by Brian Klepper

Over at the always excellent and entertaining Health Care Blog last week, my pal Matthew Holt pointed out a new report on the nation’s health care spending dynamics by the Director of the traditionally non-partisan Congressional Budget Office (CBO), Peter Orszag. Unlike political appointees on the right or left, Mr. Orszag appears to be, as you’d hope, a straight shooter who is deeply appreciative and fearful of the impending impact of publicly-financed health care’s runaway spending practices. Part of what makes his message so compelling is that it is absent partisanship. He's clearly interested simply in what is good for America.

In addition to the obvious trends that are breathing down our pocketbooks – the graying and plumping of America – he focuses particular attention on the cost explosion and one of its principle drivers: rampant, huge practice variation. For example, he notes:

“Over the past four decades, Medicare’s and Medicaid’s costs per beneficiary have increased about 2.5 percentage points faster per year than has per capita gross domestic product (GDP). If those costs continued growing at the same rate over the next four decades, federal spending on those two programs alone would rise from 4.5 percent of GDP today to about 20 percent by 2050; that amount would represent roughly the same share of the economy as the entire federal budget does today.”

Figure 1: Historical and Projected Growth of Medicare Cost As A Percentage of US GDP

 Source: Congressional Budget Office, 2007

Get that?! If we allow federal health care costs to rise in the future as they have in the past, then in another forty years we’ll pay as much for Medicare and Medicaid (or their replacement programs) as we now do for the whole US government.

Mr. Orszag also points out that the growth of public and private health care spending have approximately tracked each other over the last several decades (See Figure 2 below) which really means two things. First, it refutes the myth that a single payer system – Medicare and Medicaid are single payer systems – operate more efficiently and would necessarily save money. Commercial health plans consume dollars on management, promotion and profits, but public health plans are easily influenced by lobbyists and have almost no medical management, which produces tremendous waste.

Figure 2: Public and Private Health Care Cost Growth
 

Source: Congressional Budget Office, 2007 

But second, it also shows that doctors and hospitals really don’t treat Medicare and commercial patients very differently. The same wasteful care practices are rampant in both. In other words, we can’t fix health care by just fixing the financing system, how the money works. Just as or more important are how health care is supplied, and how care is delivered.

Analysis and forecasting, reflected in the two slides above, are what the CBO does. But Mr.Orszag goes further, and makes an argument that few public officials have been willing to make. He points to a central reason that we have out-of-control costs in health care: practice variation.

This is the phenomenon, illustrated so well by the folks who have produced the Dartmouth Atlas, that when you hold outcomes steady, Medicare’s costs of care in some regions of the country are roughly double what they are elsewhere, for no apparent reason that makes sense. 

Figure 3: Variation in the Average Cost Per Medicare Recipient by Region  

Source: Congressional Budget Office, 2007 

As he suggests, dramatic differences in utilization aren’t limited to public sector payment. Jerry Reeves MD, the National Chief Medical Officer for the UNITE HERE union, shows the slide below during his presentations. It provides the resource consumption numbers for the least expensive and most expensive physicians in Las Vegas, when the condition and outcome are the same. In Dr. Reeves data we see about an eightfold difference between the lowest and highest cost primary care physician to get the same outcome for a specific condition. In Cardiology the costs vary nearly five-fold, and in Orthopedics the differences are about 2.5 times.

Figure 4: Cost Variation Among Las Vegas Physicians For Specific Conditions 

There’s nothing particularly new or surprising about any of this information. Many of us who have spent our careers in health care and know the data are convinced that it is this freewheeling approach – where every professional dictates what care will be delivered, often with financial conflicts and often independent of best practice guidelines – that is one of the deepest roots of the crisis.

What makes this CBO report so surprising and refreshing is that a public official has soberly analyzed the dynamics and then coolly called for solutions in the form of specific changes: greater distribution of electronic medical records, evidence-based practice guidelines, performance transparency (not only the relative performance by individual professionals and institutions, but also the relative effectiveness of different medical treatments) and tying payment to performance. His recommendation goes so far as to suggest fundamental changes to the statutes that guide federally funded care. He suggests, for example, that Medicare could use information on effectiveness to “promote higher value care,” i.e., to determine services that should be covered.

There’s much more here. Mr. Orszag talks about the uninsured, the demands that our aging population will place on the system, and how unbridled culture-related lifestyle problems (like obesity) will strain it beyond a breaking point.

This report won’t sit well with the health care industry, particularly the drug, device and supply sector, which has won higher and higher profits by getting paid increasing dollars for new offerings that may or may not be better for patients. Go to OpenSecrets.org, and pull the data on lobbying expenditures by the health care sector. You’ll see that this same group represents half of all health care lobbying dollars. (More on that in a post next week.)

But with this very focused, provocative and accurate report, Mr. Orszag has won the attention of key legislators as well as, hopefully, non-health care business interests, where the real power lies.  During a time when sound bites about universal coverage pass for meaningful discussion on reform, his analysis provided real context. That’s exactly the splash of cold water that’s been needed. Let’s just hope that some influential individuals actually listen and are willing to take action. In other words, let's hope that they care more about America than they do about what a lobbyist can do for them.

Dr. Klepper is a health care analyst and founder of the Center for Practical Healthcare Reform.