By MATTHEW HOLT

Last week Jeff Goldsmith wrote a great article in part explaining why health care costs in the US went up so much between 1965 and 2010. He also pointed out that health care has been the same portion of GDP for more than a decade (although we haven’t had a major recession in that time other than the Covid 2020 blip when it went up to 19%). However, it’s worth remembering that we are spending 17.3% of GDP while the other main OECD countries are spending 11-12%. Now it’s true that the US has lots of social problems that show up in heath spending and also that those other countries probably spend more on social services, but it’s also clear that we don’t actually deliver a lot more in services. In fact probably the most famous health economics paper of the last 50 years was Anderson & Rienhardt’s “It’s the Prices, Stupid”, which shows we just pay more for the same things. Anyone who’s looked at the price of Ozempic in the US versus in Denmark knows that’s true.

But suspend disbelief and say we actually wanted to do something about health care costs, what would we do?

There are 4 ways to cut health care costs

1. Cut prices
2. Cut overall use of services
3. Reduce only unnecessary services
4. Replace higher priced services with lower priced ones

Number 3 or reducing only unnecessary services is the health policy wonks dream.

The Dartmouth school, originating with Jack Wennberg, has done a pretty good job convincing the health policy establishment that there is massive practice variation across the nation (and even within cities and individual hospitals), and that while this leads to higher costs, it doesn’t result in better outcomes. In fact outcomes where there are more services and spending tend to be worse. Dartmouth does have its critics like Buzz Cooper, and maybe all the explanation of variables in health care spending is caused by well meaning doctors ministering to the inner city poor, but it’s not hard to find overuse bordering on fraud. There have been a ton of well meaning attempts to both educate patients to choose wisely and to get doctors to behave better (or at least report their data), but there’s a new report out showing that Dartmouth had it roughly right every day. (This recent NYTimes one is about cutting babies’ tongues to make them breastfeed more easily).

Overall there have been some reductions in some measures, like hospital admissions but many of those have been replaced with other services, and in general practice variation has not gone away. Could it happen? Maybe, but 50 years of evidence makes it look unlikely. Don’t forget that the Obamacare authors were faithful disciples of Dartmouth but not much of that philosophy ended up in CMS policy.

Number 4 or replacing higher priced services with lower priced ones is the Silicon Valley health tech dream cross-bred with the Dartmouth school’s love of primary care. I will admit to being a fan of this movement. If we can replace higher priced people (doctors) with lower priced people or non-people (AI) we should be able to deliver the same things we are doing today at a lower cost. For example, in the field of psychotherapy there’s currently a great shortage of therapists. One thing that’s being done is replacing therapists with lower qualified coaches. But the end game is to use AI-powered chatbots and avatars to do the same thing. 

A related attempt is to deliver preventative services using technology. This is now paid for by Medicare – it’s called remote physiological monitoring (RPM). While its introduction has been a tad bumpy, it intuitively makes sense. If you can start tracking the care of relatively sick people while they are at home and relatively healthy, surely you can pick up issues before they get worse, intervene with medication changes and other services in their homes, and therefore prevent hospital admissions and improve outcomes. In fact, given how cheap tracking technology is, and the advances in AI, can’t you monitor everyone (based on their level of acuity) and give them a personal AI health coach? I call this the “continuous clinic” and it’s a great idea if I say so myself. The problem is that it’s not going to happen easily in a medical world that manages its process in terms of office visits and hospital admissions and gets paid on those metrics. We simply don’t have the right type of new organizations to put this together. And if you believe John Glaser and Sara Vaezy’s recent piece in the HBR called Why the Tech Industry Won’t Disrupt Health Care, we’re unlikely to get them. (I think John & Sara hope that the incumbents will reform themselves, but they would say that, wouldn’t they!)

Which leaves us with 1, cutting prices, and 2, reducing overall use of services. 1 & 2 are what the rest of the OECD does. 

Virtually every country in the OECD has some form of central price controls. Even if they have multiple paying entities, like Germany, there’s one agreed price schedule. Or, as in the UK and Scandinavia, there’s a regional or national budget. The US also has such a national price control, but only for some people over 65, given that Medicare Advantage now covers half of that population, and only for some services. Notably it doesn’t cover drugs, although that will slightly change in the near future given CMS’ new ability to negotiate the prices of some drugs. 

