[Congressional Record (Bound Edition), Volume 154 (2008), Part 4]
[Senate]
[Pages 5495-5497]
[From the U.S. Government Publishing Office, www.gpo.gov]




                           HEALTH CARE COSTS

  Mr. KENNEDY. Madam President, one of the most pressing concerns of 
American families and businesses these days is the skyrocketing cost of 
health care. Health costs are now the No. 1 cause of personal 
bankruptcy and many businesses are dropping coverage for their 
employees because they can no longer afford it.
  Required reading for anyone seeking to address the challenge of high 
health costs is an insightful article in this month's New England 
Journal of Medicine. It was authored by Dr. James Mongan, who is CEO of 
Partners HealthCare in Massachusetts, which includes Massachusetts 
General and Brigham and Women's, two of the Nation's leading hospitals. 
He is joined by Dr. Timothy Ferris and Dr. Thomas Lee.
  The article states that there is no single answer to reducing health 
costs. However, it identifies a number of initiatives that hold 
significant promise, including pay-for-performance programs, use of 
electronic medical records and more.
  I commend this compelling article to my colleagues and ask unanimous 
consent that it be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

        [From the New England Journal of Medicine, Apr. 3, 2008]

          Options for Slowing the Growth of Health Care Costs

(By James J. Mongan, M.D., Timothy G. Ferris, M.D., M.P.H., and Thomas 
                             H. Lee, M.D.)

       Health care costs continue to be an important concern in 
     the United States, and they are already a central issue of 
     the 2008 presidential campaign. Numerous strategies for cost 
     containment are being proposed, but specific options are 
     usually presented in isolation, with little disciplined 
     discussion of their potential impact or the barriers they 
     face. In this article, we provide a survey of major options 
     for slowing the growth of health care spending. We also 
     provide a qualitative assessment of the likely effectiveness 
     of these options and our recommendation for a package that 
     could be collectively pursued.
       Underlying our analysis are three basic assumptions. First, 
     health care spending has high intrinsic social value, and the 
     primary driver of cost increases is technical progress--for 
     example, new tests and therapies or new knowledge about the 
     benefits of existing ones. This perspective is supported by 
     the observation that health care costs are increasing 
     throughout the world, regardless of the system for financing 
     health care. The aging of the population and increasing 
     numbers of patients with chronic illnesses contribute to the 
     problem, but the increasing numbers of effective therapies 
     for these populations are major factors in cost trends.
       Second, the value obtained for health care expenditures 
     must be enhanced. Unconstrained growth in medical spending is 
     threatening the incomes of individual patients, the cost 
     structures of employers, and the fiscal balance of 
     government. Third, the high social value of health care 
     limits policy options for containing health care spending.
       In short, we want cost control, but we also want broad 
     access to health care and continued innovation in medical 
     science. Trade-offs among these goals are inevitable, and 
     they can be minimized only through thoughtful policies.
       Table 1 lists 12 major options for reducing health care 
     spending, with comments regarding barriers to their 
     implementation. Rigorous experimental studies of the effect 
     of these options are scarce, and estimates of their 
     independent effects are not available. For example, estimates 
     of the savings that might be derived from the use of 
     electronic medical records include savings from other 
     options, including improved care for patients with chronic 
     conditions.
       Nevertheless, the pressures to address increasing costs are 
     so intense that policy decisions cannot be delayed until 
     long-term studies are completed. We therefore classified 
     these options into three groups on the basis of a qualitative 
     assessment of their potential effect on costs. These 
     assessments were influenced by our judgment of the near-term 
     political viability of these options.
       Our belief is that there is no single ``magic bullet'' 
     among these choices; our goal is to promote discussion 
     leading to effective policies that support several 
     approaches. We do not think responsible health care leaders 
     can be against all of these options; indeed, we think it is 
     insufficient for leaders to support only one or two. 
     Policymakers must identify an array of choices with 
     sufficient cost-savings potential to moderate financial 
     pressures on health care.


                  greatest potential for cost savings

       Several types of payment reform have been suggested and are 
     being tried throughout the country. All of them are 
     potentially disruptive to providers whose businesses are 
     based on fee-forservice payments. Nonetheless, improving 
     quality and efficiency in a pure fee-for-service environment 
     is so challenging that we believe the question is not whether 
     payment reform should be pursued, but how to pursue it 
     without precipitating major discontent or disruptions in 
     care.
       The most potent version of payment reform is budget-based 
     capitation, in which providers receive a fixed amount of 
     money to cover all health care needs of a population of 
     patients. Experiments with capitation in commercially insured 
     populations demonstrate reductions in cost, but they have 
     often resulted in consumer and provider dissatisfaction. 
     Patients have rebelled against limitations on their choices 
     of providers, and providers have rebelled against capped 
     budgets and inadequate risk adjustments to payments. Although 
     capitation is successfully used in some staff-model delivery 
     systems, efforts to extend this payment approach more broadly 
     have had limited success.

