Health Care Cost Control – What works, what doesn’t, and it’s not going to be easy

As the health care debate drags on, I often hear this from both supporters and opponents of reform: “there’s really nothing in the reform bill to control health costs.” That’s just not true of course. From the CBO estimates that the Senate reform bill actually reduces the federal deficit by over $100 billion to the substantial efficiencies and reform in Medicare that lower costs by hundreds of millions of dollars, there are many changes for the better.

However, what Congress has found in creating health reform is that there is no magic bullet out there to reduce costs. That’s why the Senate bill contains a slew of strategies and pilot programs aimed at achieving this goal. Some will have an effect – that’s why the federal deficit is reduced. Others may or may not, but we have to try and then use the techniques with the best results for long-term cost control. Massachusetts, the one state with near-universal coverage, is already wrestling with the cost conundrum and they contracted with outside consultants for help.

Last summer the well-known consulting firm Rand presented a detailed report to the state of Massachusetts. It’s 244 pages, but it ought to be required reading for anyone who is interested in strategies to control health care costs. Or at least the executive summary. Their findings for Massachusetts reflected the problems facing the nation in reducing costs:

Not surprisingly, we found no easy solutions to the problem of rising health care costs in Massachusetts. We have identified a set of policy options that have reasonable evidence of potential savings to start the discussion. However, finding long-term solutions to rising health care costs will require significant investments in infrastructure and in fundamentally changing the way health care is delivered. These solutions are likely to take at least a decade to implement and show a return. But, if policymakers do not begin down this path, rising health care costs will continue to pose a threat to the goal of maintaining universal coverage for the residents of Massachusetts.

Rand summarized the debate around health care cost control very well:

We can either make a change that uses market forces to bring prices down or reduce volume, or we can institute a regulatory process that sets prices below current levels or limits the volume of services delivered. Stakeholders tend to have clear philosophical preferences for using either market mechanisms or regulation. Our challenge in this study was to get beyond philosophy and assess the evidence available today that a particular approach within a particular context was likely to produce a reduction in health care spending.

The Rand report had a bleak view of prevention programs, comparative effectiveness analysis, and disease management programs as ways to substantially reduce costs:

In a recent review of the literature on prevention, Cohen, Neumann, and Weinstein found that the majority of preventive services both add value to the health system and increase total costs. Our findings suggest that comparative effectiveness analysis and disease management programs may have a similar effect: They have strong potential to improve health outcomes, but may also increase costs. Although promoting policy options that add value to the health system may be desirable, these reforms will not address the concern about the rapid growth of health care spending.

The major reform they felt had the best chance of cost reduction with the most evidence was bundling payments for health services:

Bundled payment would encourage the use of a strategy that provides a single payment for all services related to a treatment or condition, possibly spanning multiple providers and settings. For example, the expected costs of care for a chronic disease, such as diabetes, could be calculated and used as the basis for a bundled payment to the provider managing the patient’s diabetes….We concluded that the bundled payment scenarios we modeled would lead to substantial cost savings in the upper-bound scenario.

For anyone interested in actually reducing health care costs and not just scoring political points, the report makes interesting reading. It shows how cost control strategies don’t make for bumper-sticker slogans or easy politics. Rather they will demand a commitment to long-term reform and change – something that seems in short supply in Congress at the moment.

5 Comments

  1. north state politics

    February 18, 2010 at 10:15 am

    Very good posting Adam. Thanks.

  2. Ernie Boyd

    February 18, 2010 at 12:28 pm

    I agree–this is a good posting.

    Plain language would make it even better:
    We need to end fee for service payment for medical care.

    Admittedly, I learned this lesson almost forty years ago at a health services research center run by a Canadian physician, but what the heck–it has held up pretty well.

    So let’s quit mincing words. Trying to control costs with half a million physician entrepreneurs getting paid on a piece work basis is futile. (Ditto for the much bigger entrepreneurs bringing us medical equipment, drugs, hospital care, and so-called health insurance.)

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