To this point in the US, any attempt to squeeze down on Medicare prices produces two effects. One is violent disagreement on behalf of provider organizations, which spend more money lobbying than basically any other industry in America. Almost always this means that Congress balks at imposing any real cuts. The other is that providers find ways to transfer those costs onto patients unable to negotiate. You’d think that the patients’ representatives (insurers and employers) would resist that but RAND has shown that they are basically price takers, paying more than double what Medicare pays for the same thing. Again this could change, and there’s some recent legislative activity that has a few people very excited, and has spurred some lawsuits about fiduciary responsibility – ironically one from an employee of a drug company. But we remain a long long way from a German/Japanese/French style price schedule.

Which leave us with 2, reducing overall use of services. The name for this in US health political  (if not policy) circles begins with another R, rationing. The stories of Canadians flooding across the border to access American health care were always basically bullshit, but like today’s stories of critical race theory, transgender drag queens corrupting our youth, and millions of migrants invading the southern border, it doesn’t take much to wind up the Fox News crowd as the Democrats found out. In 2009 the very wonky issue of when women should get mammograms became death panels very quickly. (BTW if you want to read a lot more about Canada, here’s a classic THCB piece I wrote in 2003. Not that much has changed)

This all means that obviously and transparently reducing services, presumably by creating a UK style cost-benefit analysis commission, is unlikely to happen. We have tried outsourcing that to the private sector, particularly in Medicare Advantage. But the combination of naked greed and stupidity from the MA plans and the use of scary AI, will probably put paid to that soon enough now the trial attorneys have got hold of it.

So to summarize, we pay about double what most other countries pay in $$ terms and about 50% more as a share of our (much bigger) GDP. And of course we lead the league (still) in the number of uninsured people and those who are practically uninsured, or facing bankruptcy from medical bills. There are four ways we could fix it, but none of them seem that promising.

And I don’t see a way this changes any time soon.

Matthew Holt is the publisher of The Health Care Blog

By BISHAL GYAWALI MD 

Long list of news in lung cancer

September was an important month in oncology—especially for lung cancer. The World Conference in Lung Cancer (WCLC) 2018 gave us some important practice-changing results, also leading to four NEJM publications. The trial with most public health impact is unfortunately not published yet. It’s the NELSON trial that randomised more than 15000 asymptomatic people at high risk of lung cancer to either CT-based screening for lung cancer or to no screening and found a significant reduction in lung cancer mortality rates among the screened cohort compared with the control cohort. This reduction was more pronounced among women, although they constituted only 16% of the trial population. I am looking forward to reading the full publication and am particularly interested in knowing if there were any differences in all-cause mortality rates and the rates of overdiagnoses.

A new ALK-inhibitor on the block—brigatinib—has significantly improved PFS versus crizotinib when used as first-line therapy in ALK-positive non-small cell lung cancer (NSCLC) patients. However, I assume that it will be difficult for brigatinib to replace alectinib in this setting, since the latter has already been tested in two different RCTs and has more mature data.

With Keynote 407, pembrolizumab has entered into the treatment arsenal for squamous NSCLC by improving overall survival in combination with chemotherapy versus chemotherapy alone as a first-line regimen. However, when A B is compared with A, it is important to know whether A B is better than A followed by B. In this trial, 32% of patients who were in the control arm received a PD-1 inhibitor upon progression. Nivolumab is already approved as a second-line option in this setting after first-line chemo; so how much benefit in Keynote 407 is due to more than half of control arm patients not getting PD-1 inhibitor at all versus the benefit of combining pembrolizumab with chemo upfront is an important question.

