The most intractable problem that we as a nation face is to reduce the overall cost of health care. There is good news on this score from the Commonwealth Fund. A new study predicts that the proposed legislation will substantially reduce the growth rate of health care expenditures, largely as a result of modernization of health information and billing systems.
A report released December 7 by the Commonwealth Fund predicts that the pending legislation will achieve substantial savings, and will reduce the annual increase in health care expenditures from 6.4% to 6.0%. The report, entitled "Why Health Reform Will Bend the Cost Curve," authored by David Kutler, Karen Davis, and Kristof Stremikis, identifies several aspects of the legislation that should help to reduce the cost of medical care.
In their summary of the report the authors state:
The health reform bills passed by the U.S. House of Representatives and under consideration in the Senate introduce a range of payment and delivery system changes designed to achieve a significant slowing of health care cost growth. Most assessments of health reform legislation have focused only on the federal budgetary impact. This study projects the effect of national reform on total national health expenditures and the insurance premiums that American families would likely pay. We estimate that the combination of provisions in the House and Senate bills would save $683 billion or more in national health spending over the 10-year period 2010–2019 and lower premiums by nearly $2,000 per family. Moreover, the annual growth rate in national health expenditures could be slowed from 6.4 percent to 6.0 percent.
The authors predict that it will cost approximately $50 billion annually to provide coverage for the uