Improving Health Care

Nov 9, 2010

The rapid growth in health care costs is the largest and fastest growing fiscal challenge. More than one out of every four federal program dollars goes to health care. By 2040, 44 percent of projected federal spending will be used for the largest programs—Medicare, Medicaid, and new subsidies to help people buy insurance.

The federal government provides health insurance to nearly 100 million people, over 30 percent of the U.S. population, through Medicare, Medicaid and other smaller programs. Enrollees in federal programs tend to be the most costly—they are older, have greater health care needs, have low incomes, and have less access to primary and preventive care. As the baby boom generation ages, the Medicare population will grow by 70 percent by 2030. Many baby boomers will turn to Medicaid for financial help with long-term care expenses. As a result, the federal budget will be placed under increasing pressure as the number of beneficiaries increases and health care costs grow rapidly, as projected.

There is clear evidence that our health care system needs improvement. The U.S. spends twice as much per person on health care than most other countries, but our results are no better. Within the United States, some regions spend twice as much per person than other regions, without a clear difference in results. Approximately 30 percent of Medicare spending takes place within the last year or life, and over 75 percent of health care spending goes toward patients with chronic diseases. Some of the most expensive chronic diseases are heart disease, diabetes, and hypertension—all three of which are tied to obesity, a common problem in the U.S. For many years, health care has consistently grown faster than our economy.

The rapid growth in health care costs has placed a huge burden on families, businesses and the federal government. If we don’t implement some budgetary restraint on the health care system, health care costs will lead to more and more borrowing and leave fewer resources for our economy and our daily lives.

In order to address this important component of our fiscal challenge, we need to lower projected health care spending and slow the growth in these costs. However, we all want to maintain high quality of care for Americans and avoid making changes that would result in poorer health. Therefore, we need to get more “value for our money” in healthcare -- spending less, while achieving better health outcomes. Organizations like the Mayo Clinic have shown that a well-coordinated medical system can deliver high quality health care in the U.S. for a relatively low price. It may be difficult to duplicate the success of the Mayo Clinic across the nation, but it offers a preview of what is possible.

Options to improve our healthcare system include: developing best practices, promoting wellness, focusing on patient outcomes rather than just tests, reforming medical malpractice laws, and using technology to improve efficiency.

Policy Options:

Adopt electronic health record systems to reduce medical errors, paperwork and administrative costs

Better use of information technology would help improve patient care while reducing administrative costs. Paper medical records are difficult to keep track of and are hard to transfer between medical professionals. Important patient information gets lost or overlooked, contributing to possible complications such as unwanted drug interactions. Adopting electronic health records (EHR) would consolidate patient medical information in one place that is accessible to health care providers and would also reduce the amount of time providers spend on purely administrative tasks. Ultimately, health policy experts believe that EHR has the potential to reduce medical errors stemming from inaccurate patient records and make hospitals and clinician practices more efficient.

Develop and communicate the proven “best practices”

Many health policy reformers argue that establishing and encouraging the “best practices” would assure that the patient receives the most effective treatments, while avoiding the use of unnecessary, ineffective and potentially harmful care. Physicians use different approaches to heal patients. They tend to follow the medical practices of their peers in their geographic region rather than the treatments shown to be the most effective in published medical research. As a result, the practice and cost of medicine varies widely throughout the U.S. and often bares little relationship to better results.

Documented “best practices” have been established through medical research for some medical conditions. Communicating these approaches more widely could help encourage physicians to follow them. Once best practices are known, encouraging providers to follow them would improve patient care and reduce wasteful health care.

Reform the medical malpractice system

Medical malpractice suits are intended to protect patients from incompetent and unqualified physicians. Most instances of medical malpractice are likely to go unreported and unpunished, however, because patients either do not know that it occurred or do not want to go through an expensive court process.

One of the biggest problems with the malpractice system may be that it encourages what is called “defensive medicine.” Academic research shows a link between higher malpractice awards and higher Medicare spending. Thus, the medical malpractice system is responsible for a lot of inefficiency in the healthcare system. Doctors may perform unnecessary medical services for their patients largely to defend themselves against potential lawsuits. Even if an additional test or procedure does not make sense in the doctor’s judgment, it is hard to know whether denying the patient that test will result in a medical malpractice suit later on. The potential for a multi-million-dollar lawsuit prompts most doctors to get malpractice insurance.

Options to reform the malpractice system could help improve physician accountability, reduce the incidence of unnecessary medical care, and lower insurance and legal fees.

Adopt better ways to organize and pay for health care

The delivery of health care in the U.S. largely takes place through small, independent physician-led practices. Doctors’ pay largely reflects the number of medical services they provide to patients, not the number of people whose health they improve. This “fee-for-service” system rewards doctors and other providers when they perform medical services for their patients, regardless of the impact on patient health. Within this system, there is little coordination of care as each health care professional treats a specific condition or illness.

Options to reform the way medical care is organized and paid for could improve focus on the “whole patient” through better coordination and integration of patient care. Such delivery system reforms could improve overall health while reducing duplicative, unnecessary, and potentially harmful services. Some alternatives to fee-for-service health care include: accountable care organizations (ACOs), integrated clinics, and bundled payment systems. Many of these systems have demonstrated that they can achieve greater value in health care. They give health professionals greater incentives to perform those medical services that are the most effective and necessary to improve overall patient health. By identifying the barriers to the creation of these types of care systems and encouraging the development of more of them, we could improve the value we get from health care.

Promote wellness and prevent disease

A large share—more than 75 percent—of U.S. spending for health care is related to people with one or more chronic diseases, even though fewer than 50 percent of Americans have a chronic condition. These conditions are expensive to manage and difficult to correct. Of particular concern is the current epidemic of childhood obesity, which is projected to increase the number of people who suffer from diabetes and other obesity-related chronic diseases. A recent Congressional Budget Office report estimated that if we could reduce obesity levels to where they were 20 years ago, we could reduce health care spending by 4 percent. By investing more in health education and wellness and disease prevention, we could improve people’s lives and reduce their need for health care.

Create a national database and insurance market

Improved consumer information will lead to better provider performance. Currently, it is hard for consumers to be knowledgeable because they have limited access to information that would allow them to compare the quality and cost of health care professionals. If performance and prices were recorded in a national database, policy experts believe that it would help us understand more about what is driving health care costs upwards. Creating a national insurance market would increase competition between insurance companies and give consumers more options, and a universal claim form would simplify the process of filing insurance claims

Reform federal health care programs to make them more sustainable

If current policies do not change, the cost of the federal government’s major health care programs—Medicare, Medicaid, Children’s Health Insurance Program (CHIP) insurance subsidies—are projected to double in 25 years. That growth will likely come at the expense of other important federal activities such as education, research and development, and even national security.

Reforms to the overall health care system would help reduce federal spending for health care programs, but there are also a number of proposals that would directly reduce the federal government’s costs. Some options include changing eligibility requirements and limiting the amount of assistance provided, particularly to those who can afford to share a greater portion of the costs.


Let’s Get Specific: Health Care, The Committee for a Responsible Federal Budget
CBO Budget Options, The Congressional Budget Office
Payment and System Reform, Commonwealth Fund Projects
Yes, Mr. President: A Free Market Can Fix Health Care, CATO Institute
Increased vigilance on Medicare claims fraud, American Enterprise Institute for Public Policy Research
A Better Way to Health Reform, Martin Feldstein
Reforming the Delivery System, MedPAC

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