Heading off healthcare inflation

The White House is focusing on efficiency in healthcare. Easier said than done.

Peter Orszag, the White House budget director, loves to point to a Dartmouth study on healthcare costs. The 2008 report finds that up to a third of total healthcare dollars spent in the US is wasted. That can translate into big savings for the federal government's health bill, Mr. Orszag says. But can greater efficiency save the feds from fiscal ruin?

Rising healthcare costs could derail any government attempt to expand coverage or meet current obligations. Four decades from now, Medicaid (which serves the poor) and Medicare (which serves seniors) will account for 20 percent of the nation's economy compared to 5 percent today. That's an unmanageable burden – and the biggest single long-term threat to the government's fiscal health.

At a Monitor lunch with reporters last week, Orszag zeroed in on four ways the White House is pushing more efficiency in healthcare:

1. It's promoting the switch to electronic health records to reduce duplication of services and medical errors. Congress put $20 billion toward the switch in the economic recovery package.

2. It's studying what works and what doesn't in treatment. In policy jargon, this is called "comparative effectiveness research." The recovery plan put $1 billion toward this.

3. It wants to change payment incentives. Now, most healthcare is paid for on a fee-for-service basis, which pushes health providers toward a high-volume, high-expense business model. Yet the Dartmouth study found that prescribing more tests and more hospital visits didn't correspond to more wellness.

Almost 20 percent of Medicare beneficiaries are readmitted to a hospital within a month – often unnecessarily, says Orszag. His budget contains incentives to reduce the readmission rate.

4. Finally, the government can better promote preventive care, says Orszag. That effort, too, got $1 billion in the recovery package.

The administration is laying great import on efficiency, "yet it's still quite difficult to quantify what the impact will be in 2045 or 2050, because there's not enough knowledge about exactly what would work," Orszag admitted.

That's welcome honesty, but also a reminder that these efforts – while moving in the right direction – are also fraught with complexities.

It's not clear, for instance, that these steps will entirely whip healthcare inflation – much of which is driven by new technology.

Also, without budget constraints, cutting waste in one spot might drive the health industry to increase spending in another spot.

It may take a long time to achieve these efficiencies, and the waste-cutting measures are not without controversy. Telling more patients that Medicare won't cover "X" because comparative research shows it's not effective is a difficult sell that sounds like rationed care. And will preventive care become mandated care?

As a political strategy, the administration's emphasis on efficiency is smart. It shows seriousness about achieving cost containment while pursuing more widely available health insurance. It also turns the discussion of health reform "losers" – which helped sink "Hillarycare" – into one that's research-based.

But the public needs to know that even steps as welcome as cutting healthcare waste come with their own uncertainties.

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