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November 13th, 2007

Congressional Budget Office (CBO) director Peter Orszag today continued his assault on the elephant in health policy’s living room, the 2.1 percent “excess cost growth” by which the nation’s total health spending growth has exceeded the growth in gross domestic product (GDP) since 1975. At a reporters’ briefing sponsored by Health Affairs, Orszag unveiled a new report on “The Long-Term Outlook for Health Care Spending,” warning that policymakers have “misdiagnosed” the biggest problem facing both Medicare and the health economy in general by overstating the projected impact of population aging and the impending retirement of the baby boom. 

Citing a recent article in Health Affairs, the CBO report concludes that population aging will have only “a modest effect not only on national health care spending but also on federal spending on Medicare and Medicaid,” confirming an earlier analysis in this journal by Princeton economist Uwe Reinhardt. The CBO report estimates that if current spending trends are projected out over a 75-year period, population aging would increase Medicare and Medicaid spending by only about 2 percent as a share of GDP, while excess cost growth would increase spending on the two largest public health programs by 10-12 percent. As a result, the CBO’s estimates of the long-term trends in Medicare spending under current law are about 50 percent higher than the Medicare Trustees’ estimate, which assumes long-term excess cost growth in Medicare of only 1 percent.

The overemphasis on aging is not the only disconnect in policymakers’ thinking about the problem of unsustainable health spending. While many pay lip service to the problem, Orszag and CBO colleague Philip Ellis charge in Nov. 1 (subscriber access) and Nov. 8 editorials in the New England Journal of Medicine that “discussions of Medicare and Medicaid policy as well as broader health care reforms have not seriously addressed the issue of how to slow growth in spending. Instead, recent debates have focused on how much to increase spending for the Medicare prescription drug benefit, how to expand coverage for children, and how to avoid scheduled cuts in Medicare physician fees.” And, of course, expanding coverage to 47 million uninsured U.S. residents is high on the agenda as well, Orszag noted at the reporters’ briefing, without minimizing the importance of this goal. 

Remarkably, the CBO director manages to impart his message without assuming the persona of a scold or a hair-shirt. As part of an intensive effort to beef up the CBO’s analysis of health policy issues and options, he has assembled an expert advisory board on which the modal estimate of current overspending on wasteful or low-value services is around the 30 percent level — consistent with the amount of overcare that can be inferred from the work of John Wennberg, Elliott Fisher, and colleagues at Dartmouth. With total health spending now rising past the $2 trillion mark, that 30 percent represents a very large opportunity. 

Uncertainty surrounds any predictions about how current law might be changed to bend the curve of future Medicare spending, although the CBO’s assumption is that changes will be made as excess cost growth eats ever deeper into the federal budget. This week’s report, though, offers a scenario that assumes that when excess growth reaches a point where it exceeds real growth in household income and begins to cut into nonhealth spending, households will dig in their heels and force stronger cost-cutting measures. The options outlined in the report are familiar and were outlined also in Orszag’s June testimony before the Senate Budget Committee: increased consumer cost sharing, renewed utilization controls, thinning of insurance benefits, and constraints on the use of expensive new technologies. 

Just as overuse of specialized, high-tech services looms large in the Dartmouth analysis of overspending, Orszag has focused on the importance of muscling up the evidence base for assessment of new technologies and the need to expand research on comparative effectiveness. The backlash against managed care, which effectively slowed spending growth in the 1990s, was in part a by-product of inadequate evidence to justify limiting access to services. Orszag decried the lack of investment in effectiveness research and stressed the need to develop new methods that could overcome the limits of traditionally preferred randomized clinical trials. Information technology by itself will not produce the kinds of savings that many have predicted, he said. But a well-wired system will help build that evidence base and provide a foundation for new incentive systems that have the potential to change provider and consumer behavior.

Don’t expect overnight results. But the time to get started, he said, is yesterday.

