“Spillover” in HealthCare
By Drew S. Kandilakis, DC

Several examples of “spillover” in everyday life may include: A flood control dam recently built benefits everyone in the area regardless of who built it; if research and development scientists discover a new way to treat a common disease or create a new drug everyone suffering from the disease will benefit; if you contribute to public television, everyone who watches it will benefit, or lastly if your local telephone company invests in technology and improves its infrastructure, every other phone company that leases their lines will benefit by the improvement in technology.

The concept of spillover has further definitions that are important to a comprehensive understanding, and the marketplace forces that they set into play are critical to understanding “spillover” in healthcare settings. Economists and other social scientists have demonstrated that the research and development activities (and the programs and services they generate) of private corporations generate widespread benefits enjoyed by employers, consumers and society at large. As a result, the overall economic value to society often exceeds the economic benefits enjoyed by innovating corporations as a result of their innovative programs and services. This excess of the social rate of return over the private rate of return experienced by those corporations creating the innovation is described by economists as “spillover”.

These spillovers take on a number of distinct forms. Firstly, spillovers occur usually due to requested innovations or services by an employer or special interest group in the marketplace. These innovated services or products create benefits for consumers and non-innovating corporations ("market spillovers"). Additional spillovers occur due to the research and understanding of a specific process or product and its effect in the first introduced market and the knowledge created by the innovating corporation is typically not contained within that corporation, and thereby creates value for other corporations and other corporations' customers ("knowledge spillovers"). Finally, because the profitability of a set of interrelated and interdependent services, processes or technologies may depend on achieving a critical mass of success, each corporation or entity pursuing one or more of these related services, processes or technologies creates economic benefits for other corporations and their customers ("network spillovers"). In healthcare the general concept of spillover is the “something else” that happens when a large employer or a business coalition and a health plan jointly develop and implement a quality improvement initiative. It is in essence the “spilling over” of effects into the community.

This spillover effect can be represented in a positive way by a health plan, responding to an individual employer’s challenge to make improvements in services and quality of care, improves care for everyone who belongs to the plan, not just the company’s employees who requested the improvement/change. Another example can be illustrated when an individual employer’s successful challenge to one health plan to make improvements “raises the bar on quality” for all health plans in the community by causing them to improve care for their enrollees in order to remain competitive. Still another example may be illustrated when large employers in coalitions with both large and smaller companies set improvement goals for the whole community such as depression or diabetes screening programs for the entire community, not just their own plan members.
Examples of spillover can be divided into three categories: improving community acute care, improving community chronic care, and improving community health.

There are also negative “spillover” effects. The creation of environmentally toxic chemicals or byproducts from the fabrication of products in industry has two negative “spillover” effects. One is the chemicals are toxic and therefore dangerous to anyone who may inadvertently come in contact with them and the second is the cost it takes to isolate, modify or detoxify the byproducts is passed on to the consumer or user of the final product. For this discussion we will only focus on positive “spillover” effects.

General Health-Related “Spillover” Effects
One study has an interesting outcome related to hospital ownership: It affects the costs associated with caring for heart attack patients. A recent study by NBER research associates Daniel Kessler and Mark McClellan finds that the presence of a few for-profit hospitals as competitors in a non-rural setting. They found that the presence of a for-profit hospital actually decreased the costs of the nearby not-for-profit hospitals in the area 2.4 percent per patient for patient expenditures, without affecting patient care outcomes (NBER Working Paper, No. 8537). This “spillover” effect in not-for-profit hospitals was noticed when hospital admissions in for-profit hospitals went from zero to a few per month. There was obvious sharing of procedural, efficiency and protocol -oriented information among healthcare institutions.

Another positive “spillover” effect is the economic growth of a region after a major employer locates in the area, such as IBM, UPS, Kmart, Target, or a community or teaching hospital. Once a large employer creates an economic base for a community, smaller service industries and merchants also locate their businesses close to the action. This “spillover” effect then continues to create more opportunity for employment and even training and education in increasingly diverse employment environments. . This would be an example of a “network spillover”.


“Spillover” Effects in the Community Acute Care Environment

There is much evidence that a spillover effect from employer-sponsored quality improvement programs can lead to better acute care for every person in the community, even save lives.