          TABLE 1.--APPROACHES TO REDUCING MEDICAL EXPENDITURES
------------------------------------------------------------------------
                 Proposal                             Comments
------------------------------------------------------------------------
Highest potential for cost savings:
  Payment reform (e.g., capitation, case    Capitation limited by
   rates, pay-for-performance programs).     patients' preference for
                                             choice of providers and
                                             public discomfort with
                                             potential perverse
                                             incentives for clinicians;
                                             case rates applicable only
                                             to a small percentage of
                                             procedures (e.g., coronary-
                                             artery-bypass grafting);
                                             pay-for-performance
                                             programs still evolving and
                                             require organized providers
                                             to adopt efficiency goals.
  Effectiveness review for new drugs and    Important step to ensure
   forms of technology before                value for future medical
   reimbursement.                            advances; risk of limiting
                                             innovation and delaying
                                             arrival of products in the
                                             market.
  Electronic medical records..............  Real value in decision
                                             support to reduce variation
                                             among physicians in use of
                                             services; will require
                                             time, resources, and
                                             considerable cultural
                                             change.
  Improved care of patients with chronic    Promising because 10% of
   conditions.                               people account for 70% of
                                             costs; requires organized
                                             providers and payment
                                             reform.
Intermediate potential for cost savings:
  Restructured end-of-life care...........  Requires culture change
                                             within medicine and in
                                             society.
  Consumerism (e.g., transparency and       Limited ability of 10% of
   health savings accounts).                 patients who are very sick
                                             and account for 70% of
                                             costs to function as
                                             informed consumers.
  Substantially reduced administrative      Value of savings offset for
   costs (e.g., eliminate insurance role     some providers and patients
   as currently structured).                 by loss of choice and
                                             potential for innovation
                                             that many believe come with
                                             private insurance; concerns
                                             by some people about
                                             implications of larger
                                             government role, including
                                             potential delays,
                                             deterioration in service,
                                             and limitations on
                                             benefits.
Lowest potential for cost savings:
  Malpractice reform......................  Much potential for
                                             improvement, but limited
                                             effect on costs.
  Drug-pricing reform.....................  Modest effect on costs;
                                             concern about effect on
                                             innovation.
  Enhanced primary prevention activities..  Not shown to yield savings
                                             to overall health care
                                             system; could shift costs
                                             from employers to Medicare.
Rationing options:
  Indirect rationing by setting fixed all-  Does not fit U.S. political
   payer budget ceilings for health          culture; difficult to
   expenditures.                             ensure equity across
                                             geographic areas and
                                             services; very large
                                             government role;
                                             questionable success in
                                             other countries.

[[Page 5496]]

 
  Indirect rationing by letting markets     Such a dramatic and visible
   work for new and expanded services,       increase in the two-class
   restricting Medicare and Medicaid         nature of our health system
   coverage of such services.                not sustainable with our
                                             core values.
------------------------------------------------------------------------

