BY BEN WHEATLEY

As health care continues to move in the direction of unaffordability, policy makers are considering a range of options to bring down health care costs. The Health Affairs Committee on Health Care Spending and Value has identified four broad areas for reform, including administrative savings, price regulation and supports for competition, spending growth targets, and value-based payment. These measures appropriately target health care’s supply side and the excesses that exist in the health care system.

In this blog, I would like to highlight another avenue for savings: one that focuses on the demand side of the equation. It is possible to reduce health care expenditures by reducing the demand for care. This is distinct from rationing, which is the denial of needed care. I’m referring to genuine health improvements that make health care less necessary in the first place. This type of health improvement is the sweet spot of health care cost containment, benefiting both patients and purchasers.

In a previous blog, I posed the question: in an ideal world, how much would we spend on health care? I posited that in a perfect world, we would spend zero on health care because no one would be sick. While such a perfect world may be unachievable, having the goal in mind can serve to guide our way in the present moment—like entering a destination into GPS.  

Measures that promote genuine health improvement can alleviate the burden of illness while at the same time reducing the cost of care. They move us in the direction we want to go. In this blog I provide several such examples.

An Ounce of Prevention

The CDC explains that there are several different types of prevention. Primary prevention happens prior to a diagnosis—for example, smoking cessation that is initiated before lung cancer develops, or seat belt use that prevents a car crash from doing any physical damage. This type of prevention occurs on a fundamental level—preventing the illness or injury from happening at all. Primary prevention promotes health improvement while also bringing down costs. However, the savings may be diminished depending on the level of health system involvement (e.g., if rather than quitting on his own, the smoker employs pharmacotherapy and counseling). 

Secondary prevention involves screening to identify diseases that are occurring in early stages, before the onset of signs and symptoms (e.g., mammography and regular blood pressure testing). 

Tertiary prevention involves managing disease after the diagnosis has already been made, to slow or stop disease progression. This includes measures such as chemotherapy, rehabilitation, and screening for complications (e.g., routine eye exams to detect and treat diabetic retinopathy).

Prevention has not always been shown to reduce healthcare expenditures. According to one report, “hundreds of studies have shown that prevention usually adds to medical costs instead of reducing them. Medications for hypertension and elevated cholesterol…and screening and early treatment for cancer all add more to medical costs than they save.” This reflects the fact that health care is expensive, and care can become costly, even when it’s implemented upstream. Such interventions may be beneficial, but they do not occupy the sweet spot of healthcare cost containment. 

Twelve Steps

Alcoholics Anonymous now has over 2 million members in 180 nations and more than 118,000 groups. A Cochrane study pointed out that “alcohol use disorder (AUD) confers a prodigious burden of disease, disability, premature mortality, and high economic costs from lost productivity, accidents, violence, incarceration, and increased healthcare utilization.” In a systematic review of the literature, Cochrane found that “there is high quality evidence that [Alcoholics Anonymous/Twelve‐Step Facilitation is] more effective than other established treatments, such as [Cognitive Behavioral Therapy], for increasing abstinence.” Moreover, “AA/TSF probably produces substantial healthcare cost savings among people with alcohol use disorder.” This well-known health innovation is one that has been promoted and practiced by patients themselves, without the direct involvement of the health care system. 

Prevention That Brings Down Psychiatric Hospitalization

I was diagnosed with bipolar disorder in 1998. From 2001 to 2008, I was hospitalized for mania at a rate of almost once per year (7 times in 8 years)—including one month-long hospitalization. In response, I developed from scratch a mood tracking system that was designed to help me monitor my condition and promote self-regulation. I used the system three times a day for a period of many years, and in doing so, I substantially reduced both my emergency room utilization and my rate of psychiatric hospitalization. This resulted in direct savings of tens of thousands of dollars. The intervention itself was free. 

From 2008 to 2013, I was hospitalized at a rate of only once every three years. Today, I have been hospitalized only once in the past 10 years. I have not been hospitalized at all in the past seven years. These results point to the sweet spot of healthcare cost containment, where health improves and—as a direct consequence—spending goes down. 

The mood-tracking system I developed was designed to flash red whenever I started to become manic. The system asks 10 questions (e.g., “are you feeling optimistic about the future?”) and assesses mood on a 100-point scale (anything above 50 is an up mood, anything below 50 is a down mood). My highest score was an 85, the day my son was born. However, I was not at all manic that day. So, I developed a second metric (on a 0 to 10 scale) that captured my mania level. On that scale, any score between 0 and 5 is a green light (not manic), 5 to 7 is a yellow light (caution), and 7 to 10 provides the red flashing light. 

