Reform shifts from access to cost

November 1, 2008

Coverage expansion is taking a back seat as costly medical advances and the burden of obesity chew up more of the healthcare spending pie

WASHINGTON, D.C.- The global financial crisis and huge federal government commitment to stabilize the nation's banking system has moved healthcare cost-cutting high up the policy agenda.

Talk of expanding coverage for the uninsured and underinsured is taking a back seat to initiatives to curb wasteful and excessive spending on healthcare in the United States.

In fact, expanding insurance coverage to more people, while desirable and ethical, will boost spending even more. A new report sponsored by the Robert Wood Johnson Foundation finds that high prices, inefficiencies and the added cost of insurance administration drive outlays for healthcare in the United States much higher than in other developed nations. The U.S. spends more than 15% of gross domestic product (GDP), compared with 11% for France and less than 10% for Germany, Canada, Australia, the United Kingdom and Japan.

Behind the healthcare cost rise are new medical technology and rising obesity rates-not aging or medical liability, Ginsburg says. Medical technology may account for about 40% to 65% of the growth in spending by encouraging additional treatment and by replacing less-expensive technology with new products and services.

PUSH FOR PRODUCTIVITY

At the same time, the healthcare sector has not enjoyed comparable improvements in productivity as seen in other U.S. industries. This is due, according to the analysis, to limited price competition among healthcare providers because of extensive third-party payment, and to payment policies that reward increased service rather than more efficient care.

To restrain the spending growth, Ginsburg and his colleagues urge more funding for research on medical technology effectiveness to better target new technology to those patients most likely to benefit.

Of importance to insurers is the call for added efficiencies to reduce administrative costs inherent in the multi-payer U.S. healthcare system. The creation of insurance exchanges could reduce the distribution costs of insurance purchased by individuals or small employers.

There are lessons to be learned from how managed care helped moderate spending trends in the 1980s and early 1990s, the report says. Although controls were abandoned by health plans in the wake of the managed care backlash, some cost curbs are being reintroduced in a "more targeted and less-intrusive manner." These include prior authorization for imaging and limiting imaging networks to those that meet quality standards.

Some cost-control methods that have gained popularity include expanded health IT and medical liability reform. These may have less of an impact on healthcare spending, but do have potential to improve quality of care.

"The big-ticket play is in productivity," says consultant Robert Laszewski. In commenting on the report, he cited the need for discriminate use of medical technology, practicing outcomes-based medicine and reducing overhead in the insurance system. "If we only increase access and don't hit the healthcare productivity issues head-on, we will simply craft a system we will never be able to sustain."