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P E R S P E C T I V E
F U T U R E  E L D E R L Y 

26 September 2005  
  

Medicare’s Cost Crisis: 
Solutions Are Within Our Grasp

Geriatricians have a critical role to play in making
the health care system more efficient and more
responsive to an aging population.

By Donna I. Regenstreif

ABSTRACT:

As this collection of papers shows, Medicare faces serious future challenges as the population it serves grows larger and older in the coming decades. Variation in the way health care is provided—also known as process variability—is a major contributor to the rising costs that are threatening Medicare’s long-term viability. If existing information technology (IT) and industrial operations tools were applied, process variability could be reduced, efficiency increased, and cost growth reined in. Health professionals trained in geriatrics could form the nucleus of such an organized effort to preserve access to Medicare.

Runaway health care costs threaten the economic well-being of the United States. When illness strikes, many Americans realize that they have neither health nor financial security. The cost scenarios presented in this collection of Health Affairs papers scarcely suggest that relief is around the corner.¹ The aging U.S. population and looming issues in the areas of pension benefits, personal savings, and Social Security compound the problem.²

The repercussions are serious. The number of underinsured Americans will increase dramatically, as out-of-pocket medical and supportive-service costs of those “covered” by Medicare require an increasingly unaffordable proportion of personal resources.³ The reduction in the proportion of older Americans living in poverty that accompanied the enactment of Social Security and Medicare legislation will be reversed. Medicaid will be further stressed by federal cost-sharing requirements related to the new Medicare drug benefit.⁴ The broad public support for Medicare and the safety net built during the past seventy years could erode as a result of the persistent escalation in health care costs relative to gross domestic product (GDP).⁵ If Medicare mimics the actions of major U.S. employers, asking patients to shoulder an increasing portion of health care costs, the disturbing disparities in longevity and access to care in the United States will increase.

Our country’s strong values of capitalism, individualism, and freedom of choice are on a collision course with our ability to provide affordable access to necessary health care and to grow old with dignity. We must construct a viable alternative to inexorable cost escalation.⁶

In this Perspective I review some factors (beyond population growth and clear therapeutic advances) that are contributing to these unsustainable trends, and I propose strategies that could avoid their most onerous results. Fortunately, many of these strategies are already within our grasp, particularly if viewed through the lens of excellence in geriatric care.

Health care cost drivers. A major contributor to rising costs is the fragmented nature of U.S. health care. New products and services are brought to market by individuals and organizations concerned solely with their own sector of the complex health care industry, without consideration of broad affects on health care outcomes or costs. It is as if health care is reliving the “tragedy of the commons,” with each beneficiary, inventor, provider, and supplier coming to the health care trough without restraint, in pursuit of his or her own self-interest.⁷

Inconsistency in health care delivery, also known as process variability, is another major source of waste. Pioneering studies by John Wennberg uncovered gross variations in health care use and cost in the United States and found no discernible relationship between the cost of care and such quality measures as patient satisfaction or longevity.⁸ These studies show that individual physicians have dramatically different interpretations of the appropriateness of various medical procedures, and this can cause widely divergent costs and outcomes.⁹ Other studies have demonstrated similar trends in areas such as prescribing practices and end-of-life care. It is time for a vigorous return to the notions that parsimony is the essence of excellent science, and reduction in process variability is the essence of quality.

If we agree that market competition has failed and yet do not wish to increase regulation, we must link action to the technology and knowledge already available. We must analyze the cost of care relative to its benefits—to both individuals and populations—and have the courage and mandate to force changes based upon compelling conclusions.

Current efforts to advance patient safety and health care quality will take time and are unlikely to be a panacea regarding either costs or population health. The same is true of supposed “pay-for-performance” incentives, which are proposed with limited consideration of equity issues and administrative challenges. Likewise, disease management protocols often lack an evidentiary base and do not consider the large proportion of patients with multiple conditions that require potentially contradictory management.¹⁰

We cannot continue to wait for a “silver bullet” solution when there are several straightforward strategies that could, if applied in unison, have a dramatic effect. One such strategy is to rapidly eliminate waste in the system, as related to process variability discussed above; another is to radically improve the system’s efficiency.