I found that having this early warning system enabled me to take steps to counteract the mania. For example, I learned that eating helps. Exercise helps. Talking to people helps. My therapist and I worked out an arrangement that, if I scored at or above an 8, and the system was flashing red, I would take an anti-psychotic pill PRN. These steps helped me to remain out of the hospital.

To generate the mania score, I asked 5 additional questions (e.g., hours of sleep, and number of “Big Ideas”). There was a measure for “outside warnings” (e.g., if a family member or friend expressed concern about my mental health). I quickly learned that this factor should be heavily weighted. The remaining two questions were for “caught manic thoughts” and “believed manic thoughts.” I might have thought that people were reading through my e-mails or monitoring my calls, but the thought was “caught” in the sense that I recognized it as manic thinking. A “believed” manic thought meant that the surveillance was really happening (i.e., I did not view my escalating concern as the product of mania).

Through trial and error, I was able to develop weights for each of these queries and I tabulated them in a formula in Excel. Over time, I was able to refine the weights until the scores gave me a highly accurate representation of my manic state. If the system says I am a 6.8 yellow, that is the correct depiction of my state at that moment. 

But it was not just the output that proved helpful, it was also the process of inputting the data. The system forced me to monitor my own thought processes. I became acutely aware of my own manic thinking and then was able to take steps to counteract it. It was this process of self-regulation that allowed me to reduce the number of manic episodes I experienced—which reduced the number of emergency room visits and psychiatric hospitalizations I had to endure (at great expense to myself and the health care system).  

Draining the Swamp

In 2022, the United States spent an astonishing $4.42 trillion on health care. Certainly, healthcare practitioners work hard to promote positive health experiences and outcomes, and their efforts should not be discounted. But I do not believe that referring to the health care system as a “swamp” is unfounded. Elliott Fisher and George Isham recently pointed out that greed plagues the system, saying: “the public impression that health care is largely about making money undermines the legitimacy and trust upon which we depend.”

The sweet spot of healthcare cost containment comes from draining the swamp, rather than trying to reform the swamp. Patients who do not require health care services do not incur health care expenditures. This type of demand reduction sidesteps other important issues, such as what psychiatric hospitals are charging for an inpatient stay, and what their quality metrics reveal. In an era of healthcare unaffordability, demand reduction is a direction we need to pursue.

Ben Wheatley has 25 years of experience working in health policy with organizations including AcademyHealth, the Institute of Medicine, and Kaiser Permanente (linkedin.com/in/ben-wheatley-05). 

BY BEN WHEATLEY

We have heard it said before, and it is no longer shocking to say, that in 2021 the United States spent $4.3 trillion on health care. To put this gaudy number in some perspective, we measure it as a share of our economy and report that health care comprised 18.3% of our gross domestic product. CMS projects that health care will approach 20% of GDP in coming years—one-fifth of everything we buy and sell in this country. 

In a recent report, the Health Affairs Council on Health Care Spending and Value said that “it is unclear what percentage of GDP would represent the ideal level to devote to health care. Nevertheless, the council believes that the current expenditure and rate of growth are higher than they should be….” The council observed that the dollars devoted to health care seem “disproportionate to the health they produce” and noted that the spending places a “significant burden on families, employers, employees, and government.”

We spend approximately $12,900 per person per year on health care. By comparison, the average cost of health care per person in other wealthy countries is only about half as much.

These metrics seem to indicate that the United States is spending too much on health care, but nevertheless we struggle to identify the “right” amount. However, if someone were to ask me: “In an ideal world, how much would we spend on health care?” I would propose a very simple answer: zero. This is because, clearly, in an ideal world, no one would be sick.

You may argue that this is a bit of sophistry. Obviously, we don’t live in an ideal world, we live in the real world, and here on planet earth, sickness and dread diseases are rampant. According to this world view, sickness may be viewed as intrinsic—a fundamental feature of the imperfect world that we live in. But I am an optimist by nature. I believe that it’s possible to reduce the burden of illness, and that our explicit objective should be to reduce the burden of illness to zero. 

In 2001, the Institute of Medicine released Crossing the Quality Chasm: A New Health System for the 21st Century. Everyone remembers the six aims: care should be safe, timely, effective, efficient, equitable and patient-centered. But this was only the report’s second recommendation. The first recommendation said this: “All health care organizations, professional groups, and private and public purchasers should adopt as their explicit purpose to continually reduce the burden of illness, injury, and disability, and to improve the health and functioning of the people of the United States.”

