The Wonk Room

Cost Containment Will Require Government Action

The most recent version of the Annals of Internal Medicine contains a rather gloomy forecast for President Obama’s proposed cost-containment measures. The administration has promised that investments in health information technology, comparative effectiveness research, preventive care, and payment reform could lower health care costs, but authors of this piece — Theodore Marmor, Jonathan Oberlander, and Joseph White — aren’t buying the hype:

However, none of these measures is likely to substantially reduce health care spending in the short run, even if they are worthwhile long-term investments that improve quality of care and health outcomes. The Congressional Budget Office (CBO) has issued a report disputing claims of sizable savings from moving to electronic medical records; other CBO studies cast doubt on the capacity of disease management programs to reduce costs.

While correct on the merits, Marmor, Oberlander, and White may be too pessimistic. The above mentioned measures may not score well with the Congressional Budget Office, but independent efforts to lower health care spending have incorporated some of Obama’s proposals:

- Kaiser Permanente And Health IT: Today, all of its medical clinics and two-thirds of its hospitals operate in a paperless environment and the rest are scheduled to be completely digitized by next year. “Within the first 18 months of installing electronic medical records, the rate of patient visits to doctors’ offices and clinics and the emergency department falls by about 7%.” Unnecessary office visits were reduced or replaced with telephone visits.

- Geisinger Health Systems And Payment Reform: Geisinger has devised a 90-day warranty on elective heart surgery, promising to get it right the first time, for a flat fee. If complications arise or the patient returns to the hospital, Geisinger bears the additional cost. The venture has paid off. “Heart patients have fared measurably better, and the health system has cut its bypass surgery costs by 15 percent.”

- Transitional Care And Care Coordination: Mary Naylor, RN, PhD, has developed approaches to transitional care that can reduces the need for readmission to hospitals. This model has resulted in significant reductions in readmission rates and savings for patients.

These cost containment measures are in line with Obama’s proposals and could result in savings not captured by standard actuary measures. In fact, government investment in health IT, comparative effectiveness research, preventive care and care coordination should unleash even greater innovation in the private sector and better cost containment models.

As the authors point out, containing costs, will inevitably lower the profits of “doctors, nurses, and hospitals to pharmaceutical companies, insurers, lawyers, and sales and marketing staff.” But a health care system that spends one-third ($700 billion) of its dollars on treatments that don’t work and still leaves 16 percent of the population without health insurance, is simply unsustainable. Thus, the Obama administration will likely adopt a broad spectrum of cost containment measures, greatly regulate the insurance industry, and allow an efficient public health plan to compete alongside private insurers.

After all, government is not in the business of sustaining inefficient practices. Rather, it has a responsibility to funnel its resources towards efforts that incentivize quality and efficiency in the health care system. Recently, Medicare decided to stop reimbursing providers for “never events” -– serious and costly errors in the provision of health care services that should never happen like surgery on the wrong body part or mismatched blood transfusion — and is considering ending payments for Medicare coverage of virtual colonoscopies (because it hasn’t found enough evidence that these tests, which use X-ray images and computer software to create images of the colon, improve outcomes for Medicare beneficiaries).

To the extent that Medicare can shape the market towards quality and efficiency (private insurers have also sopped reimbursing for never-events), it can play an important role in lowering the nation’s health care costs.