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3 Responses to “HEALTH SPENDING: CBO On A Mission”

  1. annecarroll Says:

    Peter Orszag needs to go further; for example, if he is really sincere about evidence-based medicine and the value of comparative effectiveness research of new technologies (including drugs), and if he is truly impressed and outraged by the findings of the Dartmouth Atlas project, then he needs to point to the logical conclusion that public funding in several places needs to be beefed up:

    1) NIH should resume its role as an independent researcher and take it out of the hands of industry and industry-funded FDA;
    2) AHRQ, which is currently trying to establish evidence-based practice guidelines based on consensus and doing meta-analyses of the published research (which we know is influenced by industry funding), is sorely understaffed and under-resourced and can only be reactive, rather than proactive;
    3) The Public Health Service and CDC are continuing to have funding taken away in favor of Homeland Security’s wasteful and ineffective programs, thus short-circuiting their ability to do their own independent research;
    4) spreading the experience and successes of the Veterans Health Administration in controlling costs, improving service delivery quality and patient safety, and ranking highest in patient satisfaction of any US healthcare system.

    In addition, perhaps Orszag’s analyses and reports can stem the tide of privatization of Medicare (12%-13% higher costs for the same care and no better health outcomes) and John McCain’s idea to privatize the VHA.

  2. Thomas Barber Says:

    The CBO is on the right track. Within Kaiser Permanente we have seen a dramatic rise in the number of patients getting joint replacement surgery. Total joint replacement is one of the top areas of spending for Medicare and will be for decades to come. The increase of 10-12% a year in number of total joints being done was thought initially to be due to the aging of our population – untrue on further scrutiny. Our examination of our total joint population shows that more patients in every age range are getting more total joints done. Each patient’s philosophy has changed – everyone wants to be as active as they can be as they age and these procedures are becoming more and more common at an earlier age. The penetrance – ie the percent of a given population that has experienced a total joint replacement- is rising dramatically in every decade of life. This is due to an emphasis on more active life styles, direct to consumer advertising, more “minimally invasive” techniques, and a perception of safer surgery. It doesn’t help that prosthetic vendor profits are expanding rapidly on unproven technology such as the gender specific knees. The cost of the implants go up every year due to “improvements” when the most durable total hip prosthesis in the Swedish Total Hip Registry is a 20 year old design.

    Why don’t we have a national prosthetic or implant registry? I think we are scared of the results and uncomfortable saying that those improvements that cause a rapid rise in prosthetic costs are actually not really worth it. Medicare could save millions by having just a total joint registry, to say nothing about the patient morbidity saved, and much more if all implantable devices were included.

    Slowing the rate of increase in costs will demand a rational policy around technology development – one that encompasses changes in new product reviews by the FDA (demanding efficacy not just safety), changes in monitoring of already released techology (an implant registry), and strict conflict of interest policies for physicians involved in implanting devices.

    In every other industry the cost of new technology drops significantly over time. Not true for medical devices – the costs just keep going up and up. This points to a structural problem. Lets have the courage to take it on.

  3. Brad Kirkman-Liff Says:

    It may be “excess cost growth” to Congressional Budget Office (CBO) director Peter Orszag, but it is “revenue and profit growth” to entrepreneurs, medical device manufacturers, biopharmaceutical researchers, physician group practices, commercial laboratories and hospital networks, as Uwe Reinhardt observed decades ago.

    The implementation of limits on access to services based on comparative effectiveness evidence is complex. European health systems have addressed these issues for the past 30 years, while the US health system has engaged on a technological spending spree fuelded in part by unconstrained prices.

    Americans do not want their choices limited. Regardless of the future form of health insurance (be it based on tax credits or vouchers for the individual purchase of insurance, purchase through regional “Connectors”, or some employer-based system still alive on life support) people will be allowed to purchase ineffective care privately. Will supplemental insurance be available to pay for such purchase ineffective care? If so, will it enjoy any tax-advantages? Those are the difficult question to be answered.

    The cost of technology can rapidly decline, and anyone who has performed cost-effectiveness analysis knows that a 50% reduction in the cost of a technology can change the outcomes. Some models of pharmaceutical pricing look at quality-adjusted life years gained by oncology drugs to determine their price. Should comparative effectiveness be added to the FDA’s remit? Probably not – but whose then?

    Managed care effectively slowed spending growth in the 1990s. It will not return – under that name. Frank Luntz described “managed care” as an example of one of the worst phrases for a policy initiative – and he is right. No one wants their care managed, just as no physiician want her decisions concerning patients monitored and second-guessed by clerks. Collaboration and sharing of knowledge to promote effectiveness is what may reduce costs, combined with effectiveness research.

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