The blueprint for decreasing the cost of health care

We have done it. We have decreased the increase in the cost of health care. Let us explain. For three decades (1980-2009), the cost of health care has been increasing each year at an average rate of 7.4 percent — double the rate of inflation.  However, over the past three years, the increase in health care expenditure has remained at a low 3.1 percent.

Is this decline the desperately-needed bend in the health care cost curve, or just the impact of the depressed economy?

Four leading studies point us in different directions. Last month’s Kaiser Family Foundation study deduced that 77 percent of the decline was due to the economic downturn and is likely temporary. A report by Robert Wood Johnson Foundation echoed these conclusions.

In contrast, two articles in the May issue of Health Affairs point to structural changes such as “less rapid development of imaging technology and new pharmaceuticals, increased patient cost sharing, and greater provider efficiency” as major causes of the decline, suggesting that only 40-55 percent of the decline was due to the economic downturn.

The final answer is probably somewhere in between, with about half of the decrease realized by encouraging changes in the way health care is delivered and the other half due simply to the downturn in our economy. Regardless, it is important to recognize — and celebrate — that the cost curve has bent without collapsing our health care system or being prompted by draconian measures in rationing of health care. Moreover, the decline has not lead to deterioration in our quality measures. In fact they have improved.

Now, the $2.7 trillion question is, “How can we sustain this slower growth over the next decades?”

Undeniably, over the past several years the singular focus of conversation among policy makers has shifted from simply more care and better quality of care to better value in health care, where value is defined as quality over cost. The onset of value-based purchasing by Medicare and higher co-pays and deductibles for patients in employer-based plans has helped in disseminating this message to doctors and patients.

Yet if history is any indicator, as our economy strengthens costs of health care will rise once again. So, last month the Bipartisan Policy Center (BPC) made 50 bold recommendationson how to sustain the lower growth of health care costs. These recommendations are unique because they focus on improving the entire system of care over a prolonged period of time and break through the partisan rhetoric surrounding health care reform.

We want to highlight few of the recommendations that will impact providers — hospitals and doctors. The BPC encourages advancing Accountable Care Organizations to a 2.0 version where the entire spectrum of patient’s needs would be covered for a fixed payment and in doing so replace the irrational and outdated Sustainable Growth Rate (SGR) formula for physician reimbursement.

Additionally, the BPC policy paper suggests changing our present voluntary bundle payments program to the standard method of payments for certain DRGs. The impact of such a change in the payment system can be profound. When in the 1980s Medicare changed payments to hospitals by DRG, length of stay and hospital payments declined.

If such measures are not successful in restricting the cost of health care, then a fall back spending limit or a “cap” would take effect based on annual per beneficiary spending growth to a target of GDP.

To sustain these reductions in cost, the ready availability of current cost data and transparency of such data are essential. At present when patients get their bills, they do not know the difference between health care charges, expenditures and costs. To borrow an analogy from car sales: the sticker price, the new owner’s price, and the dealer’s invoice price, respectively.

As for providers, physicians are often unaware whether an antibiotic costs $150 or $15 when writing the prescription or a doctor’s order in the hospital chart.

These costs have real impact for Americans. One Rand study found that if health care costs had risen at the slower rate equal to the Consumer Price Index, an average American family would have had an additional $5,400 more to spend each year on education, entertainment, food, and clothing over the past decade. But instead the average family has spent that money on health care. With our health care system at this crucial crossroads, we need to take this opportunity and stop the collateral damage.

A slower growth of health care cost would mean less burden on the individual family, freeing that family to invest in and live a higher quality of life. And for communities it would free billions of dollars for education, businesses, job creation, and future innovation.

The good news is that it can be done. And the blueprint for eliminating waste, lowering the cost, and maximizing the value is actively being considered by voices that rise above partisan bickering.

Manoj Jain is an infectious disease physician and contributor to the Washington Postand The Commercial Appeal.  He can be reached at his self-titled site, Dr. Manoj Jain.

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  • http://onhealthtech.blogspot.com Margalit Gur-Arie

    Is there a link to something to support the statement that quality has improved?
    Other than that, I am not sure what exactly we need to celebrate. Expenditures have decreased because there are no advances in medicine and because people can’t afford to pay for care due to an economy in recession and increased cost shifting to individuals in the form of “high deductibles”. So yes, that average family that is unable to obtain medical care any longer, can spend the extra imaginary cash on entertainment.
    It is interesting that while health care “costs” have been contained, all corporations engaged in health care are experiencing record profits. Must be a miracle of sorts.

    • rbthe4th2

      The quality is not there. I’ve been misdiagnosed and delayed diagnosis and that’s causing a lot of doc visits, specialists visits and tests. I do have one great place that they have common sense in. Otherwise, I get a lot of docs who “judge the paper & not the patient’. I’ve had copies of my records and they show low/high items I was never told about.
      You are spot on about corporations and the CEO’s. Seen it far too often.

      • Dorothygreen

        “t is interesting that while health care “costs” have been contained, all corporations engaged in health care are experiencing record profits. Must be a miracle of sorts.

        Margalit Gur-Arie you are so always right on.

        All I can add is what I have said before, the US will never bend the health care costs curve unitl:

        1. We have a bona fide health care system. A basic component of a health care “system” is that the government negotiates the prices and insurance premium rates with all the players engaged in health care for basic/essential services. After this, profit can be made. In Switzerland subsequent to the government/medical Corp negotiations the insurance companies do the administration. Everyone knows what the prices are, no hidden costs, little fraud and abuse. There is choice upfront, no need for the wealthy to use the back door to get more, no problem for the poor to find a physician. Everyone has to be responsible for obtaining health insurance on an exchange- it is easy.

        2. We must reform our eating culture if we are to truly reform our health and health care. It is no longer a “what is the problem here” it is easy access to cheap poor nutrient, high calorie, hyperplatable processed food while access to whole nutrient dense food is expensive and in many places in this country unavailable. The only model we have here is the tobacco model and all its components. And it worked.

        • rbthe4th2

          Totally agree on the eating culture.

  • LeoHolmMD

    Is the way out of a progress trap: more progress?

  • drll

    Ny Times article shows it’s getting uglier as we speak. The limits on cost of outof pocket expenses on health insurance outlined in the ACA is being delayed till 2015. THe ACA is going to ppt hospitals to merge which is then going to cost even more as we have already discovered.

  • drll

    funny that the govt os focused on the airline industry trying to prevent a merger taking place out of concern of a monopoly or costs but they seem to leave hospital mergers alone. they must have better lobbyists.

  • EE Smith

    When the economy sucks, people have to self-ration their healthcare spending. We’ve lost jobs, had our hours cut, been under pay freezes, and are just generally struggling to get by.

    I’m not sure that’s as glowing an endorsement of the current administration as you seem to think it is.

  • _userM9801

    Is the amount we as a country spend on something really an indicator of how good it is?

    We’re constantly lambasted that other countries spend MORE than we do on education… so in that case, people are implying that throwing more money at a sector makes it better and is A Good Thing™.

    Yet we’ve also been lambasted that other countries spend LESS than we do on healthcare… so in that case, people are implying that throwing more money at a sector makes it worse and is A Bad Thing™.

    Has anyone stopped to consider that maybe “percentage of GDP spent on X” isn’t really the best measure of quality?

  • katerinahurd

    What is the distribution of the decline in health care costs when it comes to preventative, acute and chronic health care? What does it mean to increase a physicians efficiency? How can someone design a public health policy when the decrease in total health care costs is temporary?