It has been a while since I’ve discussed health management, financing, and policy issues in this column, but a recent article in the New England Journal of Medicine was so provocative and insightful that I thought I’d bring it to your attention. Co-written by Michael Chernew and Austin Frakt, it addresses the challenges facing the country (including North Dakota) as we struggle with our ever-growing federal health care bill. I knew Mike when I got my Master of Public Health degree from the University of Michigan where he was a faculty member. Since then, he has moved on to Harvard. The provocative title of the article is “The Inevitable Math behind Entitlement Reform” (N Engl J Med 2018; 379:211-213 DOI:10.1056/NEJMp1801807).
The authors note that health care expenditures are predicted to grow by more than five percent annually over the next decade, and that almost half of the growth in Medicare and Medicaid spending will simply be due to more enrollees. Almost all of the per-beneficiary cost growth will be due to what is called increased utilization; that is to say, we will be spending more on each patient for medicines, procedures, and visits as more people utilize the system itself. Interestingly, an increase in the price of services is not expected to grow much at all overall (although there are some exceptions such as certain drug prices).
So what do these simple math realities portend for cost-containment efforts? First, the authors consider the number of enrollees. Trying to limit the number of people enrolled to receive health insurance like Medicare or Medicaid would shift at least some health care spending to other payment mechanisms (thus, not necessarily saving money for the economy as a whole) and would be politically contentious. Thus, the authors address the two other variables: per-beneficiary expenditures/utilization and price. They argue that substantial price reductions for services, physician fees, nurses’ salaries, and so on would be politically difficult and unlikely to be successful to a significant degree.
So they conclude that the main remaining target for cost containment is through a limitation of per-beneficiary spending—that is, to reduce utilization of health care services and products by each patient. They outline four approaches that might be used, and critique each. The first is to increase the amount that the patient has to pay out of pocket to receive care (examples are co-pays and co-insurance). But the authors argue that for a variety of reasons, this approach is unlikely to be overly successful. They then suggest a second approach: encouraging preventive care so that health care costs are reduced down the line. They note that while these approaches may well improve the quality of life of participants, the long-term cost-effectiveness of such approaches varies. But there is no doubt that addressing the behavioral aspects of health and wellness—such as cessation of cigarette smoking, weight reduction, exercise, proper diet, and taking prescribed medications—will reduce health care costs in the long run. The third approach they suggest is to pressure insurance companies to reduce utilization, and there is some evidence that this approach can be effective and cost-saving. The final approach—and the one that they conclude is the most promising—is to change the way providers, health care organizations, and hospitals are paid. Rather than the current fee-for-service model that still is quite common around here, they posit that alternate payment models (such as the accountable care organizations or ACOs that you may have heard about) will become much more common and have the potential to generate some real cost-saving opportunities (these payment approaches have been termed “value-based payments”).
Chernew and Frakt conclude their article by acknowledging that achieving significant reductions in the rate of growth of health care expenditures in the future will be challenging, and that patience will be needed. I’ll discuss some of the ways the School is trying to be a positive force in these efforts in a subsequent E-News column. So, as I’ve said before, “Stay tuned!”
Finally, note that in conjunction with the rollout of the new School of Medicine and Health Sciences website, our E-News platform is getting a facelift. We’ll have more information soon, but suffice it so say for now that very little will change in terms of our Friday email. That said, the newsletter’s website will look different, and we’ll have a new name: For Your Health. So be on the lookout for that as well!
Joshua Wynne, MD, MBA, MPH
UND Vice President for Health Affairs
Dean, UND School of Medicine and Health Sciences