When the PACIFIC trial was presented at ESMO 2017, the DFS benefits with durvalumab among patients with stage III NSCLC who were treated with definitive concurrent chemoradiotherapy were so impressive that many thought OS results would turn positive. This time, we were not wrong. The OS results were presented at the conference and showed a significant improvement in OS with nearly an 11% increase in 2 year OS rates with durvalumab versus placebo. These are practice changing results; however, again, only 23% of patients in the placebo cohort received immunotherapy at progression, so the outcomes when immunotherapy has now become the standard first-line treatment at progression remains unknown. So rapid have been the changes in treatment landscape of NSCLC that even new trial results look outdated. In this median follow up of 2 years, 144 of 237 patients in the placebo group experienced a second progression or death, which means 39% of patients did well without any treatment at all. All these patients will now be getting durvalumab for a year. So, I think it is important to know whether all stage III patients receiving durvalumab confers any extra benefit to receiving pembrolizumab (plus chemotherapy) upon progression which is-the current standard of care.

We also finally saw some positive results in patients with small cell lung cancer. Addition of atezolizumab to chemotherapy improved OS significantly in extensive stage SCLC. However, the margin of benefit was small (median OS 12.3 v 10.3 months) and we have miles to go in the treatment of this lethal disease.

Finally, as a reminder that not all immunotherapies are necessarily better, avelumab failed to improve survival versus docetaxel in the second line treatment of patients with NSCLC. The JAVELIN trial didn’t reach very far.

Although not presented at the conference, an interesting analysis shows that for NSCLC patients age >70 years, addition of cisplatin to gemcitabine/pemetrexed didn’t add any survival or quality of life benefits.

Breast cancer treatment: Still stuck on bevacizumab?

Adding bevacizumab to chemotherapy failed to improve survival in breast cancer leading to withdrawal of its accelerated approval by the FDA. A drug that has failed in metastatic setting, to my knowledge, has never been proven to work in adjuvant setting. This sounds logical, because a drug that can’t delay progression is also unlikely to improve cure rates. However, last month we saw a huge trial of bevacizumab plus chemotherapy as adjuvant treatment in HER2 negative breast cancer. Nearly five thousand (yes, five thousand!) patients were randomised to chemotherapy plus placebo, chemotherapy plus bevacizumab or chemotherapy plus bevacizumab followed by bevacizumab maintenance. Patients randomised to bevacizumab arms experienced no improvement in invasive disease-free survival rates or overall survival rates, but suffered greater rates of toxicities.

Another important question in the adjuvant treatment of breast cancer is the duration of adjuvant trastuzumab for HER2 positive disease. Lately, some trials have tested non-inferiority of shorter course of adjuvant trastuzumab to one-year duration. A meta-analysis has now shown that one-year duration of adjuvant trastuzumab remains superior to shorter durations although for node negative and hormone positive disease, there was no significant difference. This information will be useful especially for treatment decisions in settings with more limited resources, where node negative and hormone positive patients may be counselled for a shorter course of trastuzumab.

Undertreatment-overtreatment paradox

While many patients in the US can’t afford curative cancer treatments, a recent report has shown that the Medicare is spending a median of $14,453 per patient within 3 years after the diagnosis of localised prostate cancer in elderly men. Localised prostate cancer is a condition that is rarely fatal, especially in elderly men because localised prostate cancer grows slowly such that there are higher chances of the patient dying of something else. That means we are spending a big amount of taxpayers’ money to prevent…nothing.

Dr. Gyawali is a research fellow at Program On Regulation, Therapeutics And Law (PORTAL) at Brigham and Women’s Hospital/Harvard Medical School. The opinions expressed herein are his own. This post originally appeared here on ecancer. 

By MARY SCOTT NABERS 

The United States ranks number one in the world for health care spending as a percentage of GDP. That sounds great… but, for instance, Texas ranks only 11th worldwide when it comes to performance. That’s because of access to care.

The country’s health care rankings are likely to get worse as 673 rural hospitals in the U.S. are at risk of closing. Here’s what has happened: the need for care greatly outpaces available funding, especially for public hospitals. Something must be done.

If public funding is no longer available, alternative funding can be secured in numerous ways. The simplest way to access alternative funding is through a public-private partnership (P3) engagement. However, alternative funding for public hospitals, health care clinics and university medical centers can be found from other sources as well. Finding funding is not a problem when private-sector investors, large equity funds, pension programs, asset recycling and EB5 programs all stand ready to invest in public-sector projects.

Moving to a P3 health care model would allow hospitals to secure immediate funding and utilize private-sector expertise and best practices while transferring all risks. The launch of health care P3s would also ensure new construction, new jobs and hundreds of additional health care options for people.

