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Healthcare Cost Analyses Can Help Drive Our Future—If We Ask the Right Questions

August 05, 2020

Financial performance is critical to the future of our field. Healthcare costs are central in any discussion of performance, and there are several ways to evaluate costs. Evaluations will differ according to who frames the questions. Some analyses advance our work while others derail us. Let us focus on three groups of analytics, categorized by their goals: self-examination; self-justification; self-discovery.

Our industry is in many ways separate from the rest of the healthcare field, both in terms of its institutions and its financing. Yet large healthcare payers will either facilitate or constrain our future growth, depending on how we answer questions about healthcare costs. We can make strong financial arguments about our work and our potential. Yet there are some traps we must avoid.


We have done a poor job of financial self-examination. This judgment is based on two types of analyses, studies of the effectiveness of our work and studies of the cost-effectiveness of our work. We have a range of relevant studies on effectiveness or outcomes. Our cost-effectiveness work is rudimentary. Our field will be hampered in its growth if we do not improve both categories of analysis.

Effectiveness encompasses two types of studies, lab-based and field-based. Randomized controlled trials (RCT) are called efficacy studies. The designation of effectiveness generally applies to studies of field-based clinical services. Psychotherapy, for example, has been proven both remarkably efficacious and quite effective. Yet effectiveness studies are too scarce today and should be part of routine care.

Once effectiveness is quantified, the first finance question to be answered is the cost of that effectiveness. What do the clinical outcomes produced by our work cost? This really becomes a question of the value of our work. Value is simply a combination of the effects and the costs of our work. Accordingly, value can be improved by increasing the effectiveness, lowering the costs, or both.

We have too few good examples of cost-effective or value-based studies of our work. This is a deficit we should rectify to spur the growth of our industry. We should be able to compare various products and services within our industry in terms of their providing relatively high or low value. As in any negotiation, it is best to know your strengths and your weaknesses.


Our field was seduced by a false promise decades ago, and we are still paying the price. Some promoted the dream of medical cost-offset, based on flawed work in the 1960s and ’70s, and this misconception is still alive because large healthcare payers use it as a way for our field to justify itself. Definitions and a bit of history are a good place to start this discussion.

Medical cost-offset is the idea that behavioral services can cover their costs by the “offset” or the reduction of medical costs. This may be clinically derived from the psychological roots of some medical disorders or the exacerbation of illness by depression, but the promise is the same whatever the source. We are asked to justify behavioral healthcare costs by showing a resulting reduction in medical costs.

The managed behavioral healthcare pioneer, Nick Cummings, led this charge based on his early work at Kaiser. He thought he was doing our industry a favor by pointing to this hidden pot of gold. This turned out to be fool’s gold because general behavioral healthcare services do not appear to lower medical costs. Today’s evidence suggests mainly targeted programs, like those of behavioral medicine, offer success.

Health plans have never forgotten the promise. They still ask behavioral healthcare programs and products to justify their expenses by calculating the medical cost-offset from their work. Those calculations are often dubious, but the question itself should be set aside. Our services are essential healthcare services. We should report on their effectiveness and cost-effectiveness.


The final category of self-discovery is a productive avenue that emerges from the dead-end pursuit of cost-offset. We have years of actuarial work by firms such as Milliman to show us the real cost problem in healthcare. Chronic medical conditions account for the vast majority of those costs. Milliman determined that behavioral disorders drive over 20% of total healthcare costs via comorbidity.

Chronic conditions are largely treated in the primary care setting, making this a big reason for our field to examine our role there. Comorbid depression and anxiety are driving up costs and destabilizing the PCP’s chronic care patients. When you add the realization that PCPs are the main prescribers of psychotropic medications, it is clear the next horizon for our field may be rising over primary care.

The work of Cummings at Kaiser came close to understanding this untapped reservoir for our field. He was wrong that working in your mental health office might in some indirect way transform the medical needs of patients. It appears that you need to focus on specific patients and their medical issues. The PCP needs our help to unravel the critical psychological components of primary care.

The clinical rationale for this shift of focus to primary care is clear, and it has been pursued in many ways. We have examples of behavioral specialists providing consultation, care management and specialized services alongside the PCP. We do not yet have adequate financial analyses of the cost-effectiveness of these services. This will be essential for PCPs to extend an enthusiastic welcome to us.

The financial vice of being a cost center

In a world of scarcity, all parties fight for the same nourishment. In a healthcare system with excessive costs, every new expense seems unnecessary. When large payers like states and health plans look at the lines in a spreadsheet with healthcare costs, they often perceive each cost center as bloated. This view can be based more on bias than calculation. No one likes being treated as a cost center.

Payers will treat our field as a cost center with excesses to trim unless we can shift the discussion to our value. We will be greeted similarly by primary care doctors unless we can boost revenue for that setting and show new efficiencies for some high-cost patients. Primary care is underfunded in the U.S. when compared to other wealthy countries, and we can contribute to the case for efficient growth.

Cost centers routinely need to justify costs and eliminate excesses. This will be the fate of any field not promoting the economic value of their products and services. The good news is that behavioral healthcare has a strong case to make. Yet our largely isolated stories need a unified voice. Let us pool results and then ensure every C-suite executive can tell the story of our industry’s cost-effectiveness.

Ed Jones, PhD, is senior vice president for the Institute for Health and Productivity Management.

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