Our explicit purpose should be to continually reduce the burden of illness. I would simply make one addendum: our explicit purpose should be to keep moving in this direction until the work is done. That is, until the burden of illness has been removed. Even if we believe, fundamentally, that this objective is unachievable, what would be the harm of adopting it as our goal? Making it the direction that we want to go. Even in the real world, I believe our explicit aim should be to reduce the burden of illness to zero—enabling spending to follow in that direction. 

Patenting the Sun

On March 26, 1953, American medical researcher Dr. Jonas Salk announced on a national radio show that he had successfully tested a vaccine against poliomyelitis, the virus that causes polio. In the two years before the vaccine was widely available, the average number of polio cases in the US was more than 45,000. By 1962 that number had dropped to 910. As the incidence of polio declined, spending on polio-related care also declined. 

Polio was once one of the most feared diseases in the U.S. The virus can spread from person to person and can invade an infected person’s spinal cord, causing paralysis. The virus paralyzes muscle groups in the chest, making it difficult to breathe. The medical apparatus most commonly associated with polio was the iron lung, which in the 1930s cost about $1,500—the average price of a home. 

An interviewer once asked Salk who owned the patent to the polio vaccine. Salk famously replied, “Well, the people, I would say. There is no patent. Could you patent the sun?”

Polio has been eliminated in the United States, but it has not been eradicated globally. It still exists in certain parts of the world.  At the World Health Summit in 2022, the Bill & Melinda Gates Foundation announced it would commit $1.2 billion to support efforts to end all forms of polio globally. Bill Gates has said: “We have what it takes to finally wipe polio off the face of the earth.” However, he does expect to be repaid. Gates told CNBC, “We feel there’s been over a 20-to-1 return.” 

Science is beginning to yield amazing cures for intractable diseases. Wired magazine announced in late 2022 that “The Era of One-Shot, Multimillion-Dollar Genetic Cures Is Here.” The article profiled a gene therapy called Hemgenix, which gained FDA approval in November 2022 for the treatment of patients with severe hemophilia. The therapy overrides a DNA mutation that causes spontaneous bleeding episodes, some of which are life-threatening. “Unlike most drugs, which relieve symptoms, gene therapy addresses the underlying cause of a disease.” The therapy appears to offer a complete cure, at least in some cases. However, it is not yet clear whether one shot will last for a lifetime. At $3.5 million for a one-time dose, Hemgenix is now the most expensive drug in the world. 

The company, CSL Behring, said the price was determined by considering the “clinical, societal, economic, and innovative value represented by this novel gene therapy.” And they received the backing of the Institute for Clinical and Economic Review, “the nation’s drug pricing watchdog.” ICER estimated that Hemgenix would be fairly priced at $2.9 million. ICER gathers testimony, reviews evidence, and seeks to ensure that Americans “stop paying far too much for the drugs that do far too little.” However, they assert that “pharmaceutical companies that develop highly effective drugs will still be handsomely rewarded.” Under this model, savings to the system are generated, but kept in private hands. 

Our Current Trajectory

Health care spending in the US is already exorbitant, even before the introduction of these novel new therapies. Nearly 1 in 10 adults currently owe significant medical debt. More and more, employers are indicating that health insurance is too expensive to provide to their employees. And the nonpartisan Congressional Budget Office warns that a fiscal crisis is looming if debt levels continue to rise as projected. Healthcare costs are a major driver of the national debt.

It is important to recognize that not all health innovations are expensive. Take, for example, the pasteurization of milk. Milk used to be a common source of the bacteria that cause tuberculosis, diphtheria, typhoid fever, and other foodborne illnesses. The incidence of disease outbreaks associated with milk has fallen dramatically since pasteurization became widespread.

Moreover, sometimes the profit motive slows innovation down. A Canadian start-up modified the psychedelic DMT to treat depression and a recent study revealed very promising results. However, the study “failed to excite investors.” The founding partner of a venture capital firm said, “these results are extremely promising, but they had no effect on the share price, zero.”

Sam Altman, the chief executive of OpenAI (which brought us ChatGPT) thinks psychedelic drugs will revolutionize mental health care and addiction treatment. However, the business model is not there yet. Amy Emerson, CEO of another company in the same space, noted that profitability depends on things like making sure insurers cover the drug, developing billing codes for the therapy, and training clinicians to administer it. “All of those things are a heavy lift,” she said. So, monetization is hindering innovation in some cases. 

