Possible Solutions to the High Cost of Health Care

Consumer-driven healthcare, the major private-sector strategy for addressing rising costs, is unlikely to address the fundamental causes of rising healthcare costs. In fact, it is likely to have adverse consequences for patients.

• Consumer-driven healthcare contributes to excessive financial burdens on patients, particularly lower-income and sicker patients. If all Americans had a $1,000 deductible plan, one-third would spend more than 10 percent oftheir income on healthcare if they were hospitalized, with even higher rates at the lowest end of the income scale. High deductibles would lead to a major increase in the number of underinsured individuals.

• Patient costs are already unacceptably high. Indeed, they are a major reason why public opinion polls show that the affordability of healthcare is Americans' second-leading concern.

• Patient cost-sharing is a blunt instrument for reducing utilization of services. It reduces use of effective services that are already underutilized. Studies have documented that drug-tiering and higher copayments are leading patients to skip filling essential prescriptions, increasing adverse medical events, and raising emergency room use.

There are better alternatives for achieving economies in healthcare than shifting costs to patients. Costs are higher in the United States than in other countries because we pay higher prices for the same services; our administrative costs are higher; and physicians prescribe specialized services that are not clinically justified. If we as a nation were to adopt fundamental reforms—such as an integrated public-private strategy to purchase health services efficiently, demand quality performance, and streamline administrative costs—substantial savings could be achieved.

Short of fundamental reforms, practical steps that could be taken in the near term include:

• Reducing medical errors and improving care coordination. A major investment in health information technology, with shared public-private funding, is needed to accelerate the adoption of life-saving and efficiency-enhancing technology.

• Public reporting of cost and quality data. Costs incurred over an episode of care and quality vary enormously from hospital to hospital, physician to physician, and area to area. If we are serious about doing better, we need to know where we stand. Much more extensive efforts are required to achieve comprehensive public reporting of cost and quality data on physicians, hospitals, nursing homes, other healthcare providers, and health plans.

Paying for provider performance on quality and efficiency. Medicare needs to become a leader in "pay for performance" payment methods. While the demonstrations under way are important, Medicare needs to move much more quickly to reward those providers who are both high-quality and low-cost over the course of a patient's treatment. Doing so would spur the development of information about best practices and provide guidance to private insurers looking for effective ways to promote high-performance care.

Development and promulgation of clinical guidelines and quality standards. Public programs and private insurers would benefit from a federal agency charged with establishing the scientific basis for effectiveness not just of new drugs but of specialty consultations, procedures, and tests. A national institute on clinical excellence and effectiveness has shown results in other countries and is a model we should adopt. We also need a substantial investment in research and demonstrations, far in excess of resources currently devoted to the Agency for Healthcare Research and Quality.

Better management of high-cost patients. Public programs and private insurance need to be willing to pay for services of non-physician personnel that are needed for high-cost care management, such as advanced practice nurses, pharmacist medication monitoring, and home "telemonitoring" of conditions such as asthma and congestive heart failure. Improved administrative efficiency. The U.S. has an extraordinarily complex and fragmented system of health insurance. Ultimately, solutions that would simplify eligibility for insurance and improve the stability of health insurance coverage are needed to cut the administrative costs in our system. Testing statewide electronic insurance clearinghouses to pool insurance eligibility and, potentially, claims payment in a single place should be a priority.

Automatic and affordable health insurance for all. Employers, federal and state governments, and individuals must all share responsibility for achieving automatic and affordable health insurance for all. The most realistic strategy is a combination of group insurance options including: employer coverage for those who are working; a new Congressional Health Plan, modeled on the Federal Employees Health Benefits Program, for small businesses and individuals; an expansion of the State Children's Health Insurance Program to low-income families and individuals with incomes below 150 percent of poverty; and an option for uninsured older adults and disabled adults to obtain early coverage under Medicare (e.g., by eliminating the two-year waiting period for the disabled, covering spouses of Medicare beneficiaries, and permitting older adults to "buy in" to Medicare). Premium assistance based on income is required to make premiums affordable for all enrollees.

Together, these steps would take us a long way toward ensuring that this country has a high-performing health system worthy of the 21st century.

SOURCE: Davis, K. 2004. "Making Health Care Affordable for All Americans." Invited testimony before the Senate Committee on Health, Education, Labor, and Pensions Hearing on "What's Driving Health Care Costs and the Uninsured?" January 28. Excerpted and reprinted with permission.

While the menus of alternative solutions to the problems that face policymakers vary in size and quality, there are almost always alternative possible solutions. Many alternatives, each with its opponents and proponents, can slow advancement through the policymaking process as the relative merits of the competing alternatives are considered. Without at least one solution that is viewed as having the potential to actually solve the problem, however, issues do not advance in the policymaking process except in some spurious effort to create the illusion that a problem is being addressed.

