Better information could cut health care costs 

There’s growing bipartisan agreement that curbing America’s runaway debt will require reducing spending for government health-care programs like Medicare. To that end, President Barack Obama is trying to convince voters that we can cut “unnecessary spending” that won’t have any impact on seniors’ access to care.

Indeed, the president’s hallmark domestic policy, the 2010 Patient Protection and Affordable Care Act, allocates billions of dollars over the next decade to a new organization called the Patient Centered Outcomes Research Institute, which will fund studies of which treatments work best for individual patients and large population groups — a field of study called “comparative effectiveness research.”

Patients and physicians would certainly benefit from the ability to compare the benefits and risks of, say, surgery versus physical therapy for severe back pain. But Obama is focusing far too much on top-down studies from federal agencies, and all but ignoring how other powerful incentives — from Medicare to the tax code — encourage doctors and patients to spend more on health care.

The challenges and possibilities of CER are thoughtfully laid out in a recent paper from Scott Harrington, an expert on health care insurance and financing who teaches at the University of Pennsylvania’s Wharton School.

Harrington agrees that physicians and patients need more help sorting through potential treatments. But he cautions that government-funded CER is unlikely to work as advertised.

Public CER studies, he argues, are vulnerable to lobbying from interest groups, and are apt to be driven as much by politics as by sound science. Also, the “complexity and dynamism” of health care means that what counts as the “best” treatment one day could easily become a discarded relic by the time an extensive CER analysis is completed.

Finally, CER research could actually increase health care spending if it boosts demand for some expensive treatments that provide only modest improvements in health.  

On the other hand, private-sector CER is growing, and could provide a valuable supplement to government-funded efforts. As high-deductible health plans (often linked to Health Savings Accounts) grow in popularity, patients are demanding more help identifying affordable but effective health-care options.

Consumer Reports, Web MD and several insurers have started offering consumers health care information in easy-to-digest online formats. Private CER research, by its very diversity, would be much harder for lobbyists to hijack than its public counterpart.

This suggests that at least one major reason for the dearth of private or public CER research until now is a lack of market demand. Both Medicare and private insurers insulate consumers not just from catastrophic health care expenses, but from routine health care costs, creating what Harrington calls “excessive utilization of low-valued medical care.”

For instance, the tax exemption for employer-provided health insurance has led employees to choose health plans with high (pre-tax) premiums, but low (after-tax) deductibles and copayments.

With only a fraction of health-care costs paid out of pocket (about 12 cents on the dollar), consumers have little incentive to ask whether any given drug, diagnostic or procedure is really “worth it.”

Harrington concludes with some suggestions: First, the tax code’s unlimited subsidy for health insurance should be reduced. This would lead consumers to demand lower premiums from insurers, who would respond by designing plans that cut low-valued services to make plans more affordable.

Second, Medicare should be reformed to encourage seniors to seek out more cost-effective providers. This could be achieved through a “voucher” or premium-support mechanism that allowed seniors to choose among competing private health plans.

Creating consumer demand for CER would put pressure on insurers, pharmaceutical companies, physicians, and hospitals to offer standardized information on the costs and benefits of different treatments. We might not eliminate all unnecessary spending, but at least we’d know what we were buying — a stark improvement over health care markets today.
Paul Howard is director of the Manhattan Institute’s Center for Medical Progress and author of the new report, “Building a Market-Based Health-Insurance Exchange in New York.”

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Paul Howard

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Tuesday, Oct 25, 2016


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