As a healthcare reform bill draws ever nearer to enactment, I think it’s reasonable to ask whether, regardless of their aspirations, Congress will be able to reduce healthcare costs? The Center on Budget and Politics has produced a report that addresses exactly that question. In the report the authors analyze Congress’s earlier track record of controlling healthcare costs, engage in a lengthy critique of the sustainable growth rate mechanism enacted in 1997 for which Congress has repeatedly postponed enforcement.
The authors of the report identify a number of measures in the bills that are making their way through the Congress which have the potential to control costs:
- Creating a health insurance exchange
- Establishing an excise tax on high-cost insurance plans
- Reducing administrative costs
- Researching comparative effectiveness
- Promoting prevention and wellness
- Licensing follow-on biologics
- Strengthening primary care
- Establishing quality measures and priorities
- Promoting high-value care
- Establishing a center for innovation
- Enhancing program integrity
- Reducing avoidable hospital readmissions
- Promoting accountable care organizations
- Examining payment bundling
Before I begin my critique I’d like to make one point about the report itself. The authors are quite optimistic about the prospects for the bills that are making their way through the Congress actually reducing costs. I sincerely hope they’re right. If they’re wrong the course of action we’re embarking on will be ruinously expensive.
Rather than enter into a point by point critique of the various different proposals for bending the curve, I’m going to concentrate my comments on just a few areas: scoping the task, quantifying the prospects, and the relevance of prior Congressional behavior.
The Scope of the Task
The enormous scope of the task that restraining the increasing cost of healthcare can be illustrated in two graphs. The first graph shows the per capita percentage increases in healthcare spending over the period of the last thirty years on a year over year basis:
As you can see healthcare has rarely increased at a rate lower than 4% and generally has increased at a rate greater than 8%. The principle of compounding explains why the issue is so serious. How does this relate to other costs? This graph illustrates that:
As you can see healthcare costs have risen significantly faster than costs, generally. Indeed, with the healthcare sector comprising roughly a sixth of the economy (although employing significantly fewer than a sixth of workers), healthcare costs increase now comprise a substantial portion of all cost increases. Consider the following graph of CPI percentage changes:
Over the period of the last 25 years the CPI has generally remained below 4%. Since healthcare costs are included in the CPI, the non-healthcare CPI has clearly been even lower. The bottom line of all of this is that, simply for things to remain as they are now, between 4% and 12% will need to be trimmed from the projected growth of healthcare spending. With a total healthcare sector size of just under $2 trillion annually that translates into required savings of from $80 billion to $240 billion will need to be realized. No plan currently in Congress trims a dollar from current spending. Indeed, they all spend more. Savings are left for the future.
Quantifying the Prospects
I found two problems with the prospects for cost savings as delineated in the report. First, there was very little in the way of actual quantification. Second, nearly all of the cost savings are hypothetical. This is particularly troubling in the light of the fact that the increased costs of the legislation are real. Let’s take just two of the items, insurance administrative costs and comparative effectiveness.
The administrative burden of healthcare insurance costs is a contentious and disputed subject. I’ve seen estimates everywhere from 2% (from the insurance industry) to 30% (from an article in the Journal of the American Medical Association). This report, for example, finds an overall administrative cost of roughly 17%. That’s not a great deal different from the target cost of 15% in the CBP report. And if it’s less costs could actually go up and still fall within the constraints being touted there.
This Heritage Foundation report suggests that the real total healthcare insurance administrative costs could rise as a consequence of the bills making their way through the Congress.
The press releases for comparative effectiveness suggest that it’s the study of what works best for which patients under what circumstances. The subject is worthy of a post on its own and I’ve been working on one for some time now. I think there are several things to keep in mind on this subject.
First, comparative effectiveness is not identical to evidence-based medicine, with which it often seems to be conflated. Second, comparing actual treatments provided to actual patients is incredibly difficult. Medicine is an art as much or more than it is a science. Evidence-based medicine is an attempt to nudge the practice increasingly into science and I favor it. I think it is benign. However, I am very concerned that comparative effectiveness may well be hooey—statistical balderdash masquerading as science. Comparing the non-comparable to justify the least costly option. Bad medicine.
Finally, of itself research into comparative effectiveness won’t reduce healthcare costs by a dollar. Only the implementation of the results of comparative effectiveness research will do that and what’s in the bills making their way through the Congress is research not implementation. At this point there is no reliable estimate of how much can be saved through implementing the results of comparative effectiveness research let alone whether anything will ever be realized from it.
The Relevance of Prior Congressional Behavior
This is the part of the CBP report that I found the most baffling. Congress is not uniform over time and, consequently, comparing the performance of the present Congress to the performance of past Congresses isn’t likely to tell you very much. In a general sort of way the Congress is subject to the same sorts of pressures, e.g. Congressmen want to get re-elected. However, just as today’s Republicans aren’t a great deal like the Republicans of 1956 and today’s Democrats aren’t much like the Democrats of 1960, today’s Congress isn’t much more like the Congress of 1996-2005, for which the study has substantial praise, than it is like the Congress of 1866.
For me the critical point isn’t that the Congress of 1996 or some hypothetical Congress was able to control healthcare costs but that the present Congress has shown no predisposition to doing so, indeed, they’re preparing a whopping increase. This suggest to me that this Congress is unlikely to exhibit any particular interest in controlling or reducing healthcare costs. If they had such an interest, they’d be doing so now.