       Short of full budget-based capitation are a variety of 
     options, including partial capitation (e.g., a fixed payment 
     to primary care physicians for their populations); case 
     rates, in which a lump sum is provided for specific 
     procedures; and pay-for-performance systems, in which bonuses 
     for improved quality and efficiency are available to augment 
     fee-for-service payments. Despite the limited data on the 
     effect of such approaches, we cannot conceive of a meaningful 
     attempt to decrease the trend in costs that does not include 
     some form of payment reform. We also believe that payment 
     reform is likely to be most effective when providers are 
     organized into delivery systems that can accept 
     responsibility for cost-mitigation goals.
       Another promising approach to cost containment is 
     strengthening effectiveness reviews for new drugs and forms 
     of technology. Some candidates and many policy experts 
     support a new national institute to conduct such analyses, 
     which could be required before decisions regarding 
     reimbursement are made. Concern about this approach comes 
     from members of industry, who worry about the possible 
     effects of such reviews on the time and costs associated with 
     getting products to market.
       Health information systems that include electronic records 
     have significant potential for cost savings and enjoy strong 
     political support. Policymakers often focus on the personal 
     health record (e.g., a small data-storage device carrying key 
     clinical information), but we believe the greatest cost-
     reducing effect of electronic records will result from 
     improved coordination among health care providers and from 
     decision support that improves clinicians' use of tests and 
     treatments. Such decision support has the potential to 
     decrease variation among physicians in the use of health care 
     services, thereby reducing both baseline costs and cost 
     trends.
       This potential is largely unrealized to date, however. 
     Critical barriers include the requirements for capital 
     investment and standardization of administrative and clinical 
     data. Even more daunting is the need for cultural change 
     among physicians, who must be willing to use decision-support 
     systems if electronic records are to improve their care.
       The improved care of patients with chronic conditions such 
     as diabetes mellitus or coronary artery disease is a 
     promising focus for cost reduction, because about 70% of 
     health care costs are generated by 10% of patients, most of 
     whom have one or more chronic diseases. Improved reliability 
     and coordination of the care of these patients could reduce 
     their need for hospitalization. This strategy has moderate 
     bipartisan support, reflecting awareness of the frequent 
     failure of our health care system to deliver interventions 
     that are likely to be beneficial to patients with these 
     conditions.
       As is true with information technology, however, the 
     evidence that improvement in the care of patients with 
     chronic conditions reduces costs falls short of the apparent 
     opportunity. Numerous interventions are known to be cost-
     effective--that is, they improve health at a reasonable 
     incremental cost. However, few interventions (e.g., disease-
     management programs for patients with heart failure) have 
     been shown to actually save money while improving patients' 
     health.
       Nevertheless, we believe that the cost-saving potential of 
     improvement in the care of patients with chronic conditions 
     may yet turn out to be meaningful. Effective care-improvement 
     programs generally require organized systems of care, as 
     compared with a fragmented system of independent 
     practitioners who often find these programs difficult to 
     maintain. Implementation of these programs will also require 
     some payment reform because institutions and practitioners 
     currently lose money by reducing preventable 
     hospitalizations, and proactive care-management services are 
     typically not covered.


                Intermediate Potential for Cost Savings

       The observation that health care costs are concentrated in 
     the period just before the patient's death raises concern 
     that our health system uses excessive resources to extend the 
     life of dying patients. Political candidates are 
     understandably wary of engaging in this discussion, but 
     health care providers are exploring the effect of greater use 
     of hospice and palliative care services and more complete 
     disclosure to patients of the risks and benefits of proposed 
     interventions.
       Medicare data from Oregon indicate that the use of 
     hospitalization and intensive care units in the last months 
     of life can be decreased without compromising the care of 
     dying patients and their families. However, these data show 
     that any serious attempt to change end-of-life care requires 
     deep cultural change that extends well beyond the provider 
     community.
       Two broader approaches to cost control have support from 
     opposite ends of the political spectrum. Political 
     conservatives have championed consumerism, expressed through 
     insurance products with high deductibles or copayments, 
     health savings accounts, and ``transparency.'' Transparency 
     means making available information about the cost and quality 
     of health care services so that patients can become informed 
     consumers.
       Although the impact of this approach is unknown, we believe 
     that cost savings are likely to be limited by the medical 
     needs of the 10% of people who account for 70% of costs. 
     These patients tend to exceed their financial liabilities 
     associated with these products quickly, and their ability and 
     willingness to behave like shoppers who can make trade-offs 
     in cost and quality are uncertain at best. In addition, these 
     insurance products have thus far proved unpopular with 
     employees despite their lower effect on their paychecks, and 
     enrollment to date has been low.
       On the political left, advocates of the single-payer 
     approach argue that elimination of the employer-based 
     commercial insurance system would dramatically reduce 
     administrative costs. Despite the large savings that would 
     result, political support for this approach is currently 
     limited. The strongest resistance to the single-payer 
     approach comes from the commercial insurance industry, but 
     providers worry that this approach would extend the lower 
     reimbursement structure of Medicare and Medicaid to all 
     patients, and these payments would not increase fast enough 
     to cover increasing provider costs. Thus, for the time being 
     at least, the development of a broad coalition around a 
     single-payer system is unlikely. There is, however, 
     widespread interest in reducing administrative costs by 
     pursuing standardization of the claims-payment systems of 
     U.S. private insurers (e.g., through adoption of a universal 
     billing form).


