Medical Device Daily Washington Editor

WASHINGTON – The phrase "bend the cost curve" has attained the status of a cliché in Washington, but the healthcare spending dilemma does a nice job of making its repeated use more tolerable than would otherwise be the case. This was decidedly the case during Wednesday's forum on healthcare spending sponsored by Health Affairs, the healthcare policy journal.

According to several speakers at the event, the big problem in the current healthcare legislation debate is that nobody on Capitol Hill or in the White House is making much of a fuss over cost containment, a situation that the panel's members said is unlikely to change anytime soon (see sidebar p. 8).

Michael Chernew, PhD, of Harvard Medical School (Cambridge, Massachusetts), noted that "since 1960, healthcare spending for any 10-year period has always outstripped" income growth by at least 1%. He said that with very few exceptions, "every year, we get richer," adding, "some of the money goes to healthcare, some goes to other stuff." However, the rate at which healthcare spending outstrips spending on other things, as another healthcare cliché goes, is unsustainable.

Chernew said that if the current difference between healthcare inflation and general inflation persists through 2020, the U.S. will be plowing 44% of gross domestic product (GDP) into healthcare. "Even if you were to cut the excess spending growth in half, to 1%, healthcare spending would consume about 31%" of GDP by 2020, he noted. That same 1% per annum growth rate gap would generate a healthcare tab of 63% of GDP by 2083, a level of spending he acknowledged would never occur.

Henry Aaron, PhD, of the think tank the Brookings Institution (Washington) said, "a lot can be done about" healthcare spending, but "how it's done is absolutely critical" because a botched effort "could do serious damage" to healthcare.

Aaron reminded the audience, "we pay more for particular services" than other nations, and providers and patients seem much more keen to adopt the latest-and-greatest than their counterparts in other nations. "We spend a good deal of money on low and no-benefit activities," Aaron said of the overuse of drugs and devices, but administrative overhead is also part of the conspicuous U.S. picture. However, he said that such things have "been going on for a long time and it is doubtful that they have added materially" to the cost growth curve.

While it is "inarguable that spending in the U.S. is higher than is optimal," Aaron said, "that is not the most important take-away when we think about how to control healthcare spending." He said the reorganization of care and comparative effectiveness research are essential ingredients in reform, but payment has to provide incentives to both providers and patients to get smart.

Joe Newhouse, PhD, also of Harvard, acknowledged that there is "a lot of confusion ... between policies that will change the level" of spending and policies that will "bend the curve." However, he asserted that the cost discussion should also include an examination of "how much the increase in [therapeutic and diagnostic] capabilities was driven by increases in income and insurance." Other nations have a healthcare inflation problem too, Newhouse said. "Everyone is growing as a share of GDP," he remarked, with Japan's healthcare spending growing faster than GDP by a margin of 3.2%, compared to 2.8% in the U.S.

According to the numbers Newhouse presented, growth in income accounts for as much as 43% of the growth of healthcare costs that took place between 1960 and 2007, and changes in medical technology are charged with as much as 48%. The intersection of the two factors accounts for 27% of the growth. He pegged the contributions of increased insurance coverage at 11% and the aging of the U.S. population at another 7%.

Panelist Paul Ginsburg, PhD, of the Center for Studying Health System Change (Washington) opened his remarks by stating, "our payment system is really messed up" in that "we have motivations to overuse new technology." He said this operating principal benefits not just drug and device makers, but also physicians because doctors who use these therapies often are paid for the related procedures.

The current situation puts the latest drugs and devices – meaning the most expensive drugs and devices – into use not only in high-value situations, but also in treatments where the value of those therapies is questionable, Ginsburg said, adding that the emphasis should be on "the best care, not the most lucrative care."

Emptor needs more caveat

Another panel at the Health Affairs briefing dealt with the purchasing function, making arguments in favor of a single payer and in favor of getting Congress out of the business of micromanaging the Centers for Medicare & Medicaid Services in its attempts to cope with Medicare costs.

Dealing with the ability of payers to shape prices, Bruce Vladeck, PhD, who works at Nexera Consulting (New York), opened his discussion by remarking, "there's no question that the American healthcare system is riddled with inefficiencies" as well as waste and abuse, but "these are at best tangentially related to the problem of healthcare spending."

Vladeck seemed to steer clear of the notion that the best answers are simple answers, at least at first. "Sometimes higher quality care is cheaper, sometimes it's more expensive," he noted, adding that the prospective payment system debate in Congress in 1983 demonstrated that Congress was worried even then about geographic and other variations in reimbursement. He dismissed fraud and abuse as key features of the cost curve, however. "You can't tell me that there's a lot more fraud and abuse in healthcare than in other industries," Vladeck said, arguing that the legitimate mantra for the issue is: "It's the prices, stupid!"

Vladeck, who sat on the now-defunct National Bipartisan Commission on the Future of Medicare, said a number of studies indicate that "Americans use substantially fewer physician visits and hospital days and prescription drugs than citizens of nations that cover everyone at 12%-13% of GDP," and that those studies indicate that fee-for-service (FFS) is not necessarily the issue. "Most of them continue to use fee-for-service as the dominant method of payment," especially in France, he said, adding that even capitated plans "pay their providers on a fee-for-service basis."

"The primary lesson I've drawn over 25 years is that the critical issue is not how you pay, it's how much," Vladeck claimed. He said the market power of buyers is far too fragmented to put any meaningful pressure on sellers of medical services. He also said that a shift of pricing power to consumers would make matters even worse because such a shift would amplify the degree of fragmentation.

"The major cause in the differences in spending is ... the size of the 'rents' controlled by suppliers of goods and services." Making the monopsony buyer argument, he said a single payer would create a more level playing field between buyer and sellers.

Mai Pham, MD, of the Center for Studying Health System Change (Washington), dealt with the question of Medicare governance and argued for getting Congress out of the business of running Medicare.

"There's no disagreement that payment policy is askew, and there's no lack of good ideas" regarding payment reform, she observed. "The problem is that current policies are extremely vulnerable to political micromanagement" from Capitol Hill and the White House, she said, remarking that policies are "hardly transparent," and that CMS "lacks the adequate funds to implement" the policies handed down from Congress and the White House.

Pham offered two solutions to this dilemma. One is "a Medicare policy board" that would be accountable for broad goals but free to handle the details. This would not have to be the much-ballyhooed MedPAC-on-steroids, but any such entity would have to have some influence and some independence from elected political officials.

Another possible solution would be to have a more independent CMS, one that sits outside of the Department of Health and Human Services or "is elevated to a cabinet-level position." However, Pham also acknowledged the dilemma faced by lawmakers. "There are a lot of well-meaning lawmakers" caught between votes and policy sensibility "who would benefit from this insulation" from responsibility for specific decisions, she observed.

Mark McCarty, 703-268-5690;