Improving efficiency. An all-out effort must be made to improve the efficiency of the health care system, and recent case histories indicate that we have both the technology and the know-how to make a difference. At Boston Medical Center, an industrial efficiency expert was engaged to address a serious emergency department (ED) diversion problem. He came up with solutions based on management techniques commonly applied in other industries. These techniques reduced ambulance diversion, ED “boarders,” and cancellations of elective hospital admissions resulting from operating room back-up with emergency cases. The result was an improvement in throughput and increased staff and patient satisfaction.¹¹

We can also use capital equipment and information technology (IT) more effectively to improve quality by addressing inefficiencies in many areas. Hospitals and other health facilities have devised ingenious scheduling approaches to address nurse shortages, and this knowledge must be applied more broadly. We also must fund and disseminate research to identify effective “low-tech” approaches that could be just as effective as current practices, such as managing the low end of inpatient acuity for common diagnoses by bringing more hospital services into the home. We must also address the problem of adoption of such innovations broadly through our health systems.

Solutions. The penetration of IT and proven management techniques into health care will result in a long-term improvement in Medicare’s ability to meet the needs of its burgeoning beneficiary population. But these initiatives require an organized, systemic approach to ensure success.

The federal government would ordinarily be the natural driver of such wide-ranging change, but experience suggests that a political solution will not be possible. For example, the National Bipartisan Commission on the Future of Medicare was unable to reach consensus recommendations in 1999, and in 1993 a dispute among back surgeons over the Agency for Health Care Policy and Research’s development of spinal surgery guidelines nearly resulted in a cutoff of funding for the agency (which is now known as the Agency for Healthcare Research and Quality). Instead of waiting for the federal government to act, it is incumbent on health care’s stakeholders—health professionals, policymakers, patient advocates, and health organizations—to take the reins. Geriatricians and other geriatrically prepared health professionals should form the nucleus of this initiative. It is they who are most expert at seeing the patient as a whole, not merely as a host for a disease process.¹² The unique expertise of geriatric professionals will become increasingly important in health care as a whole, given our nation’s aging population and rising disability levels. Geriatricians can often bring a perspective that is absent in clinical trials that focus on narrow patient segments.

As the technical capabilities of health IT improve, we must develop methods for using it to assess and address variations in care processes and utilization patterns. One way to achieve this would be to have a tiny portion of health care revenues—perhaps one cent of every twenty-five dollars spent on health—devoted to systematic analysis of variations in care that are most directly related to cost and quality, and how we can reduce this variability.¹³ Perhaps a quasi-governmental institute for this purpose could be created as a partnership of stakeholders, including the Institute of Medicine, the Centers for Medicare and Medicaid Services, and academic and professional organizations, including the American Geriatrics Society.

Such efforts could be amplified by health care’s growing use of electronic medical records, which can create new opportunities for analyzing clinical decisions and their relationship to patient outcomes. With a will to act on this information, we should be able to reduce process variability in health care delivery.

We have the world’s costliest health care system, supporting twin towers of waste and inefficiency.¹⁴ Yet at the same time we have an expanding capacity to understand and even change clinical practice at the level of the individual patient. The challenge facing us is how to apply our growing knowledge in a way that is systematic and that can be replicated throughout the health care system.

We have the potential to move closer than ever to our goals for delivering high-quality care to our population, if only we can generate a solid commitment to using and acting on the tools and information we already have. It may be our best hope to preserve and improve the quality of the health care that is so inextricably linked to our quality of life and national prosperity. But we must act quickly, as time is running out for Medicare.¹⁵

Although the author is grateful for the helpful comments of colleagues both within and external to the John A. Hartford Foundation, the views expressed are solely those of the author, and no endorsement by the foundation is intended or should be inferred.