A New Direction

In 2016, the Obama Administration launched an effort to “end cancer as we know it.” The Cancer Moonshot, initially funded at $1 billion, aimed to reduce cancer deaths by half within 25 years. “But in the costly world of biological research, such a sum may be better described as a cancer slingshot, researchers said.” “We’re not going to the moon on $1 billion.”

In 2022, President Biden relaunched the Moonshot and his most recent budget includes $2.8 billion for the effort. However, cancer research is one of the items targeted for cuts in the current debt ceiling fight. Regardless of your political persuasion, it seems fair to say that health care is bumping up against serious financial constraints. Consequently, we need to be open to “disruptive technologies and business models that may threaten the status quo.”

Bringing the burden of illness to zero is (admittedly) a highly aspirational goal. But it can also serve as a gauge on how we’re doing in the present. For GPS to work, you have to enter in the correct destination. Our aim should be to bring the burden of illness to zero, enabling spending to also decline.

Ben Wheatley has 25 years of experience working in health policy with organizations including AcademyHealth, the Institute of Medicine, and Kaiser Permanente.

Episode 17 of “The THCB Gang” was live-streamed on Thursday, July 9th! Watch it below!

Joining me were some of our regulars: patient advocate Grace Cordovano (@GraceCordovano), health economist Jane Sarasohn-Kahn (@healthythinker), WTF Health Host Jessica DaMassa (@jessdamassa), and guests: Tina Park, partner at Diagram (@diagramoffice) & Shannon Brownlee, Senior VP at the Lown Institute (@ShannonBrownlee). The conversation focused on asynchronous care, the gap between patients & technology, and the Supreme Court ruling on employers’ ability to limit women’s access to birth control coverage. It was a great and engaging conversation with some of the top health care experts in the field.

If you’d rather listen, the audio is preserved as a weekly podcast available on our iTunes & Spotify channels — Zoya Khan

By ANISH KOKA MD 

Seema Verma, the Trump appointee who runs Medicare, has had an active week. The problem facing much-beloved Medicare is one that faces every other government-funded healthcare extravaganza: it’s always projected to be running out of money. Medicare makes up 15% of the total federal budget. That’s almost $600 billion dollars out of a total federal outlay of $4 Trillion dollars. The only problem here is that revenues are around $3.6 trillion. We are spending money we don’t have, and thus there there is constant pressure to reduce federal outlays.

This is a feat that appears to be legislatively impossible.  The country barely is able to defund bridges to nowhere let alone try to reduce health care spending because, as everyone knows, any reduction in health care spending will spawn a death toll that would shame the black plague. The prior administration’s health policy wonk certified approach was to change the equation in health care from paying for volume to paying for value. This, we were assured, would allow us to get better healthcare for cheaper! And so we got MACRA, The Medicare Access and CHIP Reauthorization Act, that introduced penalties for doctors unable to provide ‘good’ care. Never mind that in some years good care means you treat everyone with a statin, and in others it means treat no one with a statin. When in Rome, live like the Romans. In 2018 parlance, that roughly translates to “check every box you can and everything will be all right.”

In the face of legislative paralysis, administrators have a tremendous amount of power in picking winners and losers in the healthcare landscape. The prior administration, fueled by New Yorker articles that spoke of academic medical centers filled with virtuous cardiologists doing preoperative evaluations for free, set up a system that made winners of large health systems.  Reimbursement for office work was slashed, and rewards were put in play for documenting value-based care that were best accessed by performance improvement departments. A wave of consolidation followed. Hospitals merged, and office practices found safe harbor by becoming hospital practices overnight.  Medicare noticed. They were paying more for the same services if beneficiaries ended up at hospital owned clinics. As a result, the Medicare Payment Advisory Commission (MEDPAC) would recommend equalizing payments between free-standing office practices and hospital-based outpatient practices. And every year CMS administrators failed to act. The politics of moving against hospitals was apparently untenable for many.

That was until Seema Verma came on the scene. On November 2 via tweet, the announcement finally came:

Today, @CMSGov released the final Outpatient Prospective Payment System & Ambulatory Surgical Center Payment System rule that ensures beneficiaries can access the care they need, at the site of care that is best for them. #StrengtheningMedicare https://t.co/0RYSW6pe94 pic.twitter.com/p1VaNRbrz5

— Administrator Seema Verma (@SeemaCMS) November 2, 2018

The cheering that followed the announcement came from independent physicians under constant pressure from reimbursement rich hospitals. It was good news following a lump of coal delivered to physicians by the same Seema Verma days earlier by collapsing three commonly used office billing codes for evaluation and management into one code.

