    Comptroller General's Forum on Health Care: Unsustainable Trends
    Necessitate Comprehensive and Fundamental Reforms to Control
    Spending and Improve Value (01-MAY-04, GAO-04-793SP).

    Unrelenting growth in health care spending has put pressure on
    policymakers to seek health care system reforms. The stress comes
    partly from a wide gap in expectations between what health care
    Americans want and what the nation can afford and sustain. GAO's
    Health Care Forum was held on January 13, 2004, to find ways to
    elevate the nation's understanding of health care cost, access,
    and quality challenges. Forum attendees included a select group
    of experts, business leaders, and public officials. The forum's
    plenary speakers discussed issues associated with health care
    costs and value, including spending drivers, long-term
    affordability, and the effect of differences across the country
    in medical practices. Participants in breakout sessions led by
    the forum's faculty of experts deliberated on the merits of the
    various health care reform strategies, including focusing on
    consumer cost sensitivity, targeting high-cost patients, reducing
    unwarranted variation in medical practices, and managing
    technology to control spending growth. GAO has developed a series
    of questions to evaluate all health care reform proposals, based
    in part, on the results of this forum.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-04-793SP
        ACCNO:   A10264
      TITLE:     Comptroller General's Forum on Health Care: Unsustainable
    Trends Necessitate Comprehensive and Fundamental Reforms to
    Control Spending and Improve Value
         DATE:   05/01/2004
      SUBJECT:   Financial management
    	     Future budget projections
    	     Health care cost control
    	     Health care planning
    	     Health care programs
    	     Health care services
    	     Health insurance cost control
    	     Health statistics
    	     Health surveys
    	     Projections
    	     Strategic planning
    	     Medicaid Program
    	     Medicare Program
    	     State Children's Health Insurance
    	     Program

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    GAO-04-793SP

    Highlights of GAO-04-793SP

    Unrelenting growth in health care spending has put pressure on
    policymakers to seek health care system reforms. The stress comes partly
    from a wide gap in expectations between what health care Americans want
    and what the nation can afford and sustain. GAO's Health Care Forum was
    held on January 13, 2004, to find ways to elevate the nation's
    understanding of health care cost, access, and quality challenges. Forum
    attendees included a select group of experts, business leaders, and public
    officials.

    The forum's plenary speakers discussed issues associated with health care
    costs and value, including spending drivers, longterm affordability, and
    the effect of differences across the country in medical practices.
    Participants in breakout sessions led by the forum's faculty of experts
    deliberated on the merits of the various health care reform strategies,
    including

    o  	focusing on consumer cost sensitivity,

    o  targeting high-cost patients,

    o  	reducing unwarranted variation in medical practices, and

    o  	managing technology to control spending growth.

    GAO has developed a series of questions to evaluate all health care reform
    proposals, based in part, on the results of this forum.

    May 2004

    HIGHLIGHTS OF A GAO FORUM

      Health Care: Unsustainable Trends Necessitate Comprehensive and Fundamental
                     Reforms to Control Spending and Improve Value

    The forum's plenary speakers made the following observations regarding
    health care costs and value:

    o  	U.S. wealth and other factors drive health care spending: A nation's
    wealth is the principal driver of its health care spending. However,
    wealth alone does not explain the high level of spending in the United
    States. Other influential factors include the pluralistic organization of
    the U.S. health care system and ambivalent attitudes toward rationing
    health care. While health care spending appears affordable for another
    decade or two, added spending over time will draw resources away from
    other economic sectors and could induce adverse economic implications for
    government, individuals, and other private purchasers of health care.

    o  	Unwarranted variation in medical practices nationwide points to
    quality and efficiency problems: Much of the nationwide variation in use
    of medical services has been attributed to differences in an area's
    resources and capacity to provide health care. Despite the greater volume
    of care provided to patients in high-spending areas, they do not have
    better health outcomes or experience greater satisfaction with care.
    Payment reforms can foster delivery of care that is clinically proven to
    be effective. In addition, health care spending can be reduced by
    identifying and rewarding efficient providers and encouraging inefficient
    providers to emulate best practices.

    At the forum's breakout sessions, participants discussed several promising
    cost containment and value enhancement strategies. The sessions focused on
    the merits and drawbacks of efforts to (1) make consumers more conscious
    of health care costs, (2) coordinate care for the nation's costliest
    patients, (3) hold the appropriate parties accountable for the costs and
    benefits of their clinical decisions, and (4) ration technology without
    denying needed care. A common theme emerged from the four groups: namely,
    efforts to reward efficiency and achieve better health outcomes are
    dependent on a much more highly evolved information infrastructure than
    exists today. Collecting and maintaining the needed data would require
    political and financial support and a central, independent mechanism for
    setting standards and policies. Such structural changes are likely to take
    years to develop, but initiatives are under way to put promising
    strategies into practice. Commitment by all interested parties and
    political will are needed to achieve meaningful and sustainable results.

    www.gao.gov/cgi-bin/getrpt?GAO-04-793SP.

    To view the full product, click on the link above. For more information,
    contact

    A. Bruce Steinwald at (202) 512-7101 or steinwalda@gao.gov.

                                        Contents

    Letter 1

    Introduction from the Comptroller General of the United States 1 U.S.
    Health Care Has Not Achieved Sustainable Cost, Broad Access, or Good
    Quality Systemwide 3 Containing Costs and Enhancing Value Are Key
    Challenges Facing the Nation's Health Care System 8 Participants Discuss
    Strategies for Controlling Costs and Enhancing Value in Health Care 13
    Comptroller General Presents Criteria for Evaluating Health Care Reform
    Proposals 25 Participants Share Views Through Informal Poll 27

    Appendix I Forum Agenda

    Appendix II Forum Faculty and Participants

    Selected Bibliography

    Tables

    Table 1: Framework for Evaluating Health Care Reform 26 Table 2: Results
    of the Health Care Forum Poll 28

    Figures

    Figure 1: National Health Expenditures as a Percentage of GDP 4 Figure 2:
    Medicare and Medicaid as a Share of GDP 5 Figure 3: Composition of
    Spending on Personal Health Care

    Services, Selected Years 6 Figure 4: Number of Uninsured Nonelderly 7

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    Introduction from the Comptroller General of the United States

    In carrying out GAO's mission to help the Congress examine government
    spending and its fiscal sustainability over the long term, I am acutely
    mindful of the extent to which public programs financing health care-
    particularly, Medicare-face serious challenges. Since the early 1990s when
    I served as a trustee of Social Security and Medicare, I have been
    concerned about the Medicare program's fiscal health and long-term
    sustainability. My concerns have heightened as I examine GAO's long-term
    budget simulations, which show a large and growing structural deficit due
    primarily to our imminent demographic tidal wave and rising health care
    costs. I am mindful, too, that the challenges posed by these trends affect
    public sector programs at all levels of government, especially the federal
    and state levels. In addition, employers and other private purchasers of
    health care services are finding that increasing health care spending
    poses a threat to their competitive position in an increasingly global
    market. Furthermore, rising health care costs have implications for
    overall tax revenues and individual employee cash compensation levels.

    Unrelenting growth in health care spending has put pressure on
    policymakers to seek fundamental health care system reforms. Part of the
    stress comes from a wide gap in expectations among patients, providers,
    and payers: what patients and providers expect is not well aligned with
    what health care programs are able to deliver. The public and private
    sectors can both play an important role in educating the public about the
    differences between wants, needs, affordability, and sustainability at
    both the individual and aggregate level.

    In this regard, GAO's Health Care Forum was held on January 13, 2004, to
    find ways to elevate the nation's understanding of health care cost,
    access, and quality challenges. (See app. I for the forum's agenda.) Forum
    attendees included a select group of experts, business leaders, and public
    officials, who discussed the challenges associated with financing and
    delivering health care both now and in the future. (See app. II. for a
    list of participants.) Distinguished economists, practitioners, and other
    leading health care authorities served as faculty for the forum's plenary
    and breakout sessions. (See the selected bibliography of pertinent
    articles and publications by the forum faculty.)

    These proceedings showcase the numerous and complex issues that must be
    addressed as we seek viable options to reforming the nation's "at-risk"
    health care system. Convening discussions on these issues is a first step
    toward obtaining public acceptance of the need for comprehensive and
    fundamental changes. The next step is for the public, through open

    dialogue, to encourage elected officials to address these issues promptly,
    directly, and effectively.