In 2017, there were 5,564 registered hospitals in the U.S. and 956 of them were owned by state and local governments. The 80 rural U.S. hospitals that closed during the last six years left many families without health care options. Those people were forced to seek treatment elsewhere or go without health care services.

Some rural health advocates are pushing for a new type of partnership – one that combines emergency and primary care in one facility. They believe that consolidating those services would reduce costs significantly. Chances are that other innovative changes are in the winds as well.

In October, the Aberdeen City Council in Maryland approved preliminary site plans for a new $75 million combined medical center and behavioral health facility. A week later, the University of Maryland’s Upper Chesapeake Health approved plans to replace its aging buildings and services. Its new campus will be located less than 10 miles from the Aberdeen hospital and will house a psychiatric facility and a heliport. The new construction is expected to cost $118 million. Both projects will be launched in 2019.

This summer, Metro Health, located in Cleveland, Ohio, unveiled plans for a new 11-story health care facility. The building will be located on a 52-acre main campus, which is currently home to a number of other buildings and parking garages. The campus will be updated with green space, a new 1,500-space garage and a central utility plant. The system plans to break ground later this year and anticipates completion in 2022. Part of the project will be covered by $767 million from 2017 bond sales, but since the funding fails to cover the entire project, alternative funding is a strong probability.

UConn Health in Connecticut is exploring the possibility of partnering with a private firm for all or a portion of its clinical enterprise. In October, the health system released a solicitation of interest for a private health partner. The objective was to test the possibility of having a private partner assume responsibility for supervision of the $203 million, 300,000-square-foot outpatient facility and the $318 million, 169-bed inpatient facility. The deadline for submitting proposals is Dec. 3.

Earlier this year, Penn State Health announced plans to build a new health care facility in Cumberland County, which is the fastest-growing county in Pennsylvania. The project is planned as a 300,000-square-foot, three-story building with construction to begin in early 2019. This facility will have a 108-bed acute care hospital.

Collaborative joint ventures are becoming the norm and health care P3s are likely to become common throughout the U.S.

Mary Scott Nabers is president and CEO of Strategic Partnerships Inc., a business development company specializing in government contracting and procurement consulting throughout the U.S.

The notable five-year contraction in healthcare spending growth comes to an end next year, but not in a way that marks a dramatic reversal—at least, not yet. The Medical Cost Trend: Behind the Numbers 2015 report released today from PwC’s Health Research Institute (HRI) projects a medical cost trend of 6.8% for 2015, up only slightly from the 6.5% projected for this year. Our analysis, which measures growth in the employer-based market, incorporates input from health policy analysts, industry executives, earnings statements, government data and actuaries from more than a dozen insurance companies, whose companies cover a combined 93 million members.

Much of this is simple and not surprising based on historical analysis: the healthcare “economic recovery” lags behind the broader economy. So we are now beginning to see the recovery—with more employed workers and more disposable income—loosen up spending on things such as doctor visits and diagnostic tests. Many Americans, after postponing care, are once again spending on their health needs.

Some underlying nuances in the health numbers are more complex and uncertain: greater total spending on health services is not the same as higher costs per person. Even as private health spending ticks upward, evidence reveals that structural changes over the past few years have produced greater efficiency in the $2.8 trillion US health industry. As with any evolution, there is uncertainty. Some of our big healthcare investments today are a financial gamble. Most notably, the burst of high-cost “specialty” drugs could result in lower treatment costs on chronic conditions in future years or signal the start of painfully expensive pharmaceutical bills.

The most durable long-term factors holding down costs are those that instill a new philosophy about care delivery.  For instance, health systems and hospitals striving for “systemness,” in which care teams seek to achieve more by working together. They are focusing specifically in two areas: streamlining administrative work and consolidating and standardizing clinical programs, which can provide higher quality care through consistent processes and outcomes.

With about 60% of hospital budgets spent on labor, personnel costs are a top priority. Since 2012, hospital employment growth has slowed and is projected to continue on this trend—evidence that providers are achieving improved efficiency with fewer resources.

More price savvy consumers shopping for value are also redefining the health economy. With many employers choosing health plans that include cost-sharing and high deductibles, price has become a top priority for consumers and affects their health choices. These individuals now demand more transparency from the industry, and some assurance of value for their health dollars.

