Special: Health Care Experts Propose Sweeping Cost Control Changes

Ezekiel Emanuel (University of Pennsylvania)

Updated: 4 August 2012

A group of noted health care policy experts offer a series of proposals they say can rein in health care costs, with implications for the federal budget, the economy as a whole, and developers of pharmaceuticals and medical devices. The panel, convened by the Center for American Progress, a progressive think-tank in Washington, D.C., published its proposals in the New England Journal of Medicine, and a few members discussed their ideas today in a meeting at Center for American Progress.

The 23 authors of the New England Journal of Medicine paper include first author Ezekiel Emanuel, professor of Medical Ethics and Health Policy at University of Pennsylvania (pictured left); Donald Berwick, outgoing Administrator of the Centers for Medicare and Medicaid Services; Tom Daschle, former senator from South Dakota and Democratic party leader in the Senate; Peter Orszag, a vice-president at Citigroup and former director of the Office of Management and Budget; and Neera Tanden, president of Center for American Progress.

In the article and at the Center’s meeting, panelists noted that the U.S. devotes 18 percent of its GDP to health care, a far higher percentage than other industrialized countries. Orszag noted in the past three years, the rise in health care costs had stopped its dramatic increases seen earlier in the decade, but without changes in the way health care is delivered and financed, that percentage could rise to 25 percent by 2037.

The way you pay is important

Most of the group’s proposals centered around changing the way health care providers get paid for their services, transitioning from the current fee-for-service model to bundled or global payments for health care outcomes. The panel also recommended binding negotiated payment rates within global spending targets; tiered coverage and payment plans; full transparency for prices charged by health care providers and insurers; prohibitions on referrals by physicians to specialists in their own groups (already prohibited under Medicare and Medicaid); making greater use of non-physician clinical staff such as advance-practice nurses; using the Federal Health Benefits Program as more of a model to stimulate reforms in the health care sector; and creating a “safe harbor” for physicians using professional best practices as protection against medical malpractice lawsuits.

In addition, the authors recommended measures with implications for products and services based on the science and technology of health care. One set of proposals calls for simplification of administrative systems for payers and providers based on more intensive use of information technology (IT), taking aim at the $360 billion in administrative expenses that account for 14 percent of health care costs. The Affordable Care Act requires uniform standards and operating rules for electronic transactions in health care, but does not require the use of electronic transactions.

The journal article recommends implement electronic transactions for exchange eligibility, claims, and other administrative transactions as soon as possible. The article also recommends a single physician credentialing system to replace the multiple systems now in use by payers and hospitals. Also recommended are monthly explanations of benefits provided electronically (with an option for paper), and the integration of clinical and administrative functions into a single IT framework over the next five years. An oversight board of payers, providers, and vendors would set binding compliance targets, and monitor use and rates to achieve savings of $30 billion per year.

Use buying power to drive down equipment and device costs

Other recommendations call for the federal government and the health insurance exchanges established by the Affordable Care Act to use their purchasing power to get better bargains for taxpayers and patients. The experts recommend the use of competitive bidding to reduce the cost of what they call excessive prices for commodity supplies and devices, including some implanted devices. Medicare, says the paper, began competitive bidding on equipment such as wheelchairs in 2011, achieving savings of more than 42 percent in nine test markets. The Affordable Care Act requires competitive bidding by Medicare extended to equipment, prosthetics, orthotics, and supplies to all regions by 2016.

The authors say Medicare should not wait until 2016, but expand the use of competitive bidding now, and include a wider range of goods and services such as medical devices, laboratory tests, radiologic diagnostic services, and all other commodities. The experts call for the health insurance exchanges to use competitive bidding for these items as well. A related recommendation calls for the exchanges to become active rather than passive purchasers of insurance services to secure the best possible rates and coverage for their customers.

The recommendations did not, however, address escalating costs of pharmaceuticals and medical devices themselves. When asked about that omission at the Center for American Progress meeting, Emanuel told Science Business the matter was “an FDA issue” being addressed by initiatives underway at the Food and Drug Administration.

New England Journal of Medicine published an alternative prescription for controlling health care costs by Joseph Antos of the American Enterprise Institute and three colleagues that also identify the fee-for-service model as a big part of the problem behind the current high expenditures. Instead, Antos call for ending the tax exemption for employer-based health insurance, and replacing the open-ended benefit provided by Medicare with a premium support system that offers Medicare beneficiaries a uniform subsidy to purchase insurance from competing health plans, including traditional Medicare.

In the Center for American Progress meeting, Orszag said premium support systems can reduce the federal government’s medical bill, but they shift the cost burdens on other payers, and end up increasing rather than decreasing the cost of health care. He cited a Congressional Budget Office analysis of premium support proposals in the budget prepared by the chair of the Budget Committee in the House of Representatives showing those proposals would increase overall spending on health care, by adding to administrative costs and reducing the negotiating leverage that Medicare enjoys today.

UPDATE: 4 August 2012. Reuters reports that Wal-Mart Stores, the nation’s largest private employer with 1.4 million employees, endorses the health care cost cutting proposals presented by Emanuel, et al in the New England Journal of Medicine article.

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