    I wish to thank all the forum participants for taking the time to share
    their knowledge, insights, and perspectives. We will use the knowledge
    gained from the day's deliberations in our discussions with Members of the
    Congress. I look forward to working with the forum's participants on
    important health care system reform issues in the future.

    David M. Walker Comptroller General of the United States

    U.S. Health Care Has Not Achieved Sustainable Cost, Broad Access, or Good
    Quality Systemwide

    Comptroller General Walker opened the forum with a presentation entitled
    "Health Care System Crisis: Growing Challenges Point to Need for
    Fundamental Reform." In essence, he noted that the U.S. health care system
    is undergoing a period of growing stress. In today's health care sector,
    there are few incentives for providers and consumers to be prudent in
    their ordering and use of health care services, too little transparency
    with regard to the value and costs of care, and inadequate accountability
    to ensure that health care plans and providers meet standards for
    appropriate use and quality. Both the public and private sectors are
    facing major challenges with regard to three fundamental and
    interconnected dimensions of the health care system-cost, access, and
    quality. Specifically, rising costs are becoming unsustainable, some
    Americans do not have access to basic care, and quality of care is uneven
    across the nation. The following are highlights of the Comptroller
    General's presentation.1

      Health Care Expenditures Are Escalating

    Past cost containment efforts have not halted the rise in overall health
    care spending. From 1990 through 2000, spending from all sources-both
    public and private-nearly doubled in nominal dollars from about $696
    billion to about $1.3 trillion. From 2000 through 2010, rapid growth is
    expected to again double spending to an estimated $2.7 trillion in nominal
    dollars. The rapid growth in health care spending means that an increasing
    share of the nation's output, as measured by gross domestic product (GDP),
    will be devoted to the production of health care services and goods. In
    1970, health care spending represented about 7 percent of GDP. By 2010,
    that share is projected to reach about 17 percent of GDP. (See fig. 1.)

    1 The figures in this section are based on the most recent data available
    at the time of the forum-January 2004.

    Figure 1: National Health Expenditures as a Percentage of GDP

    Percentage of GDP 18

    16

    14

    12

    10

    8

    6

    4

    2

    0 1970 1980 1990 2000 2010

    Sources: Centers for Medicare & Medicaid Services, Office of the Actuary,
    National Health Statistics Group; and U.S. Department of Commerce, Bureau
    of Economic Analysis.

    Note: The figure for 2010 is projected.

    In particular, public program obligations will be unsustainable for future
    generations of Americans. For example, by 2050, the ratio of workers to
    pay for each Medicare beneficiary will have dropped from about 4 to 1
    today to just about 2 to 1. In addition, Medicare and Medicaid will have
    more than doubled their share of the economy. (See fig. 2.)

    Figure 2: Medicare and Medicaid as a Share of GDP

    Percentage of GDP 16

    14

    12

    10

    8

    6

    4

    2

    0 2000 2010 2020 2030 2040 2050 2060 2070

    Sources: Centers for Medicare & Medicaid Services, Office of the Actuary;
    and the Congressional Budget Office (CBO).

    Notes: Projections based on the intermediate assumptions of the 2003
    Trustees' Reports, CBO's August 2003 short-term Medicaid estimates, and
    CBO's March 2003 long-term Medicaid projections.

    At the same time that health care spending has increased, consumers have
    become more insulated from these escalating costs. In 1962, nearly half-
    46 percent-of health care spending was financed by individuals out of
    their own pockets (see fig. 3). The rest was financed by a combination of
    private health insurance and public programs. By 2002, the amount of
    health care spending financed by individuals' out-of-pocket spending-
    spending at the point of service-was estimated to have dropped to 14
    percent.

    Figure 3: Composition of Spending on Personal Health Care Services,
    Selected Years

                                  1962 1982 2002 est.

    Medicare

    Medicaid

    Other public

    Other private

    Source: Centers for Medicare & Medicaid Services, Office of the Actuary,
    National Health Statistics Group.

    Notes: The figure for 2002 is estimated. Out-of-pocket spending includes
    direct spending by consumers on coinsurance, deductibles, and any amounts
    not covered by insurance. Out-of-pocket premiums paid by individuals are
    not counted here but are counted as part of private health insurance.

    Tax preferences also shield individuals with health insurance from the
    full brunt of health care costs. Tax considerations encourage employers to
    offer health insurance to their employees, as the value of the premium is
    excluded from the calculation of employees' taxable earnings. Moreover,
    the value of the insurance coverage does not figure into the calculation
    of payroll taxes. These tax exclusions represent a significant source of
    forgone federal revenue-over $100 billion-masking the full cost of
    providing health benefits. Tax preferences work at cross-purposes to the
    goal of moderating health care spending.

    To moderate health care spending in both sectors, we will need to look at
    broad payment system reforms. For both public and private payers,
    containing growth in health expenditures will be an abiding 21st century
    challenge.

      Access to Basic Health

    Despite higher health care spending, the United States has not achieved
    Care Coverage Is Lacking broad access to coverage for basic levels of
    care. Tens of millions of for Many Americans

    Americans remain uninsured or underinsured. (See fig. 4.)

                        Figure 4: Number of Uninsured Nonelderly

                               Population in millions 50

                                          43.3

                                           40

                                           30

                                           20

                                          10 0

    1999 2000 2001 2002

    Sources: GAO, Urban Institute, and the Kaiser Commission on Medicaid and
    the Uninsured.

    Notes: Analyses of the Bureau of Labor Statistics and the U.S. Census
    Bureau Current Population Survey, Annual Demographic Supplements and
    Annual Social and Economic Supplement. Figures for 1999 through 2000 are
    from the Urban Institute and the Kaiser Commission on Medicaid and the
    Uninsured. The figures for 2001 through 2002 are from a GAO analysis of
    the Current Population Survey.

    Most nonelderly Americans without health insurance are lower-income
    working age adults. Many more individuals will become uninsured as states
    struggling with record budget shortfalls cut Medicaid enrollment. Most
    troubling is that health insurance may be out of reach for many of those
    who need it most-individuals in poor health. Even among insured
    individuals, coverage is uneven. Many of these individuals find that
    important services, such as long-term care and prescription drugs, are not
    covered or the coverage they have may be substantially limited.

    Gains in Health Status and Although increased health care spending has
    likely led to much of the

    Quality Are Uneven 	improvements in life expectancy and mortality, the
    United States continues to lag other nations in these and several other
    outcome measures. In 2000, the United States had an infant mortality rate
    of 6.9 deaths per thousand live births. This was 23 percent higher than
    the infant mortality rate in the United Kingdom and more than twice as
    high as the

    rate in Japan for that same year. The United States also exceeds other
    industrialized nations in the number of potential years of life lost,
    which is an indicator of premature mortality and preventable deaths.

    The United States has fostered quality of care through investment and
    achievement in medical science. Although advances in medical technology
    have unquestionably provided medical benefits, consumers are not as
    informed about the costs and benefits of health care as they may be about
    other goods and services. For many treatments, experts have developed a
    consensus on recommended use, but many patients do not receive these
    treatments at the prescribed frequency. Similarly, some services are
    overprescribed, providing little benefit and adding unnecessary costs to
    the health care system. Finally, higher health care spending has not
    translated to reduced medical errors. An oft-cited study by the Institute
    of Medicine estimates that deaths due to medical errors in hospitals are
    higher than deaths caused by automobile accidents, breast cancer, or AIDS.

    The growing challenges in the U.S. health care system point to the need
    for both comprehensive and fundamental reform, which grows increasingly
    acute as the nation's long-term fiscal imbalance worsens. Thus, the issues
    of rising costs, inconsistent quality, and uneven access will need to be
    addressed simultaneously with system reforms and federal leadership on all
    fronts.

    Containing Costs and Enhancing Value Are Key Challenges Facing the Nation's
    Health Care System

    Why does health care spending in the United States consume a greater share
    of the nation's economy than in other countries? Is this level of spending
    affordable and sustainable? What is the value of the health care the
    nation purchases? How can spending be reduced without sacrificing value?
    These questions were the subject of the forum's morning plenary sessions
    on health care cost and value. Presentations were given by Dr. Uwe
    Reinhardt of Princeton University and respondent Dr. Alice Rivlin of the
    Brookings Institution and by Dr. John Wennberg of Dartmouth Medical School
    and respondent Dr. Arnold Milstein of the Pacific Business Group on
    Health. The following is a summary of these presentations.

