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Increased health care spending has not been wasteful on the average. The gains from improved health outcomes have equaled or exceeded the total value of all measured economic growth.2 Although not all these improvements can be attributed to health care, the combination of improvements in longevity that can be traced to medical care, combined with benefits from reduced pain and anxiety and increased personal functioning, can justify spending growth.3 Of course, no waste "on the average" in no way excludes considerable waste on the margin. And high historical returns do not guarantee high future returns.
What, exactly, is wasteful health care spending? Everyone would agree that a costly intervention that is always useless or that harms patients is wasteful. Even care that is expected to help but turns out to be ineffective may be judged to be wasteful — but only in the trivial sense that fire insurance on a house that never burns down is ex post facto wasteful, when one disregards the peace of mind fostered by protection against risk.
To be meaningful, however, a definition of waste must rest on an ex ante perspective: What is the expected value of outcomes for definable classes of patients? And, as a practical matter, the definition must be supported by credible evidence. A given intervention typically affects individual patients differently. Analysts sometimes summarize these outcomes — including harms as well as benefits — in a single number for each intervention, such as the cost per added life-year, quality-adjusted life-year, or disability-adjusted life-year. The resulting averages conceal information that may be important to patients and providers. The three hypothetical cases in the table, for example, produce the same expected increase in survival but may well be viewed differently by a patient.
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Assuming a socially accepted definition, curtailing waste in order to slow the growth of spending is a goal worth pursuing aggressively. Unfortunately, the U.S. health care system could not be better structured to frustrate the elimination of waste than if it had been designed to do just that. Payers, with one exception, lack sufficient leverage to materially influence the practice of medicine. The exception, Medicare, operates under authorizing legislation that states: "Nothing in this title shall be constituted to authorize any Federal Officer or employee to exercise any supervision or control over the practice of medicine."
These fragmented payers cover most short-term care — 96.5% of the cost of hospital services and 90% of the cost of physician services. Thus, patients don't have much financial incentive to avoid waste. Neither do doctors, whose ethics and training enjoin them to do what is best for the patients they are treating and whose financial interests may cause them to interpret "what is best" overly broadly. And data to support decisions to curtail particular treatments for groups of patients that can be identified in advance are scarce.
Given these realities, what should be done to cut spending on low-benefit, high-cost care? I believe the first step should be heavy investment in research on what works and what doesn't, and at what cost. Thousands of studies have compared the cost and effectiveness of various interventions, but only a small proportion of what doctors do has been subject to careful cost-effectiveness analysis — particularly analysis that takes into account the vast range of presenting conditions that may influence outcomes. Current estimates of aggregate waste are therefore heroic extrapolations from studies of a small proportion of interventions.
It is scandalous that Congress fails to dedicate, say, 1% of Medicare and Medicaid spending to support research, conducted by an apolitical body, on the effectiveness and relative costs of medical procedures and to require private payers to make a similar contribution.5 The results from such research would be years in coming, but the size of the task heightens the need to begin it now.
The second step would be to extend insurance coverage to the uninsured. This step would increase near-term spending. So it may seem odd to include it in a list of measures essential for cost control. But sustained limits on spending, as distinct from voluntary spending reductions arising from cost-effectiveness studies, will be possible only if nearly everyone is insured. The reason is that if spending limits cause providers to withhold some beneficial care because it costs too much, they will tend to do so selectively, favoring strong payers (the insured) over weak ones (the uninsured). In a world with effective spending limits, being uninsured would take on a whole new and terrifying meaning. Societal revulsion toward the resulting inequalities and deprivation would threaten the entire cost-control effort. Thus, the added near-term spending resulting from extending coverage to the uninsured not only is justifiable in its own right but also is a precondition for sustained cost control.
Other ideas regarding ways to achieve savings abound: increasing patients' cost sharing, unshackling Medicare to allow it to use its spending clout and regulatory influence, changing physicians' norms through education and financial incentives, implementing delivery reforms such as providing patients with medical homes and improving disease management, increasing use of information technology, instituting reforms of insurance markets, and many others. None of these measures will yield dividends easily or early, and hopes for their payoffs are often greatly exaggerated. Most promise one-time savings only, not a reduction in the long-term rate of spending growth. All would be realized against the background of technological advances and population aging that will continue to increase health care spending at rates well in excess of income growth. Implementation of the measures would not meet the budget challenge posed by the rapid growth of health care spending. But the dividends from repeated one-time savings add up and are well worth pursuing. That all these changes would take decades to become fully effective only adds to the urgency of initiating them promptly.
No potential conflict of interest relevant to this article was reported.
The views expressed in this article are the author's and do not necessarily reflect those of the trustees, officers, or other staff members of the Brookings Institution.
Source Information
Dr. Aaron is a senior fellow at the Brookings Institution, Washington, DC.
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