Cutting Health Care Spending: What Can Congress Do?

The continuing debate over the federal budget has brought health care spending into the spotlight again. Some argue that Medicare and Medicaid spending is too high. Others believe that the high cost of health care generally drives up spending on federal health care programs. Where is the “fat” in health care spending? And what can Congress do about it?

This  high cost of health care in the United States compared to other countries and the findings of the Organization for Economic Cooperation and Development (OECD) that our health outcomes don’t match our spending have been discussed before. A new study published in the Annals of Internal Medicine found that higher spending on healthcare services  is sometimes associated with better outcomes,but at other times, not so much. And sometimes expensive care can be harmful.

Another study in the same journal discussed ways to reduce “low-value care.” Just as encouraging the use of evidence-based practices improves outcomes, the authors believe that discouraging the use of low-value care would be an important step toward improvement of health outcomes. “Low-value care” is the use of testing, procedures or drugs that are likely to do more harm than good or that aren’t effective enough to justify both the cost and the risk to the patient. For example, according to the Centers for Disease Control (CDC), pap smears to test for cervical cancer are of low value for women over age 65 who have had normal screenings in the past and those who have had a total hysterectomy, which includes removal of the cervix. The CDC noted that testing has not been shown to reveal vaginal cancer, which is very rare, and that three major organizations have recommended against screening for these women. The minimal benefit is outweighed by the risk of false positives, which result in anxiety and unneeded invasive procedures.

A recent study funded by the Robert Wood Johnson Foundation (RWJF) tested the use of interventions that encouraged physicians in five California practice groups to omit unnecessary, unhelpful services. Four groups focused on reducing the use of emergency department services, one on replacing brand name drugs with equally effective generics. The group working on increasing use of generics saw improvement in each of the three classes of drugs it studied. Two of the four other groups saw a reduction in use of the emergency department; the others did not. Still, the authors estimated that each dollar spent on the intervention saved at least $2 in expenditures, perhaps up to $14. All five groups found the intervention useful and continued to implement activities they had tested.

There is a wide range of estimates of the amount or percentage of health care spending is waste. The Institute of Medicine estimated that $765 billion of the $2.5 trillion spent on health care in 2009 was wasted—30 cents of every dollar spent. Unnecessary services accounted for $210 billion, unnecessary administrative costs for $190 billion, $130 billion for inefficiently delivered services, and $105 billion for inflated prices. The CDC and the RWJF referred to findings published elsewhere that between 30 percent and 40 percent of our spending on health care is wasted due to administrative or operational inefficiency, fraud, or inappropriate services. Price Waterhouse Cooper estimated that up to half of all health care dollars are wasted. Its analysis includes the effects of avoidable illness resulting from behaviors such as cigarette smoking, alcohol or substance abuse, or physical inactivity.

Congress has limited control over waste resulting from inefficiency or inappropriate services. It already has begun to move away from the fee-for-service model, in which providers are paid for each item or service they provide, and to use payment policies to create incentives for evidence-based decisionmaking and prevention of avoidable readmissions. It can direct CMS to base its payments for services on accurate cost data— avoiding, for example, Medicare payment of 900 percent of the market price for a commonly used back brace. It will take time for these changes to produce savings that can be documented, and there will be resistance to transparency in pricing and any requirement to apply evidence-based practices.  What should Congress consider as it tries to cut health care costs?