This particular move was cast primarily as a move to reduce the documentation burden for physicians and address physician burnout.  The reality is that the surviving independent physicians that hadn’t opted out of Medicare survived in part by using their electronic medical record to generate templated notes that were audit-proof level 4 billing machines. It’s a cat and mouse game that has been going on since the inception of Medicare.

A closer look reveals these moves to be far less bold than advertised. Collapsing Evaluation and Management (E&M) billing codes and site-neutral payments are small potatoes. The E&M code changes don’t take effect until 2021, and the reduction in payment for even those mostly billing level 4 codes is $19-$37 per patient. That’s not an insignificant amount, but it’s also not an amount that is back-breaking. The same holds true for site-neutral payments and their effects on hospitals. The policy doesn’t cover procedures done in the outpatient setting — only E&M payments — and the average cut applied to the hospital setting amounts to about $30 per patient as well. Medicare stands to save ~ $380 million dollars in this move. This only sounds like a lot of money if you didn’t know that total Medicare spending in 2016 was $672 billion.

Nonetheless, this is some major action by a Trump appointee that comes on the heels of a number of other policy pronouncements related to drug pricing that could easily have been made by a Clinton appointee. It took Seema Verma to take on doctors and hospitals in a way her predecessors did or could not. E&M documentation changes have not been made since 1997, and MedPac’s recommendation on site neutral payments have been steadfastly ignored year after year.  One would think the health policy world would applaud these moves, but after four days Seema Verma’s site-neutral tweet has ten retweets. Meanwhile, Atul Gawande tweeting 5 years too late that Epic sucks goes viral.

It reveals major foundational issues with health policy that the self-proclaimed objective/neutral/empiricists are really a group of brittle partisans that are either too biased or too scared to applaud Verma’s moves. This performance stands in stark contrast to the grave pronouncements of what would happen to the nation’s health after the devastating election of 2016. While these policies do little for those seeking to overturn the current system, as symbolic gestures, they send a hopeful message that the balance of power in the healthcare landscape may be shifting.

Anish Koka is a Cardiologist in private practice in Philadelphia.  Follow him on twitter @anish_koka.

You probably missed this one, but this bit of legislation will have profound implications not only for your health, but the health of our economy. A provision of the Patient Protection and Affordable Care Act (PPACA) created a 15-member Independent Payment Advisory Board (IPAB), delegating to it the responsibility to develop specific proposals to contain the growth rate of Medicare spending if it is projected to exceed targets also established by the law. These proposals are transmitted to Congress in the form of legislative proposals that must be enacted or substituted on a legislatively mandated basis.

Once it is in place, IPAB can be discontinued only by a joint resolution that must be introduced in January 2017. Since IPAB is not a government agency, and is not promulgating regulations, it is subject neither to open meetings or public comment requirements. There are no options for appealing the IPAB recommendations. The provisions for judicial review appear to be limited to the recommendations issued by IPAB based upon deliberations that are not open to the public. Judicial or administrative review of the Secretary’s implementation of those recommendations is prohibited. The clear intent of the law is to insulate the board and its decision from the full range of traditional democratic processes.

The IPAB approach to problem solving in a democracy is unwarranted under all but the most dire of circumstances. Moreover, if enabled, an approach such as IPAB should have a reasonable chance of solving the stated problem. It does not. The dire circumstance of “unsustainable” health care expenditures that IPAB is built to help resolve is truly a manufactured crisis. That statement may resonate as heresy to established dogma to many readers, but the facts support the statement.

The health care sector is a vibrant part of our national economy. It creates more jobs than any other sector, including those hard-to-find unskilled jobs that are protected from global competition. It also has a much sought after manufacturing base which, with encouragement, could help to correct our export imbalance. It contributes to wealth creation (protestations to the contrary notwithstanding). And the best kept secret? The United States has a world class health services research and development infrastructure that can meet future consumer demand here and abroad if we stop systematically trying to drown it in the bathtub.

On consumer demand: It will continue to grow at a rapid rate for the foreseeable future — driven by the aging of a baby boomer cohort that is healthier than any senior population yet seen on this planet, and an emergent market of new consumers, including the previously uninsured and minorities who have historically under-consumed healthcare. These consumers will use their political clout to demand better service in the healthcare marketplace. In other sectors of our economy, we would be celebrating rising consumer demand, and the market would be rushing to meet the need. For reasons that can only be viewed as perverse, growing consumer demand in health care is viewed as a curse, and efforts to crush it with IPAB-like initiatives abound.