The short-term trends are more prone to shifts in the economy or consumer attitudes. Five years post-recession, more confident consumers – many newly insured – are revisiting doctors and driving up US health spending. But this surge is a temporary activity that should level out with few lingering effects on price or usage habits.

Similarly, costly new cures today could result in long-term savings and improved quality of life. No drug category has gotten more attention in recent months than the new Hepatitis C therapies, which are expected to increase total Hepatitis C drug spending 209% by 2015[1]. Yet long-term savings for treatment of chronic conditions, liver transplants and lost productivity may ultimately offset the cost of the specialty drugs.  In the most serious cases, for example, compare the $270,000 in treatment over a decade for patients with compensated cirrhosis, or scarring of the liver, to the average $86,000 for a course of the new medication, believed to be a cure[2]. The challenge may lie in targeting the patients most in need of the more expensive course of therapy.

Even the large IT investments required by merged health systems may eventually lead to savings through greater efficiency. Technology investments can be daunting for health systems. Vendor selection, hardware costs, and outside support all require significant money and time. According to PwC’s HRI analysis, the cost for a comprehensive integration for clinical and business systems can run between $70,000 and $100,000 per hospital bed. For a 1,500-bed system, that translates into an additional 2% increase in annual operating costs during implementation. By connecting clinical care, business operations and technology and improving the consumer’s experience, the investment should have large, albeit long-term payoffs.

Will we again see the double-digit health spending growth that marked the late 1990s and early 2000s? Just as the sluggish recovery from the Great Recession played a large role in slowing medical inflation, a strong economic recovery with low unemployment could shuffle us in the opposite direction. However there appear to be safeguards in place to prevent runaway inflation. All players in the healthcare system are thinking bottom line: consumers are choosing more frugal options; the delivery of care is being better managed and coordinated; employers and providers are pursuing cost-cutting strategies; and, to keep premiums low, insurers are using high performance and narrow networks to steer patients to lower cost, higher quality providers.

Yet—the long and short of it—health spending continues to outpace GDP.  This underscores the need for a renewed focus on productivity, innovation, efficiency and ultimately, delivering better value for purchasers. The real story behind the health numbers is that the industry is striving to be more competitive and more consumer-centered, but there is still work to be done.   Our work will not be done until we can bend the cost curve to the negative.

Ceci Connolly is the Managing Director of PwC’s Health Research Institute, a research organization dedicated to objective analysis on the issues, policies and trends important to health organizations and policymakers. Ceci is a veteran journalist and co-authored Landmark: The Inside Story of America’s New Health Care Law and What It Means for Us All.

Rick Judy is a Principal in PwC’s Health Industries practice. During his 19 years with PwC, Rick has consulted many segments of health care, including payers, employers, hospitals, health systems, long-term care facilities, and community and government organizations. Rick is a frequent speaker at healthcare industry events on a range of topics.

Reducing gun violence by increasing access to mental health services may cost billions of taxpayer dollars and give drugmakers that help treat mental illness a revenue windfall. But will it reduce gun violence? The answer is uncertain.

In the wake of the tragic shooting at Sandy Hook Elementary School, there have been repeated calls to increase access to mental health services as a way to reduce gun violence in the U.S., even though the evidence is weak at best that those services actually reduce gun violence.

Absent from these calls to action is any sense of how much that policy would cost. Many argue that any cost is worthwhile if it prevents just one needless death due to gun violence. But we live in austere fiscal times and knowing the price tag before taking action makes sense (click on the image above to enlarge).

A just-published Bloomberg Government Study estimates that the potential impact on the federal deficit due to increased spending on mental health services could exceed $260 billion from 2014 to 2021.

While the deficit could climb, this spending represents a major business opportunity for companies that make antidepressant and antipsychotic drugs. According to the study, if the percentage of people with a mental illness receiving care increased from the current level of 40 percent to 70 percent, then sales for the top 10 makers of drugs that treat mental illness would have seen revenue climb in 2012 from about $33 billion to more than $58 billion.

