Can the increase in health care expenditures be slowed?
Can the increase in health care expenditures be slowed?
Analysts say health care expenditures will continue to increase rapidly over the next decade, outpacing income and placing financial stresses on families, businesses, and public budgets. Does it have to be that way?
A Commonwealth Fund report says there is evidence that the United States should be able to achieve savings and better value for the investment it makes in health care by creating more efficient and effective health care and insurance systems. The report looks at the factors that contribute to high expenditures and examines strategies that have the potential to achieve savings, slow spending growth, and improve health system performance.
The strategies are in six areas: 1) increasing effectiveness of markets with better information and greater competition; 2) reducing high insurance administrative overhead and achieving more competitive prices; 3) providing incentives to promote efficient and effective care; 4) promoting patient-centered primary care; 5) investing in infrastructure such as health information technology; and 6) investing strategically to improve access, affordability, and equity.
Health spending, which has risen rapidly in the last six years, is rising faster than the economy as a whole and faster than workers' earnings, the Commonwealth Fund report says. "In recent years," it says, "insurance administrative overhead has been rising faster than other components of health spending, while pharmaceutical spending has increased more rapidly than spending on other health care services."
The United States spends 16% of gross domestic product on health care, compared with 8%-10% in most major industrialized nations. The Centers for Medicare & Medicaid Services says growth in health spending will continue to outpace gross domestic product over the next 10 years. Wide variations in cost and quality across the United States underlie these national trends, indicating opportunities to increase efficiency.
From a public perspective, according to the report, the most desirable strategies to address high and rising health care costs would involve eliminating duplicative or unnecessary care and reducing administrative overhead; preventing illnesses or complications and detecting conditions at an early stage; avoiding unneeded hospitalizations; and enhancing productivity and efficiency in providing care.
"Although there may come a time when the nation is compelled to make a tradeoff between spending on health care and other high priorities," the report says, "there is currently ample evidence that we can achieve savings and efficient payment, insurance, and care delivery systems and still improve health outcomes, quality of care, and access to care."
The Commonwealth Fund notes there are wide variations in health care costs across the country. Thus, the Dartmouth Atlas of Health Care shows that Medicare outlays per beneficiary adjusted for area wage costs ranged from $4,530 in Hawaii to $8,080 in New Jersey in 2003. But studies demonstrate no systematic relationship between higher spending and achieving longer lives or higher quality of care for Medicare beneficiaries. Evidence of extensive variations in costs and quality and studies documenting provision of duplicative, inappropriate, and unnecessary care have led the Institute of Medicine (IoM) and other experts to conclude that the U.S. health care system could improve quality, access, and cost performance. "Whether comparing U.S. performance to international benchmarks of high value or to benchmarks set within the United States, it is clear there are opportunities to improve the yield we reap given the resources we invest in health care," the report concludes.
Factor in high expenditures
The report says that addressing factors that contribute to current high levels of U.S. expenditures, inefficiency, and waste will result in one-time savings. Such factors include:
- overuse, inappropriate, or ineffective use of care;
- payment incentives that reward delivery of more services without considering clinical value or cost-effectiveness;
- market power of insurers, providers, and the health industry, including drug companies, device manufacturers, and other suppliers to set prices about competitive market levels;
- a low ratio of primary to specialty care physicians and services;
- access barriers to preventive and primary care contributing to avoidable hospital admissions, emergency department use, and complications of chronic and acute diseases;
- a lack of well-coordinated care leading to unsafe, duplicative, or conflicting care;
- inadequate information systems and information exchange; and
- high administrative costs, including the high proportion of insurance premiums used to cover overhead costs, the complexity of insurance benefit design and duplicative and uncoordinated requirements, and administrative costs for providers.
The report says the principal factors contributing to long-term trends in rising expenditures that might be amenable to policy change are somewhat different, and include:
- introduction of new technologies/innovations without comparative information on clinical outcomes or cost-effectiveness to guide decisions on adoption and use;
- wages and prices of other hospital-purchased goods and services;
- growing market power and consolidation of insurers, providers, and the health industry, including drug companies, device manufacturers, and other suppliers contributing to less choice and higher prices;
- the increasing prevalence of chronic diseases.
Substantial cumulative gains could come over time from both the strategies that achieve one-time savings and those that address cost trends. Thus, a policy option that could achieve a one-time 5% reduction in the level of health care spending this year would achieve $1.32 trillion in cumulative savings over the eight years from 2007 to 2015. And a policy option that has the effect of lowering the average rate of increase in health care outlays by 1% a year would yield cumulative savings of $1.39 trillion over the same period.
The Commonwealth Fund report says potential strategies to move the United States to a higher value, more efficient health care system cluster into six main areas:
1. increase market effectiveness by improving access to information on the quality and costs of care, promoting greater competition, and developing better information on the cost-effectiveness of health care technology and procedures;
2. reduce high insurance administrative overhead and achieving more competitive prices;
3. provide payment incentives to promote efficient and effective care;
4. change the health care system to promote patient-centered care;
5. invest in infrastructure such as health information technology and information exchange systems;
6. invest strategically to improve access, affordability, and equity.
Commonwealth Fund president Karen Davis and her colleagues who worked on the report say effective policy options should focus on changing total national expenditures rather than simply shifting costs from one payer source to another. Some policies may have a greater effect on federal budget outlays, while others may affect outlays by state government, employers, or households. Achieving improved value for the national investment in health care requires policies that achieve net gains for the whole country.
Thus, they say, at the national level policies should be amenable to federal policy action; improve health outcomes, quality, access, efficiency, or equity; have a high likelihood of significant reduction in expenditure levels and/or trends compared with current projections, or achieve a net improvement in value; be evidence-based and feasible to implement; and be reasonable first steps toward longer-term reforms.
Legislation in four areas
Legislative proposals that have been introduced in Congress address four major areas, according to the Commonwealth Fund: simplifying, standardizing, and introducing negotiated pricing into Medicare Part D; enhancing use of health information technology and building a national interoperable technology system; integrating value-based purchasing into Medicare payments; and improving public access to information on the quality and price of medical services.
"There is a compelling need for a coherent public and private sector strategy, with all parties working in concert toward agreed-upon health system aims," the report concludes. "Such a strategy should place high priority on policies and practices that have the potential to move our nation toward benchmark levels of performance on access, quality, and efficiency, so that the U.S. health system could achieve commensurate value for the significant resources it commands."
Download the report from www.cmwf.org/publications/publications_show.htm?doc_id=449510.
Analysts say health care expenditures will continue to increase rapidly over the next decade, outpacing income and placing financial stresses on families, businesses, and public budgets. Does it have to be that way?Subscribe Now for Access
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