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The Healthcare Spending Crisis Beyond The Supreme Court Ruling

Health Economics Forum Focuses on Cost Controls

WASHINGTON, D.C. -- No matter which way the Supreme Court decision goes in June, the country still faces out-of-control healthcare costs that need to be reined in. That stark reality was the subject of an invitation-only Alliance for Health Reform forum that drew top health policy experts
Photo: Bob Roehr

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Former Associate Director for Health at the Office of Management and the Budget Dan Mendelson (left) and Brookings Institution economist Henry Aaron (right) were among those participating. Audio clip length - Mendelson: 90 seconds, Aaron: 97 seconds.
to the capital's Kaiser Family Foundation Conference Center. The participants pulled no punches.

Dan Mendelson, former Associate Director for Health at the Office of Management and Budget singled out policymakers' "price times quantity" mindset that gave rise to the Sustainable Growth Rate (SGR) adjustment that now threatens to abruptly lower physician Medicare fees 30 percent. He characterized the SGR as "an unrealistic, failed policy that we have failed to replace."

Deficit reduction ideas
Mendelson went on to warn that "In 2013, everyone in this room is going to be asked to come to the table with deficit reduction ideas... And if all we have is 'price times quantity' and all we can say is 'Let's reduce the price of hospital services or physician services, we're going to be up a creek without a paddle."

Harvard health economist Michael Chernew was equally frank in some of his assessments: "There simply is not a reasonable set of financing options that will allow us to finance the spread between healthcare spending growth and income growth going forward," he said.

He pointed out that historically the United States has devoted a relatively low share -- in the five to 15 percent range -- of its increased wealth to healthcare. "In this most recent decade, over 90 percent of our increase in wealth was devoted to healthcare," he said.

'Bigger consequences'
"As healthcare becomes a greater share of the economy," he said, "mathematically the gap in spending growth between healthcare and income overall has bigger consequences. If we finance the projected rates
Photo: Bob Roehr

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Harvard health economist Michael Chernew (left) pointed to the overwhelming size of the problem. Former Medicare and Medicaid director Gail Wilensky (right) spoke of how medical education must be changed to support future cost controls.Audio clip length - Chernew: 79 seconds, Wilensky: 59 seconds.
of growth with taxing, we have a whole series of tax distortion. If we try and finance the projected rate of spending by out-of-pocket spending, we have a whole series of access concerns."

Chernew, a professor in the Department of Health Care Policy at Harvard Medical School, is a member of both MedPAC, the independent agency that advises Congress on health policy issues, and the Congressional Budget Office's (CBO) Panel of Health Advisers.

He said he thought it possible to find an acceptable mix of taxing and private spending to finance the current level of healthcare spending. "But if we have the spending that the CBO has projected in 2050, I don't think there is going to be any set of tax and out-of-pocket spending options that we really like."

'Restraint currently lacking'
The Brookings Institution's Henry Aaron emphasized the Accountable Care Act (ACA), whose fate rests with the court, was primarily concerned with extending coverage, not with controlling costs. "That process," he said, "is going to be driven by the recognition that cost control requires budget constraint, something that is currently lacking."

Aaron, an economist and Senior Fellow of Economic Studies at the Brookings Institution, said he has little faith in market forces because "well-insured individuals cannot exercise market power and will not want to exercise it at the time of care.
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Furthermore, he said, there is too much of a physical and temporal disconnect between the purchase of health insurance and its use.

"In the end the budget constraint is going to have to come from a collective decision by a politically constituted and legitimated body," he said, suggesting that insurance exchanges might constitute such a body within the context of the ACA.

Shaping policy interventions
Economist Gail Wilensky, a former Medicare and Medicaid director who is now a senior fellow with Project HOPE, said "We are attributing too little to quantity and too much to price." She compared the U.S. and Europe which spends significatly less on health care despite more physician visits and longer hospital stays. The important factor," she said, "is intensity: "what happens once you encounter the healthcare system."

Wilensky believes some form of bundling or capitated payments will shift debate on "the quantity-pricing issue" to a more operational level where healthcare units will carry out multiple internal discussions about which mix works best for their situation. The trick will be to set the aggregate payment at an appropriate level.

Chernew agreed that bundling is part of the solution, but for him, a key question remains the slope of growth: "What processes do you put in place to govern the rate with which that global payment rises?"

"You have to worry much more about the process by which you update the rate than the rate you start from initially," he said, pointing to the experience in Massachusetts.

Andrew Dreyfus, President and CEO of Blue Cross Blue Shield of Massachusetts said the changes in the state's payment models and benefit structures have resulted in "a dramatic reduction in the growth of premiums."

Dan Mendelson, now CEO of the Avalere Health policy consultancy, said, "We have learned that providers will tend to optimize around price times quantity" but the "alternative framework is management."

'Mismanaging health service use'
"We are paying for things but inadequately managing the service use," Mendelson said. He used an example of post acute care where an 85-year-old with a hip fracture might be sent home or to alternative care facilities, each of which has different cost implications to the federal government.

"In a fee for service system I want a physician who is interested in my health, but in a new system, I want a physician who is thinking about the risks of overuse," added Andrew Dreyfus. "We know from the research, often patients want less technological intervention."

He agreed with Mendelson that many physicians are engaging in better integration and management of care. Care and referral patterns are changing; practices are being redesigned. Dreyfus said, "All of the drivers of care costs have all been positively influenced by changing the payment incentives to physicians."

But physicians are good at fighting for their interests, said Nancy W. Dickey, president of the Texas A∓M Health Science Center. "What we want to do is create champions out of physicians and that means changing their mindset of what they do."

Expensive technology
She pointed to the "celebration" of technology that has driven much of the cost increase in healthcare, and called for a more balanced approach. "We have got to change the incentives if we want to change the behavior, otherwise what we will see is more intelligent people gaming the system to get to the right place for themselves."

Chernew agreed. He praised the Choosing Wisely Campaign, recently launched by medical specialty organizations to identify and reduce unnecessary procedures and interventions, as an effort likely to save money. He pointed to the example of EKG tests routinely given to healthy patients by primary care physicians. He said a reduction in unnecessary care will only happen "if you change the incentives."

Wilensky said, "By and large it is not an issue of is this a wasteful activity? It is mostly getting people to move to a different way of thinking, and it may well change over time." She believes rapid dissemination of changing standards will be an important part of the process.

Chernew is optimistic that health reform has a much better chance of succeeding now than in the 1990s because the availability and flow of information has changed dramatically in the heavily digitized healthcare market. "It is all about the management structures around them and the information they get," he said. "Those information flows only work when the incentives allow them to flourish."

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Bob Roehr is a Washington-based journalist who specializes in health care coverage.

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