Controlling Health Care Costs: How to “Bend the Curve”

As Congress nears passage of the first substantial health care reform in decades, there is an ominous challenge: No reform will be sustainable unless we slow the rapid growth of health care spending.

Health care costs are rising at a staggering pace.  Expenditures have been increasing at 2.7% per year faster than the rest of the economy over the past 30 years. In 1980 the US spent about 8% of GDP on health care. We now spend over 17%.  We need to rein in growth of health care spending to levels no higher than overall economic growth — or ideally “bend down” the growth curve to an even lower figure.

How do we “bend the curve”? What are the best ways to slow the growth of health care costs, thus making other reforms sustainable?There are three major areas in which  reforms will help bring health care spending under control.Prevention: US health care is burdened by diseases that are preventable. If we can improve lifestyle issues – nutrition, exercise, obesity, tobacco use – we will lower the future incidence of diabetes, heart disease, cancer, and other costly maladies. Current health reform proposals that allocate $10 billion for a Prevention and Wellness Fund represent a major step in the right direction. Disease prevention likely provides the greatest return on investment regarding health care costs of anything we do.

Hospital and Physician Behavior: Hospitals have no incentives to prevent unnecessary hospitalization. Physicians, paid mostly by fee-for-service, have every incentive to order more tests and procedures. Neither is  rewarded directly for making – or keeping – patients healthy. Key to controlling health care costs in the future will be to realign these incentives.

This will require performance measurement and public reporting for both cost and quality. Provided that predetermined quality criteria are met, hospitals and physicians who can provide better care for less money would share in the savings.

How hospitals and physicians organize to provide better outcomes for less money would be up to them. New organizations, such as “accountable care organizations” and “patient-centered medical homes” would facilitate planning, shared resources, care coordination, performance measurement and reporting. It is a daunting task to realign hospital and physician relationships, but cost control won’t happen otherwise.

Comparative Effectiveness: Among the biggest factors in rising health care costs is technology. Many of the tests, procedures, and drugs introduced over the past 30 years are costly, but effective. Many are not effective. There is currently no organization tasked with evaluating medical technologies. A center for comparative effectiveness research is needed to provide hospitals and physicians with reliable data on efficacy, effectiveness and cost of new technologies and health promotion interventions. The center should emphasize those conditions that contribute the greatest amount to the nation’s burden of disease. With increased attention to disease prevention, and with the increase in accountable care organizations and patient-centered medical homes comparative effectiveness research will be widely used.

In addition to these three principal areas for cost control, there are many other steps that can be taken. Near-term savings, for example, can be gained through Medicare reform targeting waste and fraud. Longer-term gains are possible via patient financial incentives to choose the best performing health plans.

We don’t know precisely the total impact of these reforms. Estimates in health care savings over the next decade range from $500 billion to $2 trillion.  We do know, however, that if we don’t control health care spending as part of broader health care reform, other objectives of improving quality and broadening coverage are untenable. It will take a combination of these vital cost-saving reforms to “bend the curve” and enable broader and sustainable health reform.

Stephen M. Shortell is Dean of the School of Public Health at the University of California, Berkeley. He is also a core member of FRESH-Thinking.