U.S. Health Care System Headed Toward More Efficient, Value-Based Spending: Economist

The U.S. health care system over the next five years will be transformed by an increase in performance-based payments being directed toward healthcare organizations that can best employ new types of health information technology and better educate both patients and providers on the best health care treatment options, according to a former health care advisor to President Obama. Speaking on March 20 at the American Health Lawyers Association Institute on Medicare and Medicaid Payment Issues in Baltimore, David Cutler, currently an economics professor at Harvard University, noted that in recent years the policy debate about transforming health care has featured at one extreme people pushing for a single payer system, and at the other extreme people looking to use vouchers for Medicare beneficiaries and high deductible health insurance with health savings accounts in the private sector. Neither extreme has been popular or successful as public policy, Cutler said. Instead, the U.S. health care system has been “muddling through” by trying to decrease Medicare and Medicaid spending without addressing issues relating to the quality or efficacy of the care provided.

Unnecessary Spending

Cutler noted that one-third of annual U.S. health care spending—about $900 billion—is unnecessary. Citing figures from a 2012 study in the Journal of the American Medical Association, Cutler noted that $355 billion in waste stems from poor care delivery; $248 billion from excessive prices; $131 billion from unnecessary administrative costs, mainly in the private insurance sector; and $177 billion related to fraud and abuse.

As an example of unnecessary care and citing his own research, Cutler noted that the Canadian province of Ontario has 11 hospitals that can perform open heart surgery. The commonwealth of Pennsylvania, which has a population about the same size as Ontario, has 60 hospitals accredited to perform open heart surgery. The health outcomes for patients with heart problems are no different in either place; it’s just that heart patients in Pennsylvania are much more likely to have expensive and unnecessary open heart surgery. “The system does a poor job of differentiating between people who really need a particular service and those who don’t,” Cutler said.

Cutler said the U.S. healthc are system is marked by excess acute and post-acute care spending; poor preventative medicine; and excess administrative costs.

The Value Transformation

Cutler said that the evolving U.S. health care system will be exemplified by bundled acute care payments which will go to health care entities such as accountable care organizations that can provide care across the spectrum of provider types; performance-based payments that will reward the quality of care, not the quantity of services provided; and improved data organization, retrieval, and analysis.

Cutler noted that laws such as the American Recovery and Reinvestment Act (P.L. 111-5) and the Patient Protection and Affordable Care Act (P.L. 111-148) are major steps forward in both improving the use of health information technology and the expansion of value-based purchasing. But Cutler also warned that since these laws also encourage health care organizations to get bigger, these organizations have to be aware of the increased antitrust scrutiny they will face from both the Department of Justice and the Federal Trade Commission.