    U.S. Wealth and Other Dr. Reinhardt presented his analyses of data from
    the Organisation for Factors Drive Health Care Economic Co-operation and
    Development (OECD), which show that U.S. Spending spending on health care
    per capita continues to outpace other

    industrialized nations. For example, Canada, a country with a fairly
    similar health care delivery system and similar medical practices, spent

    only 57 percent as much per capita as did the United States in 1999.
    Although the aging of the population is often cited as a driver of
    national health care spending, this claim is not supported by the data.
    According to Dr. Reinhardt, a nation's wealth, as measured by GDP per
    capita, is the chief health care spending driver. A nation's per capita
    GDP explains about 90 percent of health care spending differences across
    nations. Essentially, ability to pay drives consumption.

    However, Dr. Reinhardt noted that per capita GDP does not account for as
    much of health care spending in the United States as in other countries.
    Per capita GDP in the United States explained only $3,300 of the $4,800
    U.S. per capita spending on health care in 2001. Other influential factors
    include the organization of the U.S. health care system and attitudes
    toward health care rationing.

    Dr. Reinhardt observed that the U.S. health care system is highly
    fragmented among multiple payers, hundreds of thousands of providers often
    functioning in isolation, and patients with different levels of private
    and public coverage or no coverage at all. Such complexity and
    fragmentation drives up administrative expenses as well as care costs.
    Another contributor to spending, he continued, is the unwillingness of
    Americans, most of whom are insured, to ration health care. Good health
    insurance affords millions of Americans easy access to world-class health
    care facilities. (As an aside, he noted that these advantages have not
    translated into superior health status.) In principle, neither the public
    nor its policymakers are willing to deny care, regardless of whether it
    adds value to the individual or society. For example, he noted that the
    value of doing procedures such as hip replacements on patients in their
    mid-80s and older is highly questionable. For the significant minority of
    uninsured Americans, however, Dr. Reinhardt observed that the rationing of
    health care by price and ability to pay is manifest, especially for
    primary and secondary care, if not for tertiary care.

    Dr. Reinhardt explained why population age is not very significant as a
    cost driver of health care spending systemwide. The United States is a
    relatively young country compared with other OECD nations whose spending
    per capita on health care is significantly lower. Moreover, the growth in
    the proportion of the population over age 65 (an expensive demographic
    group in terms of health care) will be gradual, projected to rise less
    than 10 percentage points by 2050. Several simulations have shown that age
    and gender account for only a small percentage of predicted annual growth
    in spending on health care. Other research shows that much of the annual
    growth in national spending on health care

    is driven by the same factors that drive increased per capita spending
    across all age groups.

    Dr. Rivlin provided commentary on Dr. Reinhardt's presentation. On the
    topic of rationing in the United States, Dr. Rivlin noted that organ
    transplants should not be overlooked as one example: potential recipients
    of organ transplants are ranked in priority order according to clinical
    criteria. Nevertheless, the United States does not ration health care
    extensively, she noted, because we have not reached a point where the
    money spent on health care is considered not worth the investment. We are
    continuing to see gains as people are living longer and leading less
    impaired lives. On the topic of the aging population as a cost-driving
    factor, Dr. Rivlin pointed out that from a federal budget perspective,
    aging will have a significant impact. In particular, an increase in the
    very old population (people in their mid-80s and older) will be important
    because of their need for long-term care. In 2030, only the leading edge
    of baby boomers will have reached age 80, portending significant cost
    implications for Medicare and Medicaid in the years that follow.

      Unexplained Variation in Medical Practices Nationwide Points to Quality and
      Efficiency Problems

    Americans' use of and expenditures for health care services vary widely by
    geographic region. Much of the data showing regional differences was
    developed from Dr. Wennberg's "small area analysis" research, which
    divides the country into 306 geographic areas (called hospital referral
    regions). Noting that the Medicare patient populations in these areas
    differ little in terms of illnesses, Dr. Wennberg attributes much of the
    variation in use of medical services to differences in an area's resources
    and capacity to provide health care.

    To explain further, Dr. Wennberg divides medical practices into three
    categories of care: effective, preference-sensitive, and supply-sensitive.

    o  	Effective care refers to clinical services that have been proven to be
    efficacious with high benefit-risk ratios. As such, these services should
    be provided to patients whose diagnoses indicate the need for them. Annual
    eye exams for diabetics is one example of effective care. Dr. Wennberg's
    research shows that from 1999 to 2000, 30 percent or more of diabetic
    Medicare patients did not receive these medically necessary eye exams,
    illustrating one of many instances of "underuse" of effective care across
    the United States.

    o  	Preference-sensitive care refers to clinical services that meet
    several conditions: two or more valid treatment options are available, the
    options

    carry different risks and benefits, and patient preference should
    determine which option is selected. Examples of preference-sensitive
    services are coronary artery bypass grafting (CABG) and back surgery.
    Misuse of these services occurs when patient preferences are not respected
    in determining the choice of treatment.

    o  	Supply-sensitive care refers to services for which there are few
    clinical guidelines so that the per capita use of these services is
    influenced by the available supply of resources. Among the Medicare
    population, most supply-sensitive services are used in treating patients
    with chronic illness. They include hospitalizations and use of intensive
    care units, revisits to doctors, referrals to specialists, and use of
    diagnostic tests and imaging procedures. Dr. Wennberg's research shows
    that about 50 percent of the variation in discharge rates for patients
    hospitalized with any medical condition is explained by the supply of
    acute care beds. He noted that overuse of supply-sensitive care accounts
    for most of the variation in overall Medicare spending.

    Consistent with Dr. Reinhardt's analysis, Dr. Wennberg's studies show that
    greater per capita spending buys more supply-sensitive care. Areas with
    above-average spending have similar patterns of underuse of effective care
    and overall rates of expensive preference-sensitive care, including
    elective surgery. In other words, spending more per capita does not buy
    greater quality. What greater spending purchases is more frequent use of
    supplysensitive care in managing patients with chronic illness: more
    hospitalizations, more stays in intensive care, more visits, and more
    tests.

    The critical question is this: does greater spending purchase better
    health? Despite receiving a greater volume of care, Medicare populations
    living in higher-spending areas compared to those living in lower-spending
    areas do not have better health outcomes or experience greater
    satisfaction with care. In fact, populations living in high-spending areas
    appear to experience slightly worse outcomes. The results of this research
    suggest that, if we can achieve more consistency with medical standards of
    practice, vast potential exists to reduce spending without harm to
    patients while making gains in health outcomes.

      Payment Reforms Can Foster Delivery of Effective Care, Leading to Reduced
      Health Care Spending

    To achieve a health care system that delivers more effective care-medical
    practice based on proven efficacy-our public and private payment systems
    need to be reformed.

    Dr. Wennberg offered a working hypothesis for he what terms "value health
    purchasing." Health care spending can be reduced, he contends, using a
    three-pronged approach:

    o  	Identify efficient providers. Cost and utilization data can identify
    health care organizations (for example, hospitals and associated
    physicians) that use fewer supply-sensitive services than their peers in
    treating patients with chronic illness.

    o  	Reward efficient providers. These are providers who also address
    underuse of effective care and misuse of preference-sensitive care. For
    example, payers can reward providers who adhere to practice guidelines for
    effective care and ensure that patient preferences drive the demand for
    preference-sensitive treatment options.

    o  	Encourage inefficient providers to emulate best practices through
    payment incentives. For example, to discourage the provision of
    unnecessary care, payers could compensate providers managing patients with
    certain chronic conditions by paying fixed per-patient amounts based on
    historical actuarial costs rather than paying a fee for each service.

    Given the extent of variation in medical practices, Dr. Wennberg suggests
    that the nation's leading medical institutions-academic medical centers-
    would be a good place to begin the process of improving health care
    quality and efficiency. He notes that historically, these centers'
    experience in translating basic science research into clinical practice
    has been inconsistent and that variations in health care delivery among
    the centers points to a lack of consensus even among the nation's medical
    science leaders on the appropriate use of medical care. At the very least,
    he argues, federal policy should provide incentives for academic medical
    centers-the facilities that train and prepare health care professionals-to
    accept responsibility for the scientific basis of clinical decisionmaking.

