Blog Home

«
»

Can Health Reform Bend The Cost Curve?



June 22nd, 2010

Can the recently enacted Patient Protection and Affordable Care Act succeed in reducing the growth rate of health care spending? It must, David Cutler said in an article in the June issue of Health Affairs and at a June 7 Washington D.C. briefing on the issue. Video and slides from the briefing are available on the Health Affairs Web site, and an earlier Health Affairs Blog post described Jon Kingsdale’s comments at the briefing.

If health reform succeeds in “bending the cost curve,” the United States “will be able to afford the commitments we’ve made under the legislation. as well as the commitments that were already in place through Medicare and Medicaid. If we can not bend the cost curve, then not only will the new commitments we’ve made fail, but the older commitments to Medicare and Medicaid and a variety of other programs will fail as well,” said Cutler, a Harvard University economist who advised the Obama Administration during the development of the Affordable Care Act.

How will we know if reform is indeed working? To answer that question, Cutler listed three characteristics of successful industries outside the health care arena. First, successful industries make extensive use of information technology: “They know what they’re doing, who’s doing it, why they’re doing it, who’s the right person to do it, how long it’s taking, how much it costs – everything about the nature of production.” In health care, by contrast, “we know essentially none of that, and when we do observe it we observe that it’s bad.” That’s why the Obama administration’s first step toward health reform was to spend $30 billion to computerize the health care industry in the HITECH portion of last year’s economic recovery legislation, Cutler said.

The second characteristic of successful industries is compensation arrangements oriented toward value, according to Cutler: “They provide economic rewards for doing the right thing.” That’s why the largest portion of the Affordable Care Act focuses on shifting compensation arrangements — starting from the Medicare program and working out from there — away from paying for volume and toward paying for value. Finally, Cutler said, successful industries work with employees and consumers to improve the production process.

To determine whether health reform is working, look to see whether these three things are happening in health care, Cutler suggested. More broadly, look at whether the Affordable Care Act is succeeding in reducing the siloed nature of our health care delivery system. Cutler said the philosophy behind the Act is to better coordinate care and to reduce the problems patients run into transitioning between our many separate health care boxes. The legislation aims to do this through two basic mechanisms: 1) bundling various boxes together through models such as accountable care organizations, and 2) attributing what’s happening in one box to another box through mechanisms such as additional “medical home” payments to primary care providers who do a good job managing their patients’ care.

Dueling Views On The Cost-Cutting Potential Of The Affordable Care Act

Of course, ultimately reform’s success will be measured by whether spending growth is reduced. Cutler laid out what he termed a reasonably attainable goal in this regard: knocking 1.5 percentage points off the current rate of health care spending growth starting in 2013, which would result in overall spending that is 25-30 percent below current forecasts 20 years out.

Is this really attainable? Another member of Cutler’s panel, Bruce Hamory, the chief medical officer emeritus for the Geisinger Health System, said his organization had achieved a 7-8 percent drop in cost growth for Medicare beneficiaries. However, in another paper in the June issue, Douglas Holtz-Eakin and Michael Ramlet argued that the Affordable Care Act is likely to increase federal budget deficits, not decrease them. Holtz-Eakin is a former director of the Congressional Budget Office and is currently president of the American Action Forum, a conservative policy institute. Ramlet is a research analyst at the Advisory Board Company.

At the briefing, Ramlet said he agreed that there is tremendous waste in our current health care system, but he said the Affordable Care Act was not likely to eliminate unnecessary costs. “There are extraordinary organizations like Geisinger that have unique cultures, that have integrated delivery systems, and have made major strides in reducing costs, but that simply isn’t easy to implement across the system,” he observed. He called the bundled payment pilot program in the Act “incredibly promising,” but he noted that it doesn’t begin for another three years and that it takes up to ten years for Medicare to carry out a pilot project. “We can’t continue to raise over a trillion dollars in subsidies and then assume that we are going to achieve savings somewhere, somewhere down the road,” he said.

“I don’t disagree with the need to speed [the pilot program process] up at all. The current 10-year process has to get closer to a 10-month process,” Cutler replied. He said the central question is how replicable the good health care examples like Geisinger are. “In the field of education research, what’s known is there are good teachers and bad teachers, and nobody’s figured out how to turn good teachers into bad teachers, so that’s the model that gives you pause.” But in industries such as retail, airlines, and banking, “having one very efficient firm spurred all the other firms to become more efficient, or else they went out of business, and one way or the other the whole industry transformed itself.”

“My belief is that we’re ultimately in the second kind of situation,” Cutler opined. Others can emulate the examples set by efficient performers such as Geisinger, and “if we provide the right incentives and the right tools, then they will.”

A National Health Plan Composed Of High-Performing Health Systems?

Health Affairs Editor-in-Chief Susan Dentzer noted that, in her interview with Geisinger president and CEO Glenn Steele for the June Health Affairs issue, Steele said Gesinger has engaged in discussions regarding the possibility of  linking up with other high-performing entities like Kaiser Permanente and the Mayo Clinic to offer what would in effect be a national health plan; such an alliance could be attractive to national employers with workers in various sites around the country. “That sounds to me like the kind of competitive system that David [Cutler] was just describing. It’s like having a Southwest Airlines come into the airline market and force everyone else to do things differently,” Dentzer suggested.

Hamory agreed: “The difficulty with health care delivery, as opposed to the airline industry or banking, is that health care is very local. So even if the Cleveland Clinic or somebody else does a particular bundled price for cardiac surgery or neurosurgery, that has not, at least in the past, had a major impact on overall health care delivery or cost in the country.” The arrangement that Steele and Dentzer discussed might change that, he said.  

The fourth member of the panel, American Hospital Association president and CEO Richard Umbdenstock, said his industry was committed to the reforms envisioned in the Affordable Care Act, though he emphasized the magnitude of the cultural shift involved in spreading the practices of organizations like Geisinger. He also underscored the need for a cultural shift at the individual level: “I ask people, if they have homeowners insurance and paid a lot of money last year for that, were you disappointed that your house didn’t burn down? Or were you disappointed that you didn’t make a claim on your life insurance? I haven’t had any takers yet to questions one or two, but how many feel ripped off if they haven’t fully used the money they pay in for health insurance?”

Email This Post Email This Post Print This Post Print This Post

Leave a Reply

Comment moderation is in use. Please do not submit your comment twice -- it will appear shortly.

Authors: Click here to submit a post.