A sustainable healthcare system

Mike Chernew, a professor and economist on health policy at the Harvard Medical School, writes about the topic of health care costs and health reform. A piece by Dr. Chernew and others appears today in a special themed issue of Health Affairs and an article on the associated study appears today in the New York Times here. 

As the debate surrounding health care reform enters its final phases, it is not surprising that cost containment is among the last, most intractable issues of contention.  The central question often seems to be: ‘how can we achieve enough savings from the system, or raise enough money, to finance reductions in the number of uninsured?’  This is admittedly a crucial question, but, for several reasons, answering this question is insufficient and framing the question this way is distracting.

First, cost containment is inherently controversial.  One sector’s costs are another sector’s revenues and the laws of accounting dictate that we can only save money by paying less or doing less. Paying less inevitably raises the opposition of providers.  If we could save enough money by keeping people healthy, and thereby doing less because we need to do less, cost containment would not be so controversial (though provider revenue, and likely profits, would still fall).  However it seems unlikely that this most rosy of cost containment strategies will be able to generate sufficient savings. Cutting out waste is also appealing, but one person’s waste is another’s valued care and the process of identifying waste often leads to charges of rationing or stinting on care.  It seems unavoidable therefore that any realistic cost containment strategies will be distasteful.

By tying cost containment to health care reform, it seems to imply that we can avoid the displeasure of cost containment if we avoid health reform.  This is certainly not the case.   The need for cost containment has been recognized for decades and the imperative only grows.  Reasonable observers can debate whether comprehensive reform exacerbates the cost growth problem, by adding the costs of expanded coverage to the system, or facilitates cost containment by creating an environment that promotes more desirable cost containment (by, for example, reducing barriers to cost containment attributable to adverse selection).  Regardless of one’s view, the comparison must not be to the current system, but instead to the system that will arise without reform.  My own view of the “no reform” health care system is one in which financial resources increasingly drive access and disparities in care grow.  It even is conceivable, but not guaranteed, that the status quo will lead to a collapse in important parts of the system such that even good coverage or above average wealth do not ensure access to the quality of care we desire. 

Second, framing the question of cost containment relative to a fixed target focuses attention on achieving specific funding goal over a well defined budget period.  The narrow budget window allows for some manipulation by encouraging legislative strategies that delay aspects of the program to reduce the costs accrued during the budget window.  Moreover, the finite budget window masks the more pressing need of slowing the rate of health care spending growth as opposed to simply reducing the level of spending.  The factors associated with spending growth may not be the same as those associated with higher spending.  For example, my co-authors and I, in an article that appears in Health Affairs today, have reported that a relative abundance of primary care physicians is associated with lower spending (which is well known), but not slower spending growth.  This finding is similar to the evidence that managed care is primarily associated with lower spending, as opposed to dramatically slower spending growth.

Over 10 years this may not be a crucial distinction, but over the long run we face substantial fiscal challenges even if we reduce the gap between health spending growth and income growth by 50% (from about 2 percentage points to 1 percentage point).  Even with a 1 percent gap, we estimate 54% of our income growth would be devoted to health care between 2007 and 2083.  Lowering spending to fund insurance expansions for 10 years is undoubtedly a desirable achievement if it can be done while preserving quality of care, but it does not necessarily address the fundamental challenge we face, which is the steep trajectory of medical spending growth.

Finally, posing the cost containment goal relative to a specific budget target obscures the fact that not all cost containment strategies are equally attractive even if they have the same fiscal impact.  A sustainable system should strive to ensure value, not savings.  Coverage is an intermediate outcome.  Better health is what we ultimately seek.  Not all cost containment strategies will generate the same health and some, like blindly applied increases in patient cost sharing or draconian cuts in reimbursements, may lead to worse health, even if coverage rates rise.

It may not be surprising that in the midst of a controversial reform debate, the focus is on financing the near term goals using existing budget rules and customs.  Yet we should now begin to discuss the more pressing long term challenges.  Specifically, the trajectory of spending growth is driven by increased medical capabilities.  Better medical technology is a goal we can all support, but it raises serious ethical issues.  One’s opinion of the appropriate role of government in addressing these issues is a bit of a Rorschach test.  Proponents of more government involvement in managing spending see their hopes and aspirations captured in a reformed system that efficiently and equitably finances care.  For opponents of a stronger government role in cost containment, the prospect of more government control raises fears of reduced individual choice and rationing of appropriate care. 

Yet regardless of one’s views on the role of government or broader health care reform, the need to moderate the rate of increase in health care spending is undeniable.  This generates serious questions about resource allocation that each side must address as we strive to design a sustainable health care system.  For example, can we afford to fund access to all care for everyone?  Are we willing to change the tax system or to impose other reforms that may lower prices or restrict choices in order to achieve that goal?  What role should the government play in creating and managing this system relative to the market?  There are no easy answers and a dearth of evidence pointing the way, but the sooner such a serious discussion begins (without the recent hyperbole and posturing), the sooner we can begin to resolve one of the fundamental challenges of this generation.

 

Comments

[Eric Dishman, Intel Digital Health Group]

I could not agree more with your statement that “regardless of one’s views on the role of government or broader health care reform, the need to moderate the rate of increase in health care spending is undeniable.” Instead of dwelling on partisan debates around the public option, we need to focus instead on driving a new vision of personal health that improves care and saves costs by shifting the focus from institution to individual and hospital to home. There are great opportunities to cut hundreds of billions of dollars by using technologies that are already available to prevent health problems and injuries from happening in the first place. No matter what one’s position is on health reform, we cannot deny that with the millions of aging Americans hitting the system already, our current model simply won’t suffice. http://blogs.intel.com/healthcare

[James McGee]

"Coverage is an intermediate outcome"!?
I do hope that we have the same understanding of that phrase.
For me, you can not reform the health care delivery system until you reform the patient delivery system - the side I work on.
That's what I hope you are saying.
I suspect that your thoughts on cost containment are focused on the care delivery side.
If you are really looking for waste, I think there is a lot more low hanging fruit on the patient delivery side.
We need to imagine a system that, first, facilitates access to health care for all patients and secondly, streamlines the flow of money from patients to the health care system.
There are far too many bureaucracies and rules that impede the first objective and siphon money away from care delivery in the second.