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PERSPECTIVEThe New Architects Of Health Care Reform
Rising health care costs have been an issue for decades, yet federal-level health care reform hasn’t happened. Support for reform, however, has changed. Purchasers fear that health care cost growth is becoming unaffordable. Research on costs and quality is questioning value. International comparisons rank the United States low on important health system performance measures. Yet it is not these factors but the unsustainable costs of Medicare and Medicaid that will narrow the window for health care stakeholders to shape policy. Unless the health care system is effectively reformed, sometime after the 2008 election, budget hawks and national security experts will eventually combine forces to cut health spending, ultimately determining health policy for the nation.
RISING HEALTH CARE costs have been an issue for the past two and a half decades, yet we have not seen comprehensive health care reform at the federal level. The prevailing view has been that the collapse of the Clinton initiative for universal coverage in 1994 led to dependence on market-based managed care to control costs and expand access. Unfortunately, patients and providers were unwilling to accept limits on care; politicians did not support cost management by managed care plans; and group purchasers remained largely silent. Public sentiment, provider resistance, and political will, however, have changed since 1994 in response to a very different environment. Today, public and private purchasers, tired of absorbing annual spending increases, fear that health care cost growth is becoming unaffordable. Employers are not just voicing frustration; they are dropping or reducing coverage. Workers’ willingness to take employer-based coverage is also waning. As a result, employment-based coverage has been eroding since 2000. Moreover, as the enrollment pie shrinks, managed care plans must realize more profit per member—a strategy that further exacerbates the affordability crisis and is difficult to defend. Of equal concern is the emerging realization that higher spending on health care has brought neither higher quality nor better outcomes. Data from the Dartmouth Atlas project on clinical variation confirm that more care is not necessarily better and may even kill a patient faster. U.S. health care is not evidence-based but supply-driven. Where a patient lives and what hospital he or she is treated in determines the course of care. Yet whether one is measuring regions, states, or individual hospitals, higher spending does not achieve better outcomes. The United States has the highest per capita health spending among industrialized nations. Although the United States spends $6,102 per person—more than twice the Organization for Economic Cooperation and Development (OECD) average of $2,552 in 2004—credible international comparative studies are shattering the myth that U.S. health care spending provides the best care in the world.1 A McKinsey Global Institute analysis, for instance, found that the United States spends more than $500 billion per year more on health care than peer OECD countries after adjusting for wealth, population mix, and higher levels of some diseases.2 Yet U.S. rankings on such health system performance measures as access, infant mortality, life expectancy, and mortality from conditions amenable to health care are disappointing and disturbing. A Commonwealth Study also ranked the United States last on four of the six measures derived from the Institute of Medicine (IOM) framework for quality when compared with five other industrialized nations.3 Providers can no longer explain or defend the disconnect between cost and quality. Sound methodology used by Dartmouth researchers, RAND, and state-based agencies such as the Pennsylvania Health Care Cost Containment Council has addressed many of the reasons institutions and physicians give for higher costs: sicker patients and outlier cases that push up averages. Unfortunately, the current solo/small-group practice model and fee-for-service payment system provide an antiquated foundation for an efficient, performance-based health care system. For this reason, the prospects for successful health care reform do not depend on whether a purely market-based or purely regulated approach wins out. (And most pragmatists believe that a blended strategy would be more effective and consistent with American values.) Rather, success depends on whether new health policy can meaningfully change the underlying care delivery system structure. Regardless of ideological bent, however, the window for health care stakeholders to shape policy is closing. For the first time, health care is viewed as a significant risk to America’s economic future. Thus, employer frustration, lack of value, and poor system performance are not the "perfect storm" that will transform U.S. health care. More likely, the catalyst to bring about radical change will be the inescapable conclusion that the growing cost of federal health entitlement programs is unsustainable and a danger to the nation. For the first time, the Medicare Trustees have issued a "funding warning" stating that general revenue would account for more than 45 percent of Medicare financing in 2012 and 2013.4 In the longer term, the Congressional Budget Office (CBO), Centers for Medicare and Medicaid Services (CMS), and numerous policy think tanks forecast that future spending growth will accelerate as two entitlements, Medicare and Medicaid, continue to dominate the federal budget as a share of gross domestic product (GDP) (along with interest on public debt, which will grow even more rapidly). In contrast, the share of defense and "other" spending, which have both declined as a percentage of GDP, is projected to continue trending down. Projected increases in health spending cannot be financed by simply gutting other spending categories. There is not enough other spending left to implement that strategy. This means that entitlement spending, driven by aging of the baby-boomer generation, longer life expectancy, and rising health care costs, will widen the deficit to an unprecedented level, crowding out other national priorities and requiring the U.S. government to borrow more and more money. A huge deficit, funded by foreign countries, will be viewed as a threat to the nation’s security. In the absence of draconian measures (for example, increasing taxes, cutting benefits, squeezing provider rates, raising the eligibility age, and program restructuring), future generations will have to bear the costs and the social and economic consequences. After the 2008 election, budget hawks, focused on reducing deficits caused by Medicare and Medicaid, will begin proposing spending reductions. Soon thereafter, national security experts, intent on preventing foreign holders of debt from influencing U.S. policy, will demand even bigger reductions. Eventually, the two groups will combine forces to cut health care spending and, in so doing, will determine health policy for the nation. Historically, the biggest barriers to reshaping health care into a sustainable system have been health-sector interests that prefer the status quo. If the health care industry continues to cling to yesterday’s model, it does so at its own peril.
Leonard Schaeffer is chairman, Surgical Care Affiliates, and senior adviser, TPG Capital, in Santa Monica, California. The author gratefully acknowledges the valuable review and comments of Dana E. McMurtry.
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