The health care reform initiative undertaken by President Obama and Congress has taken a good first step in addressing the financial inequities that have kept some consumers out of the health care market. Much more needs to be done. Rather than employing an IPAB to suppress prices by cutting payments to providers or finding other ways to reduce consumer demand, Congress and the president must be proactive in encouraging the market to make more strategic investments by rewarding innovations that will improve the quality of care and reduce health care expenditures. Technological advances will be expensive and incremental. But in due course, as we bring real solutions to the diseases that currently compromise our nation’s health, reductions in expenditures can be anticipated. If IPAB is not allowed to frustrate improvement and innovation, future generations will be spared the medical and financial challenges that currently beset this generation.

To be sure, it will be a generational struggle, but we can and must succeed. Along the way we cannot allow rhetoric on either side of this discussion to mask the real issues at stake here: America must invest in the health and productivity of the American worker, American families and American communities; and our American government, the manifestation of our collective will, must not be permitted to lose faith in the ability of the market to correct, to ultimately drive down health care costs.

Gary A. Puckrein, PhD, is the founder and president of the National Minority Quality Forum. The Forum is a not-for-profit organization dedicated to assuring that high quality healthcare is available for and provided to all populations.

Saturday, the U.S. Senate passed the House-sponsored Omnibus Appropriation Bill that funds the federal government through September 2015. In all likelihood, all eyes weren’t glued to these proceedings, perhaps otherwise attentive to holiday shopping or the events around nationwide protests about policing in our cities.

Healthcare is a huge part of the federal budget: combining spending for Medicare, Medicaid, Children Health Insurance Program (CHIP), military and veterans’ health, Indian Health Services and federal employee health benefits, it represents 35% of the total $3.9 trillion budget. For the decade prior to the economic downturn, total health spending increased 7.2% annually. During the downturn, it slowed to less than 4% but is expected to increase to 6% annually for the decade ahead. That means healthcare spending will be an even bigger part of federal budgets going forward.

Examination of the federal budget sounds about as exciting as a trip to the dentist. Digging deeply into these numbers related to healthcare is tedious and boring. It’s simpler to think in terms of what we spend: $9,255 per person—well above what any other country in the world spends. But it’s more complicated than that – we spend more for the elderly and sickest than the young and healthy. Those with employer-sponsored health insurance pay more for the same service compared to those covered by a government plan like Medicaid or Medicare. Spending for those lacking insurance is paid by everyone else and the complicated way we structure transactions in our system- co-pays, deductibles, out-of-pocket, covered/not covered, in-network/out of network, exchanges and health insurance marketplaces, Medicare Part A/B/C/D, et al – confounds understanding even for the most cerebral among us.

For the vast majority, then, understanding the health system and what we spend for healthcare is an abstract: our out-of-pocket spend is what we know, and even that’s hard to budget for or understand.

The federal budget is now put to bed for 2015 and we can move on. But we shouldn’t lose sight of the reality that in that budget, and for years to come, healthcare will increase, dwarfing defense, social security as our biggest spending category. Spending by the federal government and by states for healthcare will include coverage for increasingly greater numbers of our citizens: from 159 million of us today (50% of our total population) to many more in years ahead as we age into Medicare and insure more thru Medicaid and subsidized private insurance.

But the bigger story beneath these budget numbers is the elephant in the room. Can we sustain this level of spending today and tomorrow, or does something have to give? Proponents for reform say “no” but can’t agree on the fix. Defenders of the status quo claim the benefits far outweigh the costs. And in the end, spending increases continue and solutions to obvious flaws get mired in the politics of the moment.

It’s time for a national discussion about the health system we need, want and can afford for our future. That’s the story beneath the new federal budget numbers.

Paul Keckley, PhD is managing director of Navigant’s health care practice.

The United States spends more than $2 trillion per year on health care, surpassing all other countries in per capita terms and as a percentage of gross domestic product.

New, expensive medical technologies are a leading driver of ballooning U.S. health care spending. While many new drugs and devices are worthwhile because they substantially extend lives and reduce suffering, many others provide little or no health benefit.

Many studies grapple with how to control spending by considering changing how existing technologies are used. But what if the problem could be attacked at its root by changing which drugs and devices are invented in the first place?

Recently, my colleagues and I explored how medical product innovation could be redirected to reduce spending with little, if any, sacrifice to health and to ensure that any spending increases are justified by sufficient health benefits.

The basic approach is to use “carrots and sticks” to alter financial incentives for drug and device companies, their investors, health care payers and providers, and patients.