The policy question then becomes: what’s the goal of more mental health spending? Higher deficits, more money for drugmakers, or reducing gun violence? If it’s the latter, Congress and the president may want to rethink their approach, given the lack of evidence of its efficacy.

Matt Barry is the health analyst team leader for Bloomberg Government. This post first appeared on Bloomberg Government’s Blog.

A recent spate of commentaries on the continuing health spending moderation raise an important policy question:  If the cost curve is well and truly bent, why are we investing so much of our policy energy on bending it further, when the more pressing problem is the declining percentage of Americans that can afford our health system’s astronomical costs?

Health spending the past two reported years (2009 and 2010) have grown in the high 3 percent range, the lowest growth rates since Dwight Eisenhower’s last year in office (1960), five years before Medicare. Medicare’s actuaries have pointed to the recession as a root cause.  Yet even Medicare spending growth has subsided to about 5 percent in 2010, a development hard to attribute to recession since so few Medicare patients have first-dollar cost exposure. This analyst’s extensive industry contacts suggest no spending rebound in 2011 and 2012, despite an aging population and fee-for-service’s pernicious volume-increasing incentives in full force.

Pharmaceutical spending. The two most explosive cost problems of the 1980’s and 1990’s, pharmaceutical spending and imaging — which together now represent about 20 percent of total health spending — are now seeing low single digit growth, and seem likely to remain quiescent.  In the pharma case, the main contributor is the ruinous outflow of branded drugs from patent protection, and the failure to replace them with new protected drugs.  This outflow continues unabated until 2018.  Branded drug prescriptions are shrinking by 5 percent per year, and the only things preventing pharmaceutical sales from actually declining are brand price increases and growth in generics, which now represent almost 80 percent of prescriptions, according to IMS Health.  While specialty drugs (biologicals) remain a concern, those too begin losing patent protection in earnest in the next few years.

Imaging. After, seemingly, decades of double digit growth, high technology imaging volumes also have subsided into the low single digits. The Deficit Reduction Act cuts in imaging technical payments sharply cut imaging payments to freestanding imaging providers and physician offices.  A further downward revision of imaging technical fees in 2010 continued the pressure.  These reductions have triggered a spasmodic collapse of private practice cardiology and a thunderous rush of cardiologists into hospital employment.  Waves of cuts in Medicare technical payments appear to have popped a high tech imaging bubble.

Though the recession and activism by pharmaceutical and radiology benefits management industries have undoubtedly slowed pharma and imaging spending, a dearth of new, must-have technologies may be the root cause.  The newest game changing imaging modality, PET scanning, was introduced into mainstream clinical practice in the 1990’s. Sixty-four slice CT was introduced almost eight years ago.  Biologics aside, the last major game changing pharmaceutical product, statin drugs, were introduced in the late 1980’s.

There hasn’t been a major breakthrough in interventional cardiology since stenting, or in implantables since the cardioverter (defibrillator) — both introduced in the late 1980’s.  This lengthy dearth of game changing technologies is actually not good news for patients, but it has produced an unforeseen dividend of cost moderation.

Hospital spending. Of course, hospital spending has been a durable cost driver since the late 1960’s. Here too, there has been gradual but insistent moderation, though hospital spending continued growing at close to 5 percent a year as of 2010. Though widely reported reductions in elective surgery may be traced to the recession, hospital admissions began decelerating four years before the recession, and actually declined beginning in late 2009, after the recession had “ended”.  As Ken Kaufman recently showed here, the declines have crossed age categories.

Payer policy has made a major contribution to declining admissions, as both private health plans and Medicare contractors have increasingly challenged the medical necessity of emergency admissions, stacking up of patients in observation units.  Hospital costs could reaccelerate as baby boomers begin falling apart in earnest.  Eternal vigilance is required here.  But structural changes in physician communities might also retard hospital admissions going forward.

Shifting physician priorities. The last few years have seen the beginning of the retirement of the baby boom physician cohort, the most entrepreneurial generation of physicians in the nation’s history. Baby boom docs fueled the freestanding imaging and surgical center boom, as well as supercharging the physician office with high octane testing capacity.

These entrepreneurial boomer physicians are being replaced by a frightened, risk averse, debt-burdened cadre of Gen Y physicians seeking 35 hour work weeks, rather than seven figure incomes and the rigors of  private practice.  Hospital employment of physicians has consequently surged in the last eight years.