    Dr. Milstein, commenting on this presentation, observed that Dr.
    Wennberg's prescription for more efficient, higher quality care is
    consistent with the fundamentals of mainstream industrial procurement
    practices. These fundamentals anchor the new health care purchasing
    strategies that large employers are now adopting. They include (1)
    encouraging patients to use providers that, over time, have been cost-

    Participants Discuss Strategies for Controlling Costs and Enhancing Value in  o
    Health Care

    efficient and have earned favorable quality ratings and (2) rewarding
    wellperforming providers for reaching world class benchmarks of
    longitudinal cost-efficiency and quality. He concluded that an ideal
    system is one in which incentives encourage providers to be highly
    self-conscious about their performance shortfalls and consumers to be
    performance-sensitive about their choice of providers and treatment
    options.

    Following the forum's plenary sessions, participants attended one of four
    breakout sessions. At these sessions, they examined cost containment and
    value enhancement strategies that underlie many recent proposals to reform
    health care. The breakout sessions had the following themes:

    Does a Focus on Making Consumers Sensitive to Health Care Costs Hold
    Promise for Containing Costs and Enhancing Value? (led by Paul B.
    Ginsburg, PhD)

    o  	Can We Control Costs and Enhance Value by Targeting Patients at
    Greatest Risk for Health Problems and High Expenditures? (led by Elizabeth
    A. McGlynn, PhD)

    o  	Can Payment Reforms and Other Structural Changes Bring About
    Reductions in Unwarranted Medical Practice Variation? (led by Mark D.
    Smith, M.D., MBA)

    o  	Is It Feasible to Control Spending without Compromising Scientific
    Gains by Managing Medical Technology and Innovation? (led by Stuart H.
    Altman, PhD)

                   The following is a synthesis of these discussions.

      Does a Focus on Making Consumers Sensitive to Health Care Costs Hold Promise
      for Containing Costs and Enhancing Value?

    Many view "consumer sensitivity" to health care costs, along with
    increased access to user-friendly information, as key to reining in rising
    health care spending. Proponents of this view contend that insured
    consumers are insulated from the true costs of care and the information
    needed to make judicious decisions about the care they buy is essentially
    lacking. Participants discussed whether, under these circumstances, a
    focus on consumer health care decisionmaking could help achieve the
    necessary trade-offs to contain costs and maintain value. They concluded
    that linking consumer cost incentives to physician performance would be
    the most effective strategy but would necessitate efficiency measures that
    have not yet been developed.

    Increasing Consumer Cost Sensitivity Has Potential for the Future but
    Currently Suffers from Serious Data Limitations

    Consumer Cost Incentives Would Need to Be Modified for Low-Income,
    Uninsured, and Chronically Ill Populations

    Ideally, consumers become more sensitive to the costs of health care when
    they have incentives to make decisions based on value-the best quality for
    the lowest cost. Because this strategy depends on good consumer
    information, its implementation to date has been less than perfect. For
    example, some employers seek to steer their employees toward choosing the
    best value health plans, but data on health outcomes and best medical
    practices as well as an infrastructure to make this information readily
    available to the public are lacking. One participant gave the example of
    an employer that was considering offering its employees different
    costsharing arrangements. Under a baseline arrangement, the employer's
    plan would pay 70 percent of an individual's health care costs and the
    worker, 30 percent; or the plan would pay 90 percent and the worker, 10
    percent, if the individual called a plan-sponsored telephone number before
    seeking care to get advice and education on appropriate services and
    providers. A participant noted that this proposal assumes that there are
    extensive data on services available and the telephone staff can give good
    advice.

    Participants noted that workers may resist employers' efforts to encourage
    cost-consciousness, as these efforts are seen as cost shifting (increasing
    workers' share of costs) rather than as a step to improve value. Often the
    higher cost sharing is a compromise, but participants agreed that until
    tools are available to assess the quality of providers' care, it is too
    early to use increased cost sharing as a means to achieve better value.

    Participants also made the following points, suggesting that conventional
    consumer cost incentives may not make sense for low-income, uninsured, and
    chronically ill individuals. Little research exists on the effectiveness
    of cost sharing (such as $1 or $2 copayments) for low-income individuals
    who are on Medicaid or the State Children's Health Insurance Program
    (SCHIP) or who are uninsured. Some states' Medicaid and SCHIP programs use
    scaled-down cost sharing, but there is less interest in cost incentives
    for this population both because the population is low income and because
    Medicaid and SCHIP are less constrained to use administrative procedures
    to control costs. When Massachusetts added a 50-cent copayment per
    prescription for low-income individuals, the number of people who filled
    prescriptions in a homeless community plummeted. Participants discussed
    whether the measures of efficiency should be the same for low-income
    populations as for others. For example, the time needed to counsel a
    homeless population on healthy behaviors was much longer than for more
    affluent populations.

    Participants also discussed the nature of cost incentives for chronic care
    and other high-cost patients. One participant noted that much of health

    Incentives Could Be More Effective If Focused on Physicians

    care spending is by high-cost patients who exceed their maximum for
    covered out-of-pocket costs. Moreover, many high-risk, chronically ill
    patients are loyal to certain providers, even if it costs them more to
    obtain care from these providers. Thus, cost incentives that encourage
    consumers to differentiate among plans and providers will have a limited
    effect on the behavior of these high-cost patients. Issues associated with
    high-cost patients are also discussed in the next breakout session
    summary.

    With regard to cost incentives, participants agreed that "it's all about
    the doctor," as consumers' initial decisions about the care they receive
    typically start with advice they receive from their physicians.
    Participants discussed importance of focusing on physician performance
    rather than on hospital performance. One participant suggested developing
    "fuel efficiency" ratings with information on physicians' costs and
    quality and translating this information into cost incentives for
    consumers to choose the more efficient physicians. He said that a few
    large purchasers are moving in this direction. Another reason to focus on
    physicians, he said, is that measures of hospital efficiency can be linked
    to physicians' ratings. For example, some hospitals may charge more than
    twice as much as other hospitals for an MRI; if these costs were built
    into physicians' ratings, physicians would be induced to affiliate with
    the more efficient hospitals.

    Participants noted the need to address the reality of patients' strong
    affiliation with their physicians. A participant shared an example of a
    Kentucky employer that had provided its workforce information on costs and
    quality at 14 Louisville-area hospitals; even with such information
    available, 40 percent of patients the employer covered went to the
    highcost, low-quality hospitals. The employer now has plans to link
    hospital performance information to differential cost-sharing plans,
    making workers pay steep cost differences if they choose the
    lower-performing hospitals. According to one participant, the employer in
    this example has "already lost the battle," because patients typically
    make hospital choices on the basis of their physicians' affiliation with
    particular hospitals. As a practical matter, however, he noted that it is
    easier to get data on hospitals than physicians, which is why many health
    plans and employers have started with cost incentives linked to hospitals
    rather than physicians.

    Linking Cost Incentives to Appropriate Care Is Difficult without Consensus
    on What Services and Treatments Are Discretionary

    Participants were skeptical about the potential in the near term to
    develop measures of physician performance, as these measures would require
    medical experts to arrive at a consensus about whether a given treatment
    was necessary or elective. For example, as one participant noted, many
    would agree that the use of Viagra (and drugs like it) is elective and
    thus a potential candidate for higher cost sharing, but achieving a
    consensus on other treatments was not as clear-cut. While one participant
    said any given health problem can be placed on a spectrum, with variable
    out-of-pocket costs depending on relative efficiency, another responded
    that this would lead to an "abyss." For example, even erectile dysfunction
    drugs in some circumstances could be determined to reduce other medical or
    mental health costs. Similarly, for back surgeries, it is unclear whether
    "adding two screws to the spine," for example, is an effective treatment.
    Participants also noted that a good efficiency measure needs to adjust for
    hospitals or physicians that take high-risk patients or providers will
    avoid risky patients. However, there is debate on how good today's risk
    adjusters are and whether, in addition to risk, longitudinal efficiency
    measures also need to be adjusted for unavoidable social costs, such as
    uncompensated care, and for training expenses, such as those incurred by
    teaching hospitals.

    One participant noted that health plans already have consumer cost
    incentives for prescription drugs. Plans can steer their beneficiaries'
    purchases to specific drugs through the use of a formulary-that is, a list
    of prescription drugs around which health plans create incentives for
    physicians to prescribe and beneficiaries to choose. Many plans have three
    tiers of cost sharing based on a patient's choice to use a generic,
    formulary, or nonformulary drug. Several participants agreed that tiered
    cost sharing for drugs was acceptable because having tiers informed the
    consumer about the drug's relative cost-effectiveness without denying
    coverage altogether.

    Can We Control Costs and Enhance Value by Targeting Patients at Greatest
    Risk for Health Problems and High Expenditures?

    A small fraction of the population accounts for a substantial share of
    total health care spending, due to these patients' high use of services,
    the high costs of their care, or both. While some of these people are
    acute care patients, such as trauma victims or certain newborns, others
    have chronic conditions, such as renal failure, asthma, and diabetes.
    Regardless of the source of their illness, these groups of patients have
    ongoing needs and place continual demands on the health care system.
    Participants in this session discussed whether strategies targeted at the
    chronically ill population could lead to reductions in health care
    spending and quality improvements overall.

    A Focused Strategy on Chronic Care Could Improve Value, but May Not Reduce
    Costs

    Systematic Data, Payment Reforms, Health Education, and Authoritative
    Standards Needed to Achieve Value

    The group noted that a focus on managing chronic illnesses could improve
    patients' health care quality for at least two reasons. First, the
    nation's delivery systems are designed primarily for acute, episodic care,
    but chronically ill patients need continuous and coordinated care, as well
    as a focus on preventive services, self-care, and adoption of healthful
    behaviors. Stated one participant, "The best way to not die of a heart
    attack is to not have the heart attack in the first place." Second,
    current research shows that patients do not receive the most effective
    care known. Work by RAND has shown that appropriate care is provided to
    patients only about half the time. The current system does not effectively
    meet the needs of people with chronic illness, and this contributes to
    less than optimum value for the very patients that rely most heavily on
    the health care system. Meeting the needs of chronically ill patients
    could improve the quality of care they receive and their outcomes but
    could also increase costs. The group recognized that improving value for
    these patients would require improving quality, decreasing costs, or some
    combination of both.

    The group also recognized that the burden of illness is not the only
    factor driving health care costs, noting that Dr. Wennberg's seminal work
    on regional differences in the use of medical services shows that wide
    variation is not explained by differences in medical diagnosis. Relating
    this phenomenon to caring for the chronically ill, the group noted the
    cost and value implications associated with the three categories of care
    classified by Dr. Wennberg-effective (care proven clinically effective),
    preferencesensitive (care involving trade-offs because more than one
    treatment exists and each may result in different outcomes), and
    supply-sensitive (care based more on the capacity to provide services than
    on medical knowledge or evidence). On the one hand, the group postulated,
    policies aimed at managing supply-sensitive care could have the most
    promise for reducing expenditures but may be the most difficult to
    implement politically. On the other, policies that encourage the practice
    of effective care-ideal from the standpoint of quality-could raise
    spending for some services and lower it for others but would also be
    difficult to implement, owing to the small number of clinical practices
    for which there is rigorous established evidence. Following this last
    point, the group focused the bulk of its remarks on the challenges
    associated with encouraging effective clinical care.

    The group determined that to achieve a value-driven health care system, it
    is necessary to have (1) better information about the services provided
    and outcomes of care to assess value, (2) incentives to provide the most
    effective care known, (3) public awareness of the impact of lifestyle and
    personal health behaviors on the costs of care, and (4) an authoritative

    source of reference for the public, providers, and payers on what
    constitutes effective care. These translated into the need to address the
    following key areas:

    o  	Systematic data: Participants noted that better clinical information
    and better information technology are needed to create incentives, enhance
    transparency, and ensure accountability in health care. The development of
    such information involves two steps: (1) information systems would need to
    be built, perhaps starting with data on high-risk patients whose care by
    multiple providers would require an infrastructure of compatible systems,
    and (2) support for the public reporting of information, which would
    include addressing antitrust laws that now inhibit efforts to share
    utilization and outcome data on the care delivered by a community's
    physicians, hospitals, and other health care providers. The group
    recognized that building an information infrastructure would be expensive
    and would need to be viewed as a public good and social investment.
    Ideally, there should be a central, independent mechanism for setting
    standards, policies, and regulations and public support for developing the
    infrastructure, although multiple private sector entities could
    participate in developing the systems. It would be logical to begin the
    design and development of information systems with a focus on chronically
    ill patients since they have the most frequent contact with the health
    system, but over time, the information systems would be diffused to the
    larger population.

    o  	Payment reforms: Participants noted that in the current environment,
    incentives are lacking to provide certain types of cost-effective care.
    For example, physicians paid under a fee-for-service arrangement generally
    need a medical "event," such as a visit or a procedure, to get paid for
    care. Usually, insurers do not pay physicians solely to counsel patients
    or coordinate their care, services that are particularly important for
    chronically ill patients. Furthermore, if a group of clinicians in a
    hospital want to change a care process, it is difficult to move resources
    between the different parties that are each paid separately (for example,
    hospitals and physicians), in addition to the challenge of freeing
    resources that have already been allocated in line with existing
    processes. Participants also discussed the need to create financial
    incentives to foster the use of effective care. For physicians, incentives
    could include increased payments or loans to reward the use of information
    technology; for patients, they could include reduced copayments or
    deductibles to reward good health habits and cooperation in permitting use
    of personal health care information.

    o  	Health education: Steps to improve health quality would need to be
    accompanied by a sustained health education campaign, such as the one
    conducted over many years on smoking. People should be made more aware of
    the need to improve health quality and how their lifestyle and other
    choices affect the outcomes and costs of their health care. For example,
    to combat the obesity problem, the public could receive information on the
    "body mass index," explaining how higher levels are related to costs of
    care.

    o  	Authoritative standards: The group determined that practicing
    effective, evidence-based medicine and encouraging it through payment
    reforms required an authoritative body of experts to develop and
    promulgate standards of practice. These standards, based on science and
    expert consensus, would guide clinical decisionmaking and payers'
    determination about whether services claimed were medically necessary. In
    addition, the standards would be linked to tort reform: as long as the
    standards were followed appropriately, a clinician would not be subject to
    litigation. The group believed this standard-setting body should first
    focus on high-cost, high-use patients and on obvious opportunities for
    quality improvements. Some participants contended that more than standards
    are needed to address the problem of wide variability observed in medical
    practices, as studies by RAND show that even where there are agreedupon
    standards, appropriate care is provided only about half the time. Issues
    associated with medical practice variation are also discussed in the next
    breakout session summary.

      Can Payment Reforms and Other Structural Changes Bring About Reductions in
      Unwarranted Medical Practice Variation?

    Studies show that the rates at which patients receive physician office
    care, surgical procedures, and hospital care vary extensively across the
    country without clinical explanation. Health care outcomes-such as
    mortality, quality of life, and medical errors-similarly vary. Leading
    experts, such as professors Reinhardt and Wennberg, contend that for much
    of U.S. health care, supply drives demand. In other words,
    higher-than-average utilization of a particular procedure may occur in an
    area where the technology or specialists performing the procedure are in
    abundance. Dr. Wennberg estimates that such supply-sensitive care accounts
    for much of the regionally high service use in Medicare and that reducing
    high use to levels seen in low-use regions would result in about a
    30-percent reduction in Medicare spending. Patient preferences for certain
    procedures and services also contribute to variability in health care use
    rates. Participants in this session discussed whether better outcome data
    for providers and patients to make clinical decisions and the
    restructuring of payment

    Reducing Medical Practices That Are Inconsistent with Quality and
    Efficiency Will Depend on Collecting Better Clinical Outcome Data

    Accountability for Clinical Decisionmaking Involves Several Parties to
    Varying Degrees

    systems to reward quality and efficiency could achieve desired health care
    system reforms.

    Participants agreed that the systematic collection of clinical outcome
    data is fundamental to building a health care system that promotes
    efficiency, decreases the use of unnecessary procedures, and improves
    quality. With longitudinal data, analysts can begin to develop quality and
    efficiency measures that providers, patients, and payers can use to make
    and reward the best clinical decisions. Better outcome data could, for
    example, identify which patients are suitable for organized chronic
    disease management programs and where the provision of unnecessary care
    could be reduced. Such data could be used to guide patients' health care
    decisions, particularly when care alternatives are available without a
    clearcut choice. For example, one participant contended that less than a
    third of male patients with severe prostate problems preferred surgery
    once informed of the risks and trade-offs.

    The group also observed that more outcome data could not only help inform
    case-by-case clinical decisions but also strengthen market forces. For
    example, making comparative data available to providers and patients about
    costs and clinical outcomes could help channel patients toward the most
    efficient practitioners. On this basis, payment systems could be
    restructured to reward the best value of care. Several participants
    suggested that providers' payments and patients' insurance copayments
    could be aligned with quality and efficiency data to pay more for
    delivering higher quality efficiently. Many managed care plans use such an
    incentive to contain prescription drug costs: patients can choose to pay
    more for a branded drug and less for a generic equivalent. Participants
    suggested that insurers could similarly decrease or waive patients'
    insurance copayments if they participated in a shared decisionmaking
    process with their physician and relied on efficacy and quality data in
    opting for treatment.

    The group agreed that effective change strategies will not only require
    the collection of better health outcome data but will also require that
    those that exercise control over clinical and cost decisions-health care
    systems, hospitals, physicians, and patients-be made accountable and
    rewarded, when appropriate. Participants agreed that assigning
    accountability for cost and clinical decisions is as challenging as it is
    important, because there are multiple parties that have decisionmaking
    control.

    o  	Health care systems: Participants noted that variation in the degree
    to which health care systems are organized makes it difficult to assign

    accountability at a "system" level. One participant noted that some health
    care systems were too loosely organized to permit credible accountability.
    Another noted that too many of the relevant decisions were controlled by
    physicians rather than plans.

    o  	Hospitals: Participants agreed that in principle, hospitals could be
    an appropriate party to hold accountable for constraining health care
    supply in that they hire physicians, "build beds," and invest in
    technology-all of which offer potential avenues for influencing cost and
    clinical decisionmaking. If data were available to determine what
    constitutes an "appropriate hospitalization," a hospital could be paid a
    fixed amount that reflects the number of hospitalizations expected for its
    patient base, regardless of how many beds it uses. However, perverse
    payment incentives and lack of leverage in certain instances suggest that
    hospitals alone cannot assume accountability for optimal clinical
    decisionmaking. One participant observed that hospitals generally do not
    have control over the prescribing behavior of their attending physicians.
    Participants also discussed the increasing number of procedures-orthopedic
    surgeries, endoscopies, and mammographies, for example-that are now being
    done in physicians' offices, thereby decreasing the influence that
    hospitals have over these and other inpatient procedures. The group agreed
    that other procedures are performed for which hospitals could be
    appropriately held accountable for quality or appropriateness, such as
    CABGs and other surgeries.

    o  	Physicians: Like other breakout session participants, this group
    determined that physicians were the appropriate party to hold accountable
    for a number of clinical decisions and costs. According to one
    participant, general practitioners in the United Kingdom receive
    substantial bonuses for quality and efficiency. She suggested that a
    similar "pay for performance" model could be applied in the United States,
    under which physicians who referred patients for fewer procedures that
    result from excess capacity, such as CT-scans and MRIs, could be
    financially rewarded. Other participants disagreed and warned that
    strategies designed to curtail the provision of health care services carry
    with them the risk of a backlash, if it appears that providers are being
    rewarded for denying care. One participant asked, "Would people be
    comfortable paying more for less?" Another participant suggested that
    doing so would send the wrong message: "Why pay doctors to do things
    right, rather than not pay them if they do things wrong?"

    o  	Patients: One participant noted that although physicians were an
    obvious party to hold accountable for clinical decisionmaking, patients
    themselves were important in the process. In principle, if comparative
    quality and

    efficiency data were available to patients, financial incentives, such as
    lower copayments, could steer patients toward using the appropriate
    physician, hospital, or health plan. This could result in a spillover
    effect: as more patients choose these providers, the providers would have
    incentives to perform better. Another participant noted that the use of
    data to influence patient choice assumes rational decisionmaking on the
    part of the patient, but in many cases, acutely ill patients must make
    decisions quickly that may be more emotionally based. The group agreed
    that as a practical matter, the lack of adequate comparable data today
    limits the ability to link incentives to patients' decisions.

    Participants emphasized that regardless of who is held accountable for
    clinical and cost decisions, a "one-size-fits-all" approach to payment
    incentives will not work. Incentive strategies should be structured
    differently for inpatient and outpatient services, specialty care and
    primary care, and other groupings. Payment restructuring would need to
    reflect variation within the existing payment systems and be tailored to
    differences among payers-such as Medicare, Medicaid, and private
    insurance-and their covered populations.

    Participants noted that a data-driven reform strategy to improve health
    care quality and efficiency depends on an information technology (IT)
    infrastructure that is virtually nonexistent today. In particular, the
    necessary level of technological sophistication to gather, monitor, and
    securely transmit data does not widely exist at the physician office
    level. Without appropriate IT resources, office-based physicians are
    likely to have difficulty expeditiously recording the information that is
    needed for outcomes research and applying the findings of such research to
    their own practices. On a systemwide scale, differences in payment methods
    will require more IT sophistication to implement structural changes.

    Implementation Issues Make the Prospect of a Value-Based Health Care
    System a Longterm Goal

      Is It Feasible to Control Spending without Compromising Scientific Gains by
      Managing Medical Technology and Innovation?

    Policymakers are looking at the role of technological advancements as an
    important driver of future spending growth. Although some technologies can
    achieve savings-for example, by reducing hospital stays-the increase in
    utilization that results from technology advances has generally offset any
    related savings. Finding appropriate limits on technology development and
    use is problematic, however, as such limits may deny patients improvements
    in health care quality, such as life-extending care. In light of these
    trade-offs, participants discussed the difficulty of assessing
    technology's net impact on health care spending and the lessons this holds
    for controlling its use.

    Difficult to Determine Technology's Impact on Spending Because Systematic
    Assessment of Costs and Productivity Offsets Is Lacking

    Acknowledging that technological change accounts for a significant share
    of health care inflation, participants addressed the question, "Have we
    been getting our money's worth?" The group agreed that technology's
    contributions over the last 20 years-new pharmaceuticals, diagnostic
    imaging, and genetic engineering, among others-have been, on the whole, of
    significant value to the nation's health. However, on a case-by-case
    basis, the use of high-tech procedures to improve health and prolong life
    may be of questionable value when the technology to be used is very
    expensive and odds for the patient to have a good outcome are very low.
    For example, one participant noted a case in which a 92-year-old cardiac
    patient underwent bypass surgery and received a heart-valve replacement
    but died 2 months later from pneumonia. Participants agreed that the
    general tendency in this country is to treat patients with available
    technology when there is the slightest chance of benefit to the patient,
    even though the costs may far outweigh the benefit to society as a whole.
    Other countries do not spend as much at the end of life. The group also
    agreed, however, that no one would choose to go back to the 1980s
    technology over that of today's, despite all its inefficiencies. But,
    asked one participant, "Can we figure out how to get more efficient?"

    The group determined that a big problem in using technology efficiently
    was a lack of information, developed and disseminated systematically, on
    which patients, providers, and payers could make good health care and cost
    trade-off decisions. They noted that progress in the discipline of
    technology assessment has not kept pace with medical technology
    advancements. The medical community has not invested in IT-such as the
    adoption of computerized patient records-despite the potential for patient
    safety improvements and savings through administrative simplification. The
    reason, contended one participant, is that market forces have not driven
    IT investment in same way that they have driven investments in
    pharmaceutical research and diagnostic imaging equipment. Nevertheless,
    today's employers, who finance a substantial share of the health care of
    the privately insured population, are seeking more information on health
    care technology costs and benefits. At the same time, the technology
    industry has been thwarting efforts by public payers to assess their
    products on the basis of cost-effectiveness. Some participants cited the
    need for government investment and direction, through grants and
    reimbursement policies. The group determined that without greater
    transparency and knowledge about technologies' benefits relative to their
    cost, technology will continue to "test positive" as a major cost driver.

    Controlling Use of Technology Faces Barriers to Change

    The group noted that the conventional controls to rein in technology use
    focus on supply, as supply is a primary factor driving health care demand.
    For example, formularies are lists of drugs developed by health plans to
    control the use of expensive drugs. Formularies favor the use of the
    generic equivalents of brand-name drugs on the assumption that generics
    are, more or less, equally effective and, being less expensive than
    branded drugs, are thus more cost-effective. Similarly, certificates of
    need (CON) are a regulatory measure some states use to limit the diffusion
    of high-tech equipment, such as MRIs and CT-scans. CON requirements enable
    states to limit expensive technology to a few strategically located
    facilities and help even out the distribution of resources across
    locations.

    Efforts to use cost-effectiveness as a criterion for deciding when and
    whether to use medical technology have had mixed success. Participants
    noted that many entities try to do their own cost-effectiveness analyses,
    but there is a lot of duplication of effort and their efforts are
    typically impeded by incomplete or otherwise less than robust data. For
    example, one participant noted that health plans developing formularies
    each seek information on the cost-effectiveness of various drugs, but
    outside of the drug companies, no one-not even the Food and Drug
    Administration (FDA)-has access to the data needed to conduct these
    analyses effectively.

    Much of the discussion focused on the need for a central function,
    independent of the industries, that would assess health care technologies
    beyond the level of the safety and efficacy analyses that FDA conducts.
    Some participants favored the establishment of a public (that is,
    government) entity, whereas others supported a public-private partnership,
    modeled after the National Quality Forum (a consortium of businesses and
    not-for-profit organizations that do studies on building a "business case"
    for quality). As part of the discussion of barriers to centralization,
    several participants cited the reining in or elimination by the Congress
    of government entities tasked with assessing technology or promulgating
    practice guidelines, such as the Agency for Healthcare Research and
    Quality and the Office of Technology Assessment.

    The group agreed that a major barrier to advancing technology assessment
    is the technology industry itself. Better information on
    cost-effectiveness, participants noted, may not be in the financial
    interest of a company whose drug or device is not judged cost-effective.
    Other barriers, a participant noted, come from institutional providers and
    individual practitioners. Ideally, hospitals and physicians will use
    quality measurement-outcomes and effectiveness data-to foster best medical

    practices. In fact, providing feedback data to physicians-for example, on
    their prescribing behavior compared to that of their peers-has been a
    powerful tool in bringing the practice patterns of "outlier" physicians in
    line with an appropriate norm. At the same time, physicians and hospitals
    have raised methodological concerns about the soundness of quality
    measurement initiatives, given that flaws exist in the age and
    completeness of the data collected and in the adjusters used to take
    patients' severity of illness into account. Participants noted that debate
    about what is an acceptable level of imperfection can often derail quality
    measurement initiatives.

    The group concluded that the cost and productivity offsets associated with
    technology use could not be determined systematically without widespread
    IT use and improvements. It also determined that the government would need
    to assume a key role in supporting IT development. However, until such IT
    capabilities are in place, incentives must be developed for providers and
    patients to use new high-tech procedures prudently, or health care
    expenditures will continue to escalate at ever-increasing speed with
    serious consequences for the nation's economy.

    Several common themes emerged from the four breakout sessions, despite
    their focus on different health care reform strategies. Collectively,
    participants' observations affirmed the position that in today's health
    care sector, there are few incentives for providers and consumers to be
    prudent in their ordering and use of health care services, too little
    transparency with regard to the value and costs of care, and inadequate
    accountability to ensure that health care plans and providers meet
    standards for appropriate use and quality. The groups essentially
    concluded that these problems cannot be solved overnight and that it will
    require committed, long-term resolve and a more highly evolved information
    infrastructure to help policymakers and the public understand the need to
    move beyond the status quo.

    To this end, the Comptroller General has argued for adopting a systematic
    approach to assessing health care reform proposals. GAO therefore created
    a framework that includes a comprehensive set of criteria for the Congress
    to consider as it evaluates proposed health care reforms. GAO's framework
    incorporates comments made by forum participants in an extensive
    discussion following the Comptroller General's presentation on health care
    system challenges; it is constructed around the dimensions of cost,
    access, quality, and implementation. (See table 1.)

    Comptroller General Presents Criteria for Evaluating Health Care Reform
    Proposals

    Table 1: Framework for Evaluating Health Care Reform

    Dimension Criterion

    Cost: Does the proposal help to ensure: 	 o sustainable growth in public
    and private sector health care expenditures? For example,

    o are Medicare and Medicaid reform efforts aligned with the nation's
    long-term fiscal outlook?

    o are health care financing policies compatible with the efforts of U.S.
    companies to compete in global markets?

    o efficient production and consumption of health care resources, including

    o economical pricing of services?

    o incentives for providers to make prudent medical decisions based on
    benefit and cost?

    o consumer sensitivity to the benefits and costs of health care services?

    o that government tax incentives do not have unintended consequences?

    o that government financing meets the nation's most critical health care
    needs?

    Access: Does the proposal help to ensure:  o guaranteed access to
    essential health care coverage, including  o catastrophic loss protection?
        o children's preventive health care services?

    o an insurance market that adequately pools risk and offers alternative
    levels of coverage?

    Quality: Does the proposal help to ensure:  o care that meets acceptable
    standards, including  o lowering the occurrence of medical errors?  o
    medical practices based on scientific evidence?  o limiting disparities in
    treatment for all patients?

    Implementation: Does the proposal help to  o the development of an
    information infrastructure that provides prompt and reliable ensure: data
    to monitor cost, quality, and system integrity?

    o transition to a new structure that effectively mitigates potential
    disruptions and any new demands on resources and affected individuals?

    o oversight and enforcement mechanisms for effective accountability?

    o reforms that consumers can easily adapt to and understand?

    Source: GAO

    Ideally, health care reform proposals will ultimately provide and align
    incentives, foster transparency, and ensure accountability. The reality is
    that comprehensive reforms may need to be incremental in order to minimize
    disruptions and facilitate political consensus. The hope is that the
    framework can guide us through an orderly process of debate.

    Participants Share At the forum's conclusion, participants were polled on
    14 statements

    concerning the nation's health care system. A consensus on these
    viewsViews Through was neither hoped for nor expected-with the exception
    of the last Informal Poll statement asking participants for a commitment
    to further public dialogue

    on health care reform issues. The results in table 2 are based on the

    confidential responses of two-thirds of the participants.

    Table 2: Results of the Health Care Forum Poll

                                      Percentages

                                   Strongly       Neither agree          Strongly
                Statement             agree Agree nor disagree  Disagree disagree
         The United States has a
         serious and structural
                 fiscal
         imbalance that requires
            tough choices by             76    21             3        -        -
              policymakers.
        Patients need to be more
           active and informed
             participants in
    the decisionmaking process
        relating to discretionary
                   and
            expensive medical            62    34             -        3        -
               procedures.
    The U.S. health care system
        is characterized by both
        underuse of wellness and
    preventive care and overuse
                   of
          high-tech procedures.          55    34             7        3        -
         Defensive medicine is a
    significant problem that is
                caused by
    concerns about litigation.        24    38            21       17        -
         The current health care
    system is unsustainable and
                requires
          significant reforms.           45    45            10        -        -
    Ten years ago, managed care
          was thought to be the
                 answer
           to health care cost
         containment, but it no
            longer appears to
    offer a long-term solution        24    28             7       38
          to escalating costs.
        Based on comparisons with
    other major industrialized
                nations,
    it appears that the United
        States is lagging in the
              areas of cost
           containment, health
         outcomes, and access to         32    39            14        7
                  care.
           Given the power of
        providers and the desires
               of insured
        consumers, market forces
          alone are unlikely to
               reasonably
          constrain health care          39    29            11       21        -
                 costs.
    Health care costs represent
         a growing burden among
    employers, especially given
          increasing global and
                domestic
              competition.               58    28             3        7
          Although not equally
        available to all segments
                 of the
         population, the highest
         quality health care is
            delivered in the
             United States.              11    29            14       32
    The United States pays more
    than its fair share of R&D
                   for
        new medical products and         24    44            17       10
              technologies.