The ten policy options below could change which technologies are invented and how they’re used. In turn, this could cut spending or increase the value (health benefits per dollar spent) derived from new products that do increase spending.

We urge policymakers—both public and private—to consider these options soon and to implement those that are most promising. Policymakers should also consider how to reduce spending and get more value from health services that don’t involve drugs or devices.

The longer the delay, the more money will be badly spent.

1. Encourage Creativity in Funding Basic Science

The National Institutes of Health (NIH), the leading funder of basic biomedical research, typically favors low-risk projects. Funded researchers who fail to achieve their goals are much less likely to secure additional NIH funding. Encouraging more creativity and risk-taking could increase major breakthroughs.

2. Reward Inventors with Prizes

Public entities, private health care systems, the philanthropic sector, or public-private partnerships could award prizes to the first to invent drugs or devices that satisfy certain performance criteria, including a potential to decrease spending. Winners could receive a share of future savings that their product brings the Medicare program, which spends more than $500 billion annually.

3. Buy Out Patents

Public agencies, philanthropists, or public-private partnerships could purchase patents on already-invented products that could help reduce spending, ensuring they’re commercialized and offered at low prices. A patent purchaser could put the patent in the public domain to generate price competition, or license the technology selectively, specifying the highest price licensees could charge. The best approach might be to offer patent holders a share of the Medicare savings their inventions produce.

4. Establish a Public-Interest Investment Fund

Market rewards for inventing products that reduce spending are often too low because inventors and their investors cannot capture shares of spending decreases. A public-interest investment fund could provide both initial and ongoing capital for creating such products. The opportunity to invest in funded projects, with a share of Medicare savings to make potential returns attractive, could tap the expertise of private investors who are most capable of assessing the promise of technical concepts and inventor teams.

5. Expedite FDA Reviews and Approvals

Expediting Food and Drug Administration (FDA) review and approval processes—without watering them down—for medical products that could substantially reduce spending could lower inventors’ regulatory costs. This would likely require new legislation to expand the FDA’s mission beyond ensuring safety and effectiveness.

6.  Reform Medicare Payment Policies

If the Centers for Medicare & Medicaid Services (CMS) were allowed to consider cost in determining payment rates, it could set Medicare rates to save money in the short run and improve inventors’ incentives over the long run. Medicare could more rapidly adopt approaches that reduce financial rewards to providers when spending is higher than needed to deliver quality care (e.g., bundled and capitated payment arrangements). This would put more providers at financial risk for low-value care, increasing their demand for less costly approaches.

7. Reform Medicare Coverage Policies

If CMS were allowed to consider cost, they could also change their coverage determination policies in ways that would increase health benefits per dollar of Medicare spending. For example, CMS could stop paying for tests, procedures, and technologies deemed inappropriate or typically ineffective. And if other legislative changes were made, they could stop covering off-label use of some very expensive cancer and specialty drugs for patients in circumstances under which there is little or no evidence of effectiveness.

8. Coordinate FDA and CMS Processes

Coordinating CMS coverage and payment determination with FDA review and approval could reduce the time required to move a product to the U.S. market and for companies to obtain revenues from the Medicare market.

9. Increase Demand for Technologies That Lower Spending

Changing payer, provider, and patient incentives could increase demand for products likely to reduce spending. A promising approach is expanding use of value-based insurance designs (VBIDs), which require patients to pay more out of pocket the less likely a service is to benefit them. A major challenge in implementing VBIDs is determining which services are likely to benefit which patients.

10. Produce More and More Timely Technology Assessments

Health technology assessments (HTAs) provide systematic evidence about the safety, efficacy, effectiveness, and cost of drugs, devices, and procedures. Because health technologies and knowledge about them evolves quickly, HTAs are much more useful if they’re up to date.

Steven Garber is a senior economist at the nonprofit, nonpartisan RAND Corporation and leader of the Redirecting Medical Product Innovation project. This post originally appeared in The RAND Blog.

People in health care don’t like it when numbers emerge that are uncomfortable.  Take these, issued today by the Massachusetts Health Policy Commission in its latest report on the drivers of the high cost of care in our state.

Variation, particularly when not correlated to quality of outcome, is particularly troublesome for some incumbents.  Academic medical centers often have their answer, but as the HPC explains, it doesn’t hold water:

One oft-cited theory for the cause of this variation is that certain types of hospitals, such as those that teach physician residents and fellows, must incur additional expenses to support their mission. However, the difference in median expenses per discharge between teaching hospitals and all hospitals ($1,030) was less than the difference between individual teaching hospitals ($3,107 between the 75th percentile and 25th percentile teaching hospitals). Moreover, there were a number of teaching hospitals that incurred fewer expenses per discharge than the statewide all-hospital median of approximately $9,000 per discharge.

