Medicare and Medicaid Reforms That Can Help Curb Costs

Increased use of comparative effectiveness research in funding decisions for Medicare and Medicaid programs will ensure technologic advancements demonstrate cost containment strategies and improved quality of health care services when new medical innovation is proposed for use in the United States’ health care system, thereby reducing overall health care expenditures.

Public and private health care expenditures in the United States have grown at unprecedented rates over the past four decades, rising faster than average income.  The development and rapid spread of medical technology serve as the key drivers of health care spending, with new medical technology accounting for a large percentage of health care spending growth.  Medical technology refers to the equipment and processes used to deliver medical care and health care services.[i]  This includes new medical and surgical procedures, pharmaceutical drugs, medical devices and support systems, and medical technology.  Greater availability of new medical technology facilitates higher spending on services due to increased per capita usage.

Key Facts

• The United States has the highest per capita spending on health care, upwards of $7,538 per capita in 2008 with a projected increase to $12,320 by 2015.[ii]
• Health care and medical technological innovation is considered to be the key driver for rising health care costs in the United States.
• While the average OECD country spends 9.5 percent of GDP on health care spending, the United States’ spending has risen from 7.2 percent of GDP in 1970 to 17.6 percent of GDP in 2009.[iii]

Analysis

Innovation has resulted in major advances in clinical abilities, the development of new procedures and treatments (including treatments for previously untreated terminal conditions), and improvements in the scope of medicine covered through the health care system.[iv]   Through effective health technology assessments, it becomes possible to explore strategies to control rising costs without stifling technological innovation.  Health technology assessment, the process by which health care systems conduct cost-benefit analysis for new technology, is particularly important in determining the spread of innovation.  Assessments should be carried out in conjunction with comparative effectiveness research (CER), which is “designed to inform health care decisions by providing evidence on the effectiveness, benefits and harms of different treatment options.”[v]  The $1 billion in funding for CER through the American Recovery and Reinvestment Act, as well as the support for CER through the 2010 Affordable Care Act, present critical steps toward establishing the end goal of patient-centered outcomes research.  While this research will determine the clinical effectiveness of medical treatments, new technology must also be assessed for cost-effectiveness and cost-benefits analysis when compared with existing technology.

Without proper evaluation of new technology, there is a direct result of increased health care costs because of the United States’ primarily third-party payer system.  New medical technologies are developed with the ability to spread based on a health care provider’s willingness to pay for such services.  In this model, third-party payers determine what new technology is deemed effective and efficient based on individual standards.

Talking Points

• Although the United States spends the highest per capita on health care, the quality of life outcomes do not reflect the amount of expenditures in the system.
• Studies demonstrate consumers’ expectations for the development of new technology, but no nationally coordinated effort or government agency through HHS is in place to oversee new technological innovation.
• Moving the decision-making market power for the effectiveness of new technological innovation from public and private organizations and third-party payers to an Agency for Health Technology Assessment would focus on comparing new innovation to existing technology rather than a placebo.

Next Steps

The United States government should expand the mandate of the Technology Assessment Program through the Agency for Healthcare Research and Quality.  This program is primarily responsible for assessing the cost-effectiveness and benefits of new technology as compared to existing technologies. In addition, it should introduce policy that requires manufacturers to demonstrate the effectiveness of technological innovation on quality of care as compared to existing technology rather than a placebo.

Adam Jutha is an Associate Member of NASI and was the 2011 Nathan J. Stark NASI Intern. He is a senior at the University of North Carolina at Chapel Hill where he is pursuing a Bachelor's degree in Public Health – Health Policy and Management from the Gillings School of Global Public Health. He is currently working in the Princess Margaret Hospital's Cancer Program Planning Department in Toronto, Canada.