Addressing Rising Health Care Costs — A View from the Congressional Budget Office (New Eng Jour Med)

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Another point of view for the mix...

Addressing Rising Health Care Costs — A View from the Congressional Budget Office
Peter R. Orszag, Ph.D., and Philip Ellis, Ph.D.

The long-term fiscal balance of the United States will be determined primarily by the future rate of growth of health care costs, as we have recently noted.1 If costs per enrollee in Medicare and Medicaid continued to grow at the same rate as they have over the past four decades, federal spending on those two programs alone would increase from about 5% of the gross domestic product today to about 20% by 2050 — roughly the share of the economy now accounted for by the entire federal budget. Compounding the challenge for policymakers is the difficulty of controlling federal spending over the long term without addressing the underlying forces behind the increase in both private and public health care costs.

A variety of evidence, however, suggests that there are opportunities to constrain health care costs without incurring adverse health consequences. One approach that could reduce total health care spending (rather than simply reallocating it among different sectors of the economy) involves generating more information about the relative effectiveness of medical treatments and enhancing the incentives for providers to supply, and consumers to demand, effective care.

Such an approach would address two shortcomings of the current U.S. health care system. First, relatively little rigorous evidence is available about which treatments work best for which patients or whether the benefits of more expensive therapies warrant their additional costs. As a result, treatment choices often depend on the experience and judgment of the physicians involved, as well as on anecdotal evidence and local practice norms. At least in some cases, this decision-making method does not yield the most effective treatment. Although estimates vary, some experts believe that less than half of all medical care in the United States is based on or supported by firm evidence of effectiveness.

Second, the financial incentives for both providers and patients tend to encourage the adoption of more expensive treatments and procedures, even if evidence of their relative effectiveness is limited. For doctors and hospitals, these incentives stem from fee-for-service reimbursement, which encourages providers to deliver a given service efficiently but also creates an incentive to supply additional or more expensive services — as long as the payment exceeds the costs. Insured patients, for their part, generally pay only a portion of the costs of their care and, consequently, have only limited financial incentives to seek lower-cost treatments; this is a trade-off inherent in having insurance protection. Private health insurers have incentives to limit the use of ineffective care but lack information about what treatments work best for which patients. The Medicare program lacks clear legal authority to take costs into account in determining which services are covered and has made only limited use of the available data on relative effectiveness in setting payment amounts

Source Information

Dr. Orszag is the director of the Congressional Budget Office (CBO), where Dr. Ellis is a senior analyst. CBO is a nonpartisan agency that provides budgetary and economic analyses to Congress.

An interview with Dr. Orszag can be heard at www.nejm.org.

The New England Journal of Medicine is owned, published, and copyrighted © 2007 Massachusetts Medical Society. All rights reserved.


http://content.nejm.org/cgi/content/full/357/19/1885?query=TOC