Price cutting is the only method ever used to reduce health care spending. It never worked for long and won’t work in the future because it cannot control the volume of unnecessary services. The choices to manage health care cost are efficiency or rationing.
Without the creation of an efficient US health care system, rationing and price cutting are the only means that can be used to reduce health care spending. Rationing and price cutting will decrease quality; effiiciency will improve quality and reduce cost.
Poor management of chronic diseases, inefficient care during hospitalization, major procedures of unknown or doubtful value, and unnecessary imaging constitute over 30 percent of health care spending.
If doctors in high-spending areas of the United States cared for patients with chronic illnesses like doctors in low-spending areas, Medicare costs would be reduced by almost one-third with improved quality. These savings are without rationing any needed care; without creating waiting lists or delaying anyone's access to a doctor, a test, or a procedure. They are savings that would improve the quality of medical care.
Not only are patients' rights violated in this last act of life, money is wasted. Indeed, at least a quarter of Medicare spending is for the last year of life. It is not necessarily a bad thing that so much money is spent in the last year of life, but how it is spent is another matter.
Medical imaging accounted for about one-quarter of outpatient spending in 2005 and was the programs fastest growing cost, escalating at 9 percent per year. No one questions that many of these images are unnecessary but no one knows which ones they are.
An estimate is that a minimum of 6 percent of hospital spending in the US is for procedures that could be unnecessary or might be unwanted if the patients and the doctors had full information.
The cost of inefficient hospital functioning can only be estimated. I have talked with experts who advise hospitals on their processes and their estimates are that once a patient is admitted to a hospital 15% to 40% of hospital spending is for unnecessary services and preventable complications. Since hospitals are paid for how many services they provide, there is no business case for efficiency or quality.
Existing high-performance hospitals, clinics, and programs can be emulated but we must make structural changes in how hospitals and clinics are paid for such models to become widespread.
The doctors of Sumner Clinic were paid a thirty percent bonus for reaching the 90th percentile on quality measures and for reducing the cost of care. This payment system allowed them to invest in patient education, information technology, and to spend more time with their patients. The result was a 20 percent reduction in the cost of care with demonstrably improved quality. The savings were from decreased hospitalizations and emergency room visits.
The staff of LDS Hospital reduced their hospital-acquired pnemonia rate from 12 percent to 3 percent and in the process dramatically reduced their cost of care. Because of the fee-for-service payment system that pays for complications even if they are hospital acquired, all of the savings accrued to the insurers not the hospital. In fee-for-service medicine there is no business case for efficiency.
A program in Oregon addressed the end-of-life problem by going to the root of the issue -- asking patients' their specific treatment preferences in advance of the end of life and making sure that their wishes were followed.