When alternatives exist, choices must be made about whether the potential solutions under consideration are worth developing into legislative proposals. Frequently, in response to a particular problem, multiple ideas will be considered worthy of such action, resulting in the simultaneous development of several competing proposals, each intended to solve the same problem. This tends to make agenda setting rather chaotic, although, as discussed below, rigorous research and analysis can sometimes help provide more clarity about the choices that policymakers face.

Health services research, as well as much biomedical research, contributes to problem identification and specification and to the development of possible solutions. Thus, research can support establishing the health policy agenda by clarifying both the problems and potential solutions to them. Health services research addresses issues of (Eisenberg 1998, 100)

organization, delivery, financing, utilization, patient and provider behavior, quality, outcomes, effectiveness, and cost. It evaluates both clinical services and the system in which these services are provided. It provides information about the cost of care, as well as its effectiveness, outcomes, efficiency, and quality. It includes studies ofthe structure, process, and effects ofhealth services for individuals and populations. It addresses both basic and applied research questions, including

The Role of Research and Analysis in Defining Problems and Assessing Alternatives fundamental aspects of both individual and system behavior and the application of interventions in practice settings.

Health services research assists policymakers to understand as fully as possible some of the facts that might affect their decisions.

Policymakers value the input of the research community sufficiently to fund much of its work through the National Institutes of Health (NIH) (www.nih.gov), the Agency for Healthcare Research and Quality (AHRQ) (www.ahrq.gov or www.ahcpr.gov), and other agencies. AHRQ, the health services research arm of the Department of Health and Human Services (DHHS), complements the biomedical research mission of its sister agency, NIH. AHRQ is the federal government's focal point for research to enhance the quality, appropriateness, and effectiveness of health services and access to those services.

Research plays an important documentation role by gathering, cataloging, and correlating facts that depict the state of health problems. For example, researchers have documented the dangers of tobacco smoke; the presence of HIV; the numbers of people living with AIDS and with a variety of cancers, heart disease, and other disease; the impact of poverty on health; the number of people who lack health insurance coverage; the existence of disparities in health among population segments; and the dangers imposed by exposure to various toxins in the physical environments, among many other threats to health. The quantification and documentation of health-related problems give these problems some chance of emerging on the policy agenda.

The second way in which research informs, and thus influences, the health policy agenda is through analyses that help determine which policy solutions may work. The fundamental contribution of biomedical research to the development of ever-advancing medical and health technology in the United States is well established. This research has made possible the diagnosis and treatment of previously untreatable diseases. Along different avenues of inquiry, health services research has revealed much of value to policymakers as they propose, consider, and prioritize alternative solutions to problems.

Often taking the form of demonstration projects intended to provide a basis in fact for determining the feasibility, efficacy, or basic workability of a possible policy intervention, research-based recommendations to policymakers can play an important role in policy agenda setting. Potential problem solutions that might lead to public policies—even if the policies themselves are formulated mainly on political grounds—must stand the test of plausibility. Research that supports a particular course of action being contemplated by policymakers or that helps attest to its likelihood of success—or at least to the probability that the course of action will not embarrass them—can make a significant contribution to policymaking by helping to shape the policy agenda.

What research cannot do for policymakers, however, is make their decisions for them. Every difficult decision regarding the health policy agenda— indeed, all policy decisions—ultimately rests with policymakers.

The existence of problems that require decisions and alternative possible solutions to them are two prerequisites for use of the classical, rational model of decision making outlined in Figure 5.3. This decision-making model reflects the basic pattern of the organizational decision-making process typically followed in both the private and public sectors in the United States. However, differences in the use of this model in the two sectors typically arise when the criteria to be used in evaluating alternative solutions to problems are introduced.

Some of the criteria used in evaluating and comparing alternative solutions in both the private and public sectors are, of course, the same or similar. For example, the criteria set in both sectors usually includes consideration of whether a particular solution will actually solve the problem; whether it can be implemented within available resources and technologies; its costs and benefits relative to other possible solutions; and the results of an advantage-to-disadvantage analysis of the alternatives.

In both private and public sectors, high-level decisions have scientific or technical, political, and economic dimensions. The scientific or technical aspects can be made more difficult to factor into decisions when the evidence is in dispute, as it often is (Atkins, Siegel, and Slutsky 2005; Steinberg and Luce







Criteria based

Figure 5.3

The Rational Model of Decision Making

2005). The most pervasive difference between the criteria sets used in the two sectors, however, is the variation in the roles played by political concerns and considerations. Decisions made by policymakers in the public sector must reflect much greater political sensitivity to the public at large as well as to the preferences of relevant individuals, organizations, and interest groups than most decisions made in the private sector. This helps explain the considerable importance of the third variable in agenda setting in the health policymaking process, political circumstances.

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