Seventeen area hospitals in Orlando, Florida, thanks to the Central Florida Health Care Coalition, have implemented clinical “best practices” in such critical areas as heart bypass surgery. The coalition has documented over $300 million in savings as a result of the quality improvements not by reducing overall cost, but as a result of quality improvements that “benefit everyone utilizing those 17 hospitals”. After the Cleveland Health Quality Choice coalition distributed comparative information on local hospitals in Cleveland, hospital mortality rates for a number of common procedures, including heart attacks, pneumonia and stroke, declined. Similarly in Portland, Oregon, The Portland Medical Outcomes Consortium, pioneered an innovative community program in breast cancer detection and treatment that increased the survival rate of women with the disease to higher than the U.S. norm.

Non-healthcare corporations such as Pilkington Libbey-Owens-Ford, contributed better information systems to manage patient outcomes (they were so good at it that now they are locally used by Medicaid and Medicare) , Pennsylvania-based Hershey Foods (drove to reduce mortality and complication rates that impacted local hospitals) , and Minneapolis-based Dayton Hudson’s cancer and leukemia specialists were so good they were even hired by the Mayo clinic to help develop and improve on cancer treatment protocols. These corporations have been tremendously instrumental in creating positive “spillover” in the communities in which they are located.

“Spillover” Effects in the Community Chronic Care Environment

Improvement in chronic illness throughout the community can be the spillover effect from business-sponsored programs that result in better care for persons within health plans. This has occurred in Detroit and the surrounding Southeast Michigan area where health plans have stepped up programs to manage diabetes, asthma and behavioral health problems due to the efforts of the Greater Detroit Area Health Council’s Value-Based Purchasing Initiative.
New York-based Pfizer, Inc. and California based Pacific Business Group on Health have influenced their local chronic health outcomes by identify areas for quality improvement and to implement effective programs. As a result, six of the seven largest participating plans initiated aggressive steps to educate and support primary care physicians in the management of behavioral health care, helping all patients in those plans. One of their strategies was to reward high-quality providers by publicly ranking physician groups on everything from ease of referrals and patient satisfaction to the groups’ success in maintaining patients’ health status over a two-year period. This information made the entire region’s healthcare providers more competitive in all areas cited.

Improving Community Health

Very apparent measures of community health can be improved as a result of the spillover effect from corporate efforts. The Dallas-Fort Worth Business Group on Health, has worked with the local hospital and medical societies to snapshot and improve the care provided by obstetrician-gynecologists in the entire metropolitan area. General Motors in partnership with the United Auto Workers has improved the actual health status of entire communities, such as Flint, Michigan. Chicago-based Baxter International has created community based soup kitchens and free health screenings for the uninsured as well as instituted “socially responsible” purchasing criteria.

In Minneapolis-St. Paul, The Buyers Health Care Action Group ranks providers using 28 different performance measures. The group also requires participating medical groups to implement best-practice protocols. It has been noted that they have seen improved office hours and greater access to urgent care for the entire community. The Health Improvement Collaborative of Greater Cincinnati has initiated many community reforms to track changes in community health status and to target areas for intervention and improvement.

One innovative and “mom friendly” corporation in North Carolina, Burlington Industries’ has created a “healthy babies” program which was so successful at providing prenatal care to at-risk moms that the number of low-birth weight babies at just one plant dropped from ten to zero. In response, competitors in the textile industry have attempted to duplicate the program—and Burlington’s insurance carrier made the program part of its standard package of benefits.

Digital Equipment Corporation’s has a comprehensive performance standard benchmarks for health plans which has prompted measurable improvements in quality and outcomes in cardiovascular, obstetrical and chronic disease management. All of which has become a national model with impact far beyond the suburban Boston area where Digital is headquartered. Achieving quality improvements and pressuring its health care plans to make system-wide improvements in the areas of access, customer service and care are Connecticut-based General Electric’s “Six Sigma” program goals.

Taking into account all of the positive effects of healthcare marketplace spillover, from shared benefits of drug research and development to a new hospital opening up with higher healthcare standard benchmarks than it existing community hospital competition, the effect felt of “spillover” has many positive impacts to the individual, employer and community and should be fostered and positively exploited whenever possible.

References:

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Hennessy, Shaun; Strom, Brian, Leonard Davis Institute of Health Economics, Volume 9, Number 1, Sept, 2003

Kessler, D & McClellan, M, NBER Working Paper No. 8537, “ The Effects of Hospital Ownership on Medical Productivity”

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Linda Kohn et al., Center for Studying Health System Change, Health
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Buyers Health Care Action Group, The Choice Plus Performance Results/
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Portland Medical Outcomes Consortium, Information on Quality and
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