So perhaps the high cost ones will now revert to the usual squawking: “This isn’t fair. The data are wrong.  Our patients are sicker.”

Except here, the data are the best that could be available–all the claims for all the hospitals and all the payers in the state–even adjusted for wages.  And the acuity of patients across the spectrum of academic medical centers does not vary widely–but, just in case, the numbers are case-mix adjusted.

This report is a good step forward.  Now, if the HPC were to just put names under each column, instead of leaving them unmarked, it could take a major step forward in two of its own policy recommendations:

-Fostering a value-based market in which payers and providers openly compete to provide services and in which consumers and employers have the appropriate information and incentives to make high-value choices for their care and coverage options; and

-Enhancing transparency and data availability necessary for providers, payers, purchasers, and policymakers to successfully implement reforms and evaluate performance over time.

Paul Levy is the former President and CEO of Beth Israel Deaconess Medical Center in Boston. Previously he blogged about his experiences in an online journal, Running a Hospital. He now writes as an advocate for patient-centered care, eliminating preventable harm, transparency of clinical outcomes, and front-line driven process improvement at Not Running a Hospital.

That is what we have been told the Obama administration will claim today as they begin the job of reselling Obamacare.

Is Obamacare even partly responsible for the slowdown in health care costs?

That is silly.

First, Obamacare is not a health care reform law; it is a health insurance reform law. No one on either side of the debate has ever argued anything different.

Does the law have some limited cost containment features in it?

Yes. But these are either pilot projects or are years from being fully implemented.

I have heard the argument that the Medicare cuts that were made to help pay for the program are examples of cost containment efforts that are having a short-term impact on controlling costs. The Democrats need to be careful with this one. I recall their countering Republican “Mediscare” claims by saying the Medicare cuts were not significant.

In a letter last year accompanying the Medicare Trustee’s report, the Medicare actuary said, “The [Obamacare Medicare cuts] will affect Medicare price levels more gradually, but a strong likelihood exists that, without very substantial transformational changes in health care practices, payment rates would become inadequate in the long range.”

Translated: The Obama Medicare provider cuts are not having a big impact in the short-run but will be unsustainable over the longer-term.

Obamacare cuts Medicare Advantage payments. But those cuts have either so far been put off or are just beginning to bite. The first real cuts hit in 2014 and the first big cuts come in 2015.

These provider cuts in their totality are a tiny percentage of health care spending in the first few years and have had almost no impact so far. The 2% across the board sequester cuts that have already hit provider payments and Medicare Advantage plans have been far more significant.

Some have argued the new Medicare Accountable Care Organization (ACO) program, that reorganizes provider payment away from fee-for-service, is having a big impact. First, private ACOs were around long before the Obamacare architects had the idea. Second, the Medicare ACO program is only a pilot program just getting off the ground. Recent reports regarding the first 32 advanced “Pioneer” ACOs only showed very limited and mixed results for the first year.

Then there is the high cost health plan “Cadillac” tax designed to discourage overly generous employer plans. It begins in 2018. We are getting indications that many employers are beginning to pare their health plans back so as not to hit the tax threshold four years down the road––but this is something that is only just beginning to happen particularly as employers announce their plan changes for 2014.

Perhaps the biggest, and most controversial, cost containment element of the Affordable Care Act is the Independent Payment Advisory Board (IPAB), which has the power to change Medicare reimbursement if costs are escalating at an unsustainable rate. But the IPAB doesn’t even begin until 2015––the board members haven’t been appointed yet. More, it appears that health care cost trend is now so low the board may not even be triggered come 2015.

Why are health care costs escalating at historically low levels?

That is a question health care economists have been debating. No one is really sure. But at least three reasons are commonly listed:

1. The economic slowdown that has persisted. Health care cost trend has long tracked the overall economy.
2. Health insurance plans, particularly employer plans, have been going through a multi-year push to increase deductibles and co-pays as well as put consumers in a position to be more accountable for their health care spending choices. Health savings accounts have grown markedly in recent years.
3. Managed care companies and their provider partners have made a marked improvement in changing the way care is delivered and paid for––today’s health care delivery system, while still largely a fee-for-service system, is not the same one we had ten years ago.

Clearly, there is a lot of debate over just what is causing the slowdown in health care costs.

I guess that just creates an opportunity for eager politicians to find another thing to spin.

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.