    In the long run, health policies may need to focus more on
    attaining a basic level of health care for all Americans than on
    providing expanded coverage for certain segments of the U.S.
    population. 28 55 17 - -

    Ultimately, the division of responsibilities for health care
    access and financing-currently shared by the government,
    employers, and individuals-may need to be redefined. 18 57 14 11 -

    I will continue participating in public discussions and debates
    that can help elevate the nation's understanding of the long
    term challenges posed by today's health care financing and
    delivery systems. 90 10 - - -

    Source: GAO analysis of Health Care Forum participant poll.

                 Note: Percentages may not add to 100 due to rounding.

                                Appendix I: Forum Agenda

    9:00 a.m. Welcome and Introductions

    Dave Walker, Comptroller General of the United States Forum Participants

    9:15 a.m. GAO's Health Care Framework

    Dave Walker, Comptroller General of the United States

    10:15 a.m. Break

    10:30 a.m.	Plenary Session 1: The Cost Dimension Presenter: Uwe Reinhardt,
    James Madison Professor of Political Economy, Princeton University
    Respondent: Alice Rivlin, Senior Scholar, The Brookings Institution

    11:30 a.m.	Plenary Session 2: The Value Dimension Presenter: John
    Wennberg, Center for Evaluative Clinical Sciences, Dartmouth Medical
    School Respondent: Arnold Milstein, The Pacific Business Group on Health

    12:30 p.m. Break

    1:00 p.m. Breakout Sessions

    Group 1:

    Group 2:

    Group 3:

    Group 4:

                                    2:30 p.m. Break

    Consumer Cost Sensitivity
    Session Leader: Paul Ginsburg, President, Center for
    Studying Health System Change

    High-Cost Patients
    Session Leader: Elizabeth McGlynn, Associate Director,
    RAND Health, and Director of the Center for Research on
    Quality in Health Care

    Medical Practice Variation
    Session Leader: Mark Smith, President and CEO,
    California Health Care Foundation

    Technology Management
    Session Leader: Stuart Altman, Sol C. Chaikin Professor of
    National Health Policy, Brandeis University

                                Appendix I: Forum Agenda

    2:45 p.m. Plenary Session 3: Breakout Session Conclusions

    Breakout Session Leaders

    4:15 p.m. Opinion Poll and Wrap-up

    Dave Walker, Comptroller General of the United States

                      Appendix II: Forum Faculty and Participants

                                     Forum Faculty

    Stuart H. Altman Sol C. Chaikin Professor of National Health Policy,
    Brandeis University

    Paul B. Ginsburg President, Center for Studying Health System Change

    Elizabeth A. McGlynn 	Associate Director, RAND Health, and Director of the
    Center for Research on Quality in Health Care

    Arnold Milstein 	Medical Director, Pacific Business Group on Health, and
    National Health Care Thought Leader, Willam M. Mercer Consulting

    Uwe E. Reinhardt James Madison Professor of Political Economy, Princeton
    University

    Alice M. Rivlin Director and Senior Fellow, The Brookings Institution

    Mark D. Smith President and CEO, California Health Care Foundation

    John E. Wennberg 	Director, Center for the Evaluative Clinical Sciences,
    Dartmouth Medical School

    Forum Participants

    Janice Angell Executive Director, Health and Benefits, 3M

    Jim Bentley 	Senior Vice President, Strategic Policy Planning, American
    Hospital Association

    Barbara Blakeney President, American Nurses Association

    Charles A. Bowsher 	Former Comptroller General of the United States, U.S.
    General Accounting Office

    Karen Davis President, The Commonwealth Fund

    Senator David F. Durenberger 	Chair, National Institute of Health Policy,
    University of St. Thomas and the University of Minnesota

                      Appendix II: Forum Faculty and Participants

    Harvey V. Fineberg President, Institute of Medicine of the National
    Academies

    Jeffrey L. Gabardi 	Senior Vice President, Policy, American Association of
    Health Plans/Health Insurance Association of America

    Tony Gamboa General Counsel, U.S. General Accounting Office

    Mary Grealy President, Healthcare Leadership Council

    Glenn Hackbarth Chairman, Medicare Payment Advisory Commission

    Bruce H. Hamory 	Executive Vice President and Chief Medical Officer,
    Geisinger Health System

    Randy Johnson Director, Human Resources Strategic Initiatives, Motorola,
    Inc.

    Chip Kahn President, Federation of American Hospitals

    Vincent Kerr 	Executive Vice President, Network and Clinical Solutions,
    UnitedHealth Group

    James R. Knickman 	Vice President, Research and Evaluation, The Robert
    Wood Johnson Foundation

    Carolyn J. Luckensmeyer President, America Speaks

    Randall Lutter 	Chief Economist, Food and Drug Administration, U.S.
    Department of Health and Human Services

    Mark Miller Executive Director, Medicare Payment Advisory Commission

    Donald Palmisano President, American Medical Association

    Robert D. Reischauer President, Urban Institute

    John Rother Director of Policy and Strategy, AARP

    Dallas L. Salisbury President and CEO, Employee Benefits Research
    Institute

    William J. Scanlon Director, Health Care Issues, U.S. General Accounting
    Office

    Leon H. Schellman Manager, United States Benefits, Procter & Gamble

                      Appendix II: Forum Faculty and Participants

    Gerald M. Shea 	Assistant to the President, Government Relations, American
    Federation of Labor and Congress of Industrial Organizations

    Jean Sheil 	Director of Family and Children's Programs Group, Centers for
    Medicare & Medicaid Services, U.S. Department of Health and Human Services

    Henry E. Simmons President, National Coalition on Health Care

    Pete Smith President and CEO, Private Sector Council

    Ian D. Spatz Vice President, Public Policy, Merck and Company, Inc.

    A. Bruce Steinwald 	Director, Health Care, Economic and Payment Issues,
    U.S. General Accounting Office

    Louise Van Diepen Clinical Executive, U.S. Department of Veterans Affairs

    David M. Walker Comptroller General of the United States, U.S. General
    Accounting Office

    Andrew Webber President and CEO, National Business Coalition on Health

    GAO Forum Managers

    Jessica Farb Hannah Fein A. Bruce Steinwald

                                 Selected Bibliography

    Altman, Stuart H., et al. "Escalating Health Care Spending: Is it
    Desirable or Inevitable?" Health Affairs (Web Exclusive, January 8, 2003).

    Altman, Stuart H., et al. "The Outlook for Hospital Spending." Health
    Affairs, vol. 22, no. 6 (2003).

    Ginsburg, Paul B., et al. "Are Market Forces Strong Enough to Deliver
    Efficient Health Care Systems? Confidence is Waning." Health Affairs, vol.
    23, no. 2 (2004).

    McGlynn, Elizabeth A., et al. "The Quality of Health Care Delivered to
    Adults in the United States." New England Journal of Medicine, vol. 348,
    no. 26 (2003).

    Milstein, Arnold, and Nancy E. Adler. "Out of Sight, Out of Mind: Why
    Doesn't Widespread Clinical Quality Failure Command Our Attention?" Health
    Affairs, vol. 22, no. 2 (2003).

    Reinhardt, Uwe E., et al. "U.S. Health Care Spending in an International
    Context." Health Affairs, vol. 23, no. 3 (2004).

    Reinhardt, Uwe E. "Does the Aging of the Population Really Drive the
    Demand for Health Care?" Health Affairs, vol. 22, no. 6 (2003).

    Reinhardt, Uwe E., et al. "It's the Prices, Stupid: Why the United States
    Is So Different From Other Countries." Health Affairs, vol. 22, no. 3
    (2003).

    Rivlin, Alice M. and Isabel Sawhill, eds. Restoring Fiscal Sanity: How to
    Balance the Budget. Washington, D.C.: Brookings Institution Press, 2004.

    Smith, Mark D., et al. "The Nonpoor Uninsured in California, 1998." Health
    Affairs, vol. 19, no. 4 (2000).

    Wennberg, John E., and David E. Wennberg. "Perspective: Addressing
    Variations: Is There Hope for the Future?" Health Affairs (Web Exclusive,
    December 10, 2003).

    Wennberg, John E., et al. The Quality of Medical Care in the United State:
    A Report on the Medicare Program, The Dartmouth Atlas of Health Care 1999.
    Chicago: American Hospital Association, 1999.

    (290348)

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