented as “giving up” and more directly mirrors the hospice environment that is driving the basis of this fear.

This problem does not only lie among patients, but in fact with the clinicians themselves. Tumor specialists were surveyed regarding their attitudes and beliefs towards palliative care referrals. The survey asked the same set of questions, but once using the term palliative care and once with the term supportive care. It was found with statistical significance that specialists viewed the term “palliative care” as a barrier for referral, to be synonymous with hospice, and to decrease hope in patients, at much higher proportions than for the term “supportive care.” If the clinician has these views, they are likely to be transmitted to the patient, and palliative care may not even be addressed as an option (Hui 2015).

Referral is an important aspect of this process. It falls on the physician to refer a patient they believe to qualify for palliative care, inpatient or outpatient, to a palliative care specialist for a consultation. This referral is a bottleneck for overall palliative engagement, especially since palliative care is not widely known or understood among the public. This requires the buy-in of physicians. The ultimate goal is for all patients with significant symptom sequela to be referred; however, this is difficult as this population is not seen by hospital structures with the same priority. To begin it is important that buy-in is achieved at the most visible and easily referable level, such as in the case of late stage cancer patients. A large-scale institutional shift is necessary to further sustain widespread adoption. If the system existent at the VA can be disseminated beyond its current scope, the groundwork can be laid for the further expansion of cost saving measures beginning with outpatient palliative care and hopefully extending beyond.

Because of existing connotative misconceptions, it is clear that education is critical for the future success of palliative care. Palliative care is a relatively unknown area of medicine by the public; the area for education is the bottleneck point of referral, the physician (Hui 2015). Physician education requires the buy-in of hospital administration, who are involved in and motivated by financial efficiency. Providing reasoning and analysis on the improved economic efficiency of outpatient palliative care can prove valuable for influencing this primary stakeholder group. This is an important process towards larger adoption of outpatient services. This is not unique to the specific setting of the VA; outpatient palliative care resources are scarce in the American healthcare system. Less than half of cancer centers offer outpatient palliative care services, which is particularly alarming given that cancer is the main area of development in palliative care thus far (Hui 2010).



As a whole, palliative care concerns one of the most base issues of economics: efficiency. “Health efficiency,” or achieving the greatest medical outcome for the largest number of patients with the best use of resources, is the core of this argument; economic efficiency is merely a manner in which to achieve it. This is not to say that investments in medical research and improvements are not worthwhile, but to say that excessive misplaced spending can be exceedingly harmful. This requires a fundamental shift in the way we view healthcare spending to address the incredible strain that out current pethood puts on the healthcare system. There must be a movement towards viewing quality as a more comprehensive term that encompasses both quality of life and long-term spending viability; this movement has begun at VA hospital centers, but its momentum must be carried across varying hospital structures to realize this potential benefit for the largest number of patients. Outpatient palliative care offers an economic benefit in the longer run, but it will require a large initial investment that hopefully can be considered with the long run monetary savings in mind. This money saved should be seen as a powerful tool and an incentive to enact similar changes to reform the overall healthcare system.




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