NOTES

1. Papers in this collection focus on Medicare, but this paper is equally applicable to all ages and insurance circumstances. See a table of contents for these papers at
content.healthaffairs.org/cgi/content/full/hlthaff.w5.r90/DC2.
2. D. Hakim and J.W. Peters, “For G.M. Retirees, a Growing Sense of Unease,” New York Times, 30 June 2005; and M. Schroeder, “Pension Agency Faces a New Front,” Wall Street Journal, 26 May 2005. The Center for Retirement Research at Boston College estimates that out-of-pocket health care costs will more than double between 2000 and 2030 and that roughly half the gains in personal income made by Americans in the next twenty-five years will be eaten up by health care spending. S. Skidmore, “Golden Fears,” San Diego Union-Tribune, 12 June 2005.
3. Medicare beneficiaries already spend 22 percent of their incomes on premiums and out-of-pocket medical expenditures—a figure projected to climb to 30 percent by 2005; S.R. Collins et al., “Medicare Health Accounts: A New Policy Option to Help Adults Save for Health Care Expenses Not Covered by Medicare,” June 2005, www.cmwf.org/usr_doc/842_collins_olderadults _fs_06-30-2005.pdf (3 August 2005).
4. R. Pear, “States Rejecting Demand to Pay for Medicare Cost,” New York Times, 4 July 2005.
5. Health spending outpaced overall economic growth by 2.6 percentage points in 2004, despite a robust 5.6 percent increase in per capita GDP. B.C. Strunk, P.B. Ginsburg, and J.P. Cookson, “Tracking Health Care Costs: Spending Growth Stabilizes at High Rate in 2004,” Data Bulletin no. 29, June 2005, hschange.org/CONTENT/745 (3 August 2005).
6. The amount spent per person from all sources increased 69 percent between 1992 and 2003. California HealthCare Foundation, Snapshot: Health Care Costs 101, 2005, www.chcf.org/documents/insurance/hccosts10105.pdf (30 June 2005).
7. G. Hardin, “The Tragedy of the Commons,” Science 162, no. 5364 (1968): 1243–1248.
8. The work of John Wennberg and colleagues can be reviewed at Dartmouth Medical School, Center for the Evaluative Clinical Sciences, “The Dartmouth Atlas of Health Care,” www.dartmouthatlas.org (3 August 2005). See also J.E. Wennberg et al., “Use of Medicare Claims Data to Monitor Provider-Specific Performance among Patients with Severe Chronic Illness,” Health Affairs, 7 October 2004,
content.healthaffairs.org/cgi/content/abstract/hlthaff.var.5 (13 July 2005); and S. Leatherman and D. McCarthy, Quality of Care for Medicare Beneficiaries: A Chartbook, May 2005,
www.cmwf.org/publications/publications_show.htm?doc_id=275195 (3 August 2005).
9. C.M. Winslow et al., “The Appropriateness of Carotid Endarterectomy,” New England Journal of Medicine 318, no. 12 (1988): 721–727.
10. M. Tinetti, S.T. Bogardus Jr., and J.V. Agostini, “Potential Pitfalls of Disease-Specific Guidelines for Patients with Multiple Conditions,” New England Journal of Medicine 351, no. 27 (2004): 2870–2874.
11. S. Dentzer, “Restructuring the ER,” 7 June 2005, www.pbs.org/newshour/bb/health/jan-june05/er_6-07.html (21 June 2005).
12. R. Besdine et al., “Caring for Older Americans: The Future of Geriatric Medicine,” Journal of the American Geriatrics Society 53, no. 6 Supp. (2005): S245–S256.
13. This would yield a pool of $680 million, when calculated for the $1.7 trillion spent on health care in 2003.
14. Institute of Medicine, Crossing the Quality Chasm: A New Health System for the Twenty-first Century (Washington: National Academies Press, 2001), 81–82.
15. Douglas Holtz-Eakin, chief of the Congressional Budget Office, warned that the Medicare program is “simply unsustainable. Big changes are coming regardless of what you might think at the moment.” H.W. Jenkins Jr., “Managed Retreat?” Wall Street Journal, 13 July 2005.

Donna Regenstreif (donna.regenstreif{at}jhartfound.org) is a senior program officer at the John A. Hartford Foundation in New York City.

Access the table of contents for this package

DOI: 10.1377/hlthaff.W5.R90
©2005 Project HOPE–The People-to-People Health Foundation, Inc.