                   Lowest Potential for Cost Savings

       Two familiar targets for cost reduction are malpractice and 
     drug-pricing reform, but the potential savings from these 
     approaches are probably small. Although the current 
     malpractice system is an inefficient way to protect patients 
     from negligent care, the direct costs of malpractice premiums 
     and estimated costs of ``defensive medicine'' are not major 
     factors in overall health care spending. In any case, 
     political support for malpractice reform is partisan and weak 
     because of the resistance to major changes on the part of 
     plaintiffs' lawyers.
       Costs can be reduced through more restrictive drug 
     formularies and tougher price negotiations, but the savings 
     are modest because pharmaceuticals account for just 10 to 15% 
     of health care spending. The political appetite for tight 
     government control of drug pricing is also limited by 
     concerns about its effect on the development of new drugs.
       Enhanced primary prevention efforts (e.g., programs to 
     reduce smoking, alcohol abuse, or obesity) have strong 
     bipartisan support, and they would lead to important general 
     health benefits. This approach makes particular sense for 
     employers, who can enhance the health of their workforce, and 
     also delay the onset of serious illness among their employees 
     by many years, at which point most costs would be absorbed by 
     Medicare.
       However, candidates would be ill-advised to believe they 
     can fund broader access to health care through savings 
     derived from primary prevention. Prevention is more likely to 
     delay than to eliminate long-term societal costs, because 
     longer life spans mean more years of health care adding to 
     overall costs. Controversy persists regarding whether 
     improved care can lead to significant savings through a 
     ``compression of morbidity''--that is, longer and healthier 
     lives with a relatively quick, low-cost period of illness 
     just before death. Regardless of what the right answer is, 
     savings from increased primary prevention will not be 
     substantial in the near term.


                           Rationing Options

       Should other options fail to provide sufficient cost 
     reductions, policymakers may be forced to consider various 
     forms of rationing, including two types that have been 
     proposed from different ends of the political spectrum. From 
     the left comes the proposal for fixed, all-payer budget 
     ceilings for health expenditures, such as those that are used 
     in Canada and some European countries with multiple payers. 
     The U.S. experiment with this approach is the Medicare 
     funding policy that requires decreases in payments to 
     physicians when overall spending increases.
       Although there would certainly be considerable savings from 
     this approach, inflation in health care spending in countries 
     that use it does not lag far behind ours because of the 
     constant political pressure to increase spending for 
     essential services. Administration of these budgets would 
     require a large government role, and such a strong government 
     regulatory role is not likely to gain consensus in the U.S. 
     culture.
       From the right come proposals for indirect rationing by 
     limiting Medicare and Medicaid payment for new or 
     ``discretionary'' services. This approach would have Medicare 
     evolve to provide a defined contribution toward the health 
     care costs of the U.S. elderly instead of defined benefits. 
     Under this framework, patients who are able to pay for the 
     services

[[Page 5497]]

     that are not covered would do so with their own money, and 
     patients who are unable to pay would go without. We think 
     such a dramatic and visible increase in the two-class nature 
     of our health system is too obviously inconsistent with our 
     core values to be politically viable.


                               Discussion

       We see three paths toward controlling health care costs. 
     First, we could allow the current situation to persist. 
     Consequences would almost certainly include increased 
     taxation and financial burdens on individual patients and 
     businesses, greater competition for scarce governmental 
     resources, and a continued increase in the number of 
     uninsured Americans. The alternative extreme would move our 
     country toward one of the indirect rationing methods 
     described above. This path would be practical only as a last 
     resort. The third path would be to assemble the most 
     reasonable package, short of rationing, using a combination 
     of the other ideas mentioned above, and to try to bend the 
     trend line in increasing health care costs.
       While recognizing that the many stakeholders in health care 
     will have different preferences, we suggest the following. 
     First, modify reimbursement with the explicit goal of 
     rewarding the practice of evidence-based medicine, reductions 
     in variance among physicians in the use of services, and 
     improvement in the care of patients with chronic conditions. 
     We recommend consideration of blended arrangements including 
     pay-for-performance programs, case rates, and even adequately 
     funded and appropriately risk-adjusted capitation.
       Second, invest in new effectiveness-review bodies. These 
     groups would inform decisions regarding the coverage for and 
     use of health care tests and treatments in the future.
       Third, maximize support for electronic medical records with 
     computerized decision support, recognizing that this will 
     involve considerable national investment and cultural change. 
     Such support can come in the form of higher reimbursement for 
     physicians who have adopted electronic records or grants from 
     hospitals, payers, or government to provide support for their 
     implementation.
       Fourth, enhance the standardization of health care 
     transactions in order to drive down administrative costs. 
     Fifth, provide support for regional efforts to improve the 
     quality of care at the end of life. Finally, provide support 
     for prevention programs, not because they save money, but 
     because they lead to a better quality of life and a more 
     productive workforce.
       We recognize that many ideas for cost containment are not 
     addressed here and that there are many potential cost-
     containment packages besides our approach. Our intent has 
     been to set out a framework for considering various 
     proposals. To deal successfully with this important issue, we 
     must move away from cliches that fit our own political 
     beliefs and grapple seriously with the true effectiveness and 
     the political reality of each of these ideas. We need a real 
     and honest dialogue on this issue--particularly in a 
     presidential election year.

                          ____________________