Healthcare Cost Containment Part I: Getting Serious About Controlling Healthcare Expenditures

By David A. Kindig, MD, PhD

For decades, attempts across the political spectrum to control health care expenditures (through either market-based or regulatory policy) have been resisted. I was privileged to represent Secretary-designate Shalala in early 1993 at the Governor’s mansion in Little Rock when then President-elect Clinton was informed that his new health care plan would significantly increase costs before containing them. The expected political repercussions were clear by Clinton’s quip that he might as well just slit his throat – except that would increase costs even more.

As difficult as it is, healthcare cost containment is essential for both strengthening our global economic position as well as improving population health. We must figure out a way to both eliminate excess healthcare spending and create new revenue streams for investing across key drivers of health status and outcomes.

Determining how much we should be spending has been a particularly thorny issue for policymakers, who have historically been reluctant to set spending targets. While many state and national health plans have clear and measurable objectives for health outcomes like infant mortality and smoking rates, we rarely see specific targets proposed for either annual per capita health care expenditures or expenditure growth rates. But as I’ve said before, you can’t manage what you don’t measure.

Although not well-publicized, the Patient Protection and Affordable Care Act actually contains goals for healthcare cost control: beginning in April 2013, CMS will determine whether Medicare per capita spending exceeds the average of the overall Consumer Price Index and the Medical Cost Inflation rate. If it does, CMS will be required to make recommendations for how to reduce spending. If Medicare spending exceeds the (GDP per capita + 1%) threshold by 2018, CMS will be required to submit recommendations to Congress and the President for immediate consideration. Interestingly, this is quite similar to the 1993 Clinton Health Security Act, which called for a reduction of 0.5% per year (over 5 years) in the difference between Medicare spending and GDP increases to force alignment of health care costs with overall economic growth.

A similar approach was proposed in The  New York Times’ recent interactive budget puzzle challenge for eliminating the national deficit by 2030.  The puzzle offers a wide-ranging menu of options across nine categories and includes both spending cuts and tax increases. Of 39 choices provided, a cap to Medicare spending (tied to 1% over GDP per capita) would provide the greatest projected cost savings, erasing over 40% of the deficit. New York Times economics columnist David Leonhardt noted that this option was an overwhelming favorite among those who (tweeted their solutions and) preferred spending cuts over tax increases.

But, models themselves can’t reduce expenditures. Where do we look for expenditures that do not harm us if eliminated? Stop by next week for Part II on healthcare cost containment.

David A. Kindig, MD, PhD is Emeritus Professor of Population Health Sciences and Emeritus Vice-Chancellor for Health Sciences at the University of Wisconsin School of Medicine and Public Health.

Comments

[Paul Hunter]

The clinicians and businesses that profit from expensive medical services and procedures have done a very good job of equating their profit centers with high quality care in the minds of voters and policy makers. RWJ's "New Way to Talk About the Social Determinants of Health" is a start toward making a case for paying for cost effective interventions to improve the health of all Americans, but we have a long way to go.

http://www.rwjf.org/files/research/vpmessageguide20101029.pdf
... page 6
"America leads the world in medical research and
medical care, and for all we spend on health
care, we should be the healthiest people on Earth. Yet on some of the most important indicators, like how long we live, we’re not even in the top 25, behind countries like Bosnia and Jordan. It’s time for America to lead again on health, and that means taking three steps. The first is to ensure that everyone can afford to see a doctor when they’re sick. The second is to build preventive care like screening for cancer and heart disease into every health care plan and make it available to people who otherwise won’t or can’t go in for it, in malls and other public places, where it’s easy to stop for a test. The third is to stop thinking of health as something we get at the doctor’s office but instead as something that starts in our families, in our schools and workplaces, in our playgrounds and parks, and in the air we breathe and the water we drink. The more you see the problem of health this way, the more opportunities you have to improve it. Scientists have found that the conditions in which we live and work have an enormous impact on our health, long before we ever see a doctor. It’s time we expand the way we think about health to include how to keep it, not just how to get it back."

[David Riemer]

Hope Part II explicitly addresses the multiple perverse incentives in today's health care system that drive its hyper-inflation, and how those incentives require a fundamental realignment if costs are ever to be controlled. Setting goals without realigning incentives will just be happy talk--it will get us nowhere. Sorry to be so brutal about this, but it's the brutal truth.

David Riemer, Director, Community Advocates Public Policy Institute, Milwauke, WI

[Ed Donovan]

Why not include a value calculation into the decision making process? Results of these calculations could be used as incentives/disincentives, but there are other options.
It's an over-simplification (but perhaps not so far off?) to say that roughly 1/3 of what we pay for (U.S. health care spending) provides net benefit, 1/3 provides no net benefit (or negative value) and, for the remaining 1/3, we don't know whether there is a net benefit.
Why do we use public dollars to pay for the 1/3 that provides no value?
We should be able to improve health, give patients what they both want and need at lower cost. How much of the "want" is driven by misinformation?