The era of the hospital as the private practitioner’s workshop is ending.  While hospitals staff up their physician coverage (e.g. tripling the number of hospitalists since 2002),  community physicians are withdrawing from hospital practice.  A steadily increasing percentage of surgical practice takes place outside the hospital.  Hospital outpatient surgical volumes are flat.  If policymakers continue to pressure the one remaining source of potential hospital admissions growth, emergency admissions, hospital costs could remain quiescent for the next few years.

The Real Problem: Many Can Not Afford Health Care

Thus, the odds are that the health cost curve remains bent for quite some time. The more pressing policy problem now is that a declining percentage of Americans can afford to use the healthcare system.  Policies such as Accountable Care Organizations, which seek to “bend the cost curve” by replacing fee for service medicine, are misplaced if the real problem is affordability. Even if they perform as policy advocates hope, ACO’s will do nothing meaningful to reduce current excessive costs.

At this writing, 50 million Americans lack health coverage, and may so remain if health reform is derailed by the Supreme Court or the 2012 election.  Perhaps another 35-40 million have coverage but lack the cash to pay the patient’s share of the cost. And 53 million Americans are on Medicaid.   If you add up these three populations,  almost half the country cannot afford to use the health system’s product without massive public subsidy.

According to last year’s Kaiser Family Foundation/HRET survey, 47 percent of those employed throughout the recession avoided seeking needed care.  While some commentators laud the growth in health savings accounts, which the Kaiser/HRET survey says have tripled since 2008, health savings account balances can vanish in a three hour emergency room visit, leaving the patient completely exposed to the next three to five thousand dollars of health costs.

Tremendous within-market cost variations. The most powerful tool available to reduce the absolute cost of health care is exposing patients to the huge variation within markets in the cost of routinely used healthcare services, and rewarding them for making intelligent, cost-conserving choices.   Some salient questions:

• Why should patients or insurers pay $3500 for a hospital MR scan if a radiology benefits management firm can get an MR scan across the street (read by the same radiologist!) for $600?
• Why should patients or their insurers pay $100 thousand for a bypass graft surgery in one hospital when they can get bypass surgery of comparable quality at another hospital in the same community for $50 thousand?
• Would patients travel overseas to receive a joint replacement at a sixth of the cost of that in a US hospital if they received 20 percent of the difference in reduced cost sharing or a cash bonus to their HSA?
• Why should patients or their insurers pay $400 for a non-urgent hospital emergency visit when the same problem can be addressed by a retail clinic or even a walk-in appoint at a local urgent care center for $50?

The challenge for traditional Medicare. For regular Medicare, exposing patients to these cost differentials will be nearly impossible due to the present design of the program, and its administered price model.  The Medicare challenge will be to contain hospital outpatient visit and procedure expense and to bring down episode costs, as well as to simplify reporting requirements and reduce documentation time and expense.

Medicare has already accomplished more than the policy community realizes by rightsizing technical fee payments for outpatient imaging services and pressuring emergency admissions.  This pressure needs to shift to excessive hospital outpatient payments.  Medicare also needs to correct the huge imbalances that exist between technical and professional fees for the same service. Medicare undercompensates physicians for exercising their professional judgment, and overcompensates for the capital and operating expense of complex services, encouraging excessive testing.

Bundling hospital and physician payments for the most costly Medicare services — including preadmission workups, complex clinical intervention, and recovery/rehabilitation — could compel high cost hospitals to reduce episode expense through protocol driven care management.  Attention must be given to assuring that these complex interventions are clinically appropriate.

It would be tragic if the policy community behaved like the senile watchdog that continues barking at the front door, while burglars ransack the back of the house.  Reducing the present astronomical cost of health services is a more difficult, and politically fraught, challenge for policymakers, but one that could be richly rewarded by a grateful, cash-starved public.

Jeff Goldsmith is president of Health Futures Inc. He is also the author of “The Long Baby Boom: An Optimistic Vision for a Graying Generation.” Health Futures specializes in corporate strategic planning and forecasting future health care trends.

This post first appeared at Health Affairs Blog on 5/7/2012.