Health policy primer


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Perspective on the main drivers of excess growth in healthcare spending in the United States and summarizes different approaches to reform.

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Health policy primer

  1. 1. Health policy primer: What’s wrong with American healthcare? JDG
  2. 2. “How can it be that ‘the best medical care in the world’ costs twice as much as the best medical care in the world?” – Professor Uwe ReinhardtThe American taxpayer is financing these large differences in costs, but we have little evidence of what benefit we receive in exchange.
  3. 3. Looking forward, Medicare spending is projected to grow by at least 5.5% per year for at least the next 10 years, while GDP is at best going to grow about 2.5% on average. Since goverment revenue roughly tracks GDP, this 3 percent gap between Medicare vs. GDP growth is what drives our chronic, structural deficit thats bankrupting the US. Medicare/Medicaid spending as percent of GDPPercent GDP Year Source:
  4. 4. Notice the two lines in the graph: “Effect of Aging Alone" and "Effect of Excess Cost Growth."The latter, excess cost growth, is actually the major driver of excess, wasteful spending -- what we call"medical cost inflation." That cost inflation is fueled by taxpayer-funded OVER-spending by Medicareon exorbitantly priced medical technology that often does not improve health. Medicare is formally notallowed to consider cost when determining whether to pay for a new treatment, device, or technology(nor does Medicare negotiate on price). As a result, hospitals compete by adopting the mostexpensive new technology available - in spite of the lack of proven comparative health benefits.Source:
  5. 5. What is a healthcare system supposed to do?When looking at any model of insurance, public or private, you want to look athow the model promotes thrift on both price and utilization rates, since TotalSpending = Price of all services (P) x Quantity of all services provided (Q).A series of studies have shown that in general, higher spending shows littleassociation with improved health outcomes:
  6. 6. Why do we want to restrain utilization?A series of studies have shown that in general, higher spendingshows little association with improved health outcomes: “For all of the quality indicators studied, the association with spending is either nil or negative. The absence of positive correlations suggests that some institutions achieve exemplary performance on quality measures in settings that feature lower intensity of care.”
  7. 7. More evidence…. “Quality of care in higher-spending regions was no better on most measures and was worse for several preventive care measures…. Neither quality of care nor access to care appear to be better for Medicare enrollees in higher spending regions.”
  8. 8. And a famous experiment on different health plans showed that there is an optimum level ofutilization that can be achieved with the right level of cost sharing: not overly generous but not dissuading needed care: “In general, the reduction in services induced by cost sharing had no adverse effect on participants’ health.”
  9. 9. With that in mind, Americans do not differ much from other OECD countries in our utilization rates, yet we spend nearly twice the OECD median on healthcare: Source:
  10. 10. Which has led to the conclusion that the US pays disproportionately high prices for a similar amount of healthcare being provided: Source:
  11. 11. Heres a more direct illustration of the prices we pay:Source:
  12. 12. Source:
  13. 13. All of this points to the need to be more aggressive not only in negotiating prices, butin understanding the value of the services were paying for. There is room for market- based principles here: Source:
  14. 14. Consumer-driven (high-deductible) health plans have been shown to save 14 percent on cost, in comparison with traditional health plans:Source:
  15. 15. At the same time, the delivery of healthcare is incredibly arcane to most consumers, and shopping around on prices is a nightmare – and prices can vary by magnitudes of 100!
  16. 16. More transparency on pricing will go a long way towards empowering consumers to seek the most value for their healthcare dollars. 20120415,0,1276328,full.story
  17. 17. But in many other healthcare systems, the government is much more involved in setting reimbursement rates that reflect the value of the care being provided.Source:
  18. 18. So, there is a major role for comparative-effectiveness research tohelp shed light on what procedures and new medical innovationstruly deliver high-value, cost-conscious care – and which ones aresimply overkill - i.e. more emphasis on primary & preventive carewould deliver better health than expensive, unnecessaryprocedures, and often redundant, poorly coordinated care.For more on this, see “Box 1,” pg 11-12:
  19. 19. But – How does Medicare’s payment policy compare to other country healthcare systems? Medicare adopts new treatments under a process called a National Coverage Determination, wherein CMS is not formally allowed to consider cost. Medicare recently adopted a therapeutic vaccine for late-stage prostate cancer that costs $93,000 per patient -- this, despite the fact its proven to only extend life by about 4 months.Source:
  20. 20. And private insurers typically follow Medicare’s lead in determining what to cover.
  21. 21. As a result, hospitals compete with each other by adopting the newest and mostexpensive technology available in efforts to win higher reimbursement rates and attract better physicians.“Hospital costs are soaringacross the Washington areaas the cost of buying thenewest technologies jumpsand more uninsured patientstake their toll.”
  22. 22. Driving the ballooning costs are ever-growing – and costly – medical technologies Source: washington-region/592766
  23. 23. Singapore, one of the world’s top-rated healthcare systems, faced this same problem and was able to achieve cost control by limiting the rate at which new, unproven technology could be introduced into public hospitals. Source:
  24. 24. There is a confluence of movements within the U.S. medical community going on to “Choose Wisely” and lead in this direction of "high value, cost conscious care": … but ultimately, more must be done at the policy level to promote reform in the way we pay for healthcare – and how much we pay.
  25. 25. To summarize…3 major steps will go a long way to reducing healthcare spending in the US:• Moving consumers into a paradigm of high-deductible, consumer-driven health plans with attached health savings accounts*• Requiring greater transparency and consistency in pricing among hospitals and other providers (while enforcing consistent quality of care standards)*• Incorporating comparative-effectiveness research (CER) into Medicare payment policy, thereby pushing producers of technology and pharmaceuticals to bring products into the market that demonstrate value in comparison to the current standard of care or generic alternative.This isn’t a comprehensive list of how to reform Medicare, but it could be a strong start towards a more efficient healthcare system.*Note: The Affordable Care Act contains provisions that seek to achieve both of these objectives. ACA also introduces comparative effectiveness research but it is questionable whether CER will play a central role in reforming Medicare reimbursement. (For more, see p. 8-9:
  26. 26. The over-arching goal is to FLATTEN the cost curve that drives medical cost inflation The ability of the U.S. to maintain a sustainable level of spending and remain solvent as a nation depends almost exclusively on this problem being solved.
  27. 27. Pessimists vs. Optimists• Glass half empty: The U.S. healthcare system is grossly inefficient and is ill-equipped to deliver the same standard of quality care to the increasing burden of retirees while spending twice the OECD median per capita on care. Healthcare spending is projected to continue driving up national debt indefinitely.• Glass half full: The country can afford to spend drastically less on healthcare and still deliver excellent quality care to its citizens, while stabilizing the cost curve and finally setting the US on a path to shrink the national debt. Smart policymakers have an opportunity to seize and can work together to make this a reality.