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The Industry’s Cost-Control Initiative: Signaling Momentum For Reform



May 22nd, 2009
by Karen Davis

The recent confusion surrounding the health care industry’s statement about reducing the growth in health care costs by 1.5 percentage points annually — it is a goal, the industry clarified, not a year-by-year target — underscores the need to put mechanisms in place to ensure that the industry’s spending growth target is met. Nonetheless, I see their announcement as a clear sign that all stakeholders are looking toward the passage of comprehensive health reform legislation this year.

Limiting cost increases will bring relief to millions of American families and businesses, as well as stabilize our nation’s economy and federal and state governments. While a 1.5 percentage point annual reduction may sound modest, the leaders from insurance, physician, pharmacy, and medical device groups estimated that reducing the annual growth in national health expenditures from a projected 6.2 percent to 4.7 percent will yield $2 trillion in savings by 2019. Total national health expenditures would fall from a projected 21 percent of gross domestic product in 2019 to 18 percent. Administration officials calculate that this 1.5 percentage point reduction will translate into an average savings of $2,500 for a family of four in the fifth year.

As the congressional reform bills are shaped this summer, it will be important to remember that voluntary efforts have failed in the past. For example, the hospital industry’s “voluntary effort” response to President Jimmy Carter’s cost containment proposal dissipated within three years of its initial roll-out in 1978 and had no lasting impact on rising hospital expenditures.

To ensure that the promised savings are realized, policymakers should consider incorporating expenditure targets in a public health insurance plan that is part of health reform and in Medicare. Although the insurance industry has opposed a public plan, policymakers should not concede on this critical component of health reform. The plan would be offered to individuals and employers through a national health insurance exchange along with private plans and would be essential to driving efficiencies throughout the health system. Rather than stifle competition, the public plan would spur innovation in the industry, creating nimble plans with lower overhead that provide more value for the money spent and foster the growth of integrated delivery systems with accountability for prudent use of resources. New tools to hold to the spending target in private plans could be developed as well. The public and private plans could learn from each other during this process — and the consumer would benefit.

After all, the industry announcement reflects an understanding that comprehensive health system reform is workable and necessary for business groups and health care providers, as well as government and consumers. As several analysts have pointed out, reducing the annual growth rate in national health expenditures by 1.5 percentage points means that the entire health care industry can still expect sustained revenue increases over the coming decade. Moreover, if cost savings targets are incorporated into larger reform efforts that reward quality and value, ample opportunities for revenue growth will exist for efficient and innovative insurers and providers.

The Commonwealth Fund’s Commission on a High Performance Health System outlined a comprehensive approach to reform in its report, The Path to a High Performance Health System. The recommended strategies are:

* Affordable coverage for all.
* Aligning incentives with value and effective cost control.
* Accountable, accessible, patient-centered, and coordinated care.
* Accountable leadership and collaboration to set and achieve national goals.

Achieving the goals of health reform — slowing the growth of health care costs and achieving insurance coverage for all — will therefore require a multifaceted approach that incorporates not just insurance reform but also payment, delivery, and quality-improvement infrastructure reforms. As described in the Path report, we need policies that encourage well-coordinated and responsive care through bundled payment, a stronger primary care system, the adoption and effective use of health information technology (IT), the establishment of a national center that makes medical recommendations to help create value-based insurance plan designs, a focus on population health, disease prevention, chronic care management, and more.

If enacted to start in 2010, the Commission’s comprehensive set of reforms could guarantee affordable coverage for all by 2012 and could improve health outcomes and slow health spending growth by $3 trillion by 2020.

The president said last week that health reform is “not a luxury that can be postponed, but a necessity that cannot wait,” and I agree wholeheartedly. The news that Medicare’s Hospital Insurance Trust Fund may run dry by 2017 only underscores the urgency of reform. The U.S. spends more than twice per capita what other countries spend, yet we fail to provide coverage for more than 45 million people, and we fall short on many measures of access, quality, health outcomes, and efficiency compared with other industrialized nations. We simply do not get good value for the money we spend on health care. The president also said that health care reform is an imperative for America’s economic future, and that is indisputable.

Our current course is simply unsustainable, and families, employers, and government have been struggling under the weight of rising health care costs for far too long. Health reform legislation that limits these health care cost increases will help us build a high performance health system that works for all Americans. What is needed next is a concrete plan for ensuring that our goals are met.

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2 Trackbacks for “The Industry’s Cost-Control Initiative: Signaling Momentum For Reform”

  1. Health Care. (united health care, universal health care) » Blog Archive » Dr. Atul Gawande and the Fight for the Soul of American Medicine—Part 2 : Why It Does Matter Who Pays For Care
    June 3rd, 2009 at 2:01 am
  2. The Industry’s Cost-Control Initiative: Signaling Momentum For Reform | HEALTHY LIFE GUIDE
    May 23rd, 2009 at 6:56 am

1 Response to “The Industry’s Cost-Control Initiative: Signaling Momentum For Reform”

  1. MKirschMD Says:

    I don’t think there was ‘confusion’ about medical industries back peddling from an agreement to cut costs by 1.5% yearly over the next decade. This was the expected result, although the ‘clarification’ from industry occurred faster than expected. For a physician’s view on this White House photo op, see http://mdwhistleblower.blogspot.com/2009/05/obamas-health-care-reform-indecent.html.
    I fear that Obama’s health care reform efforts may achieve quagmire status soon. It’s easier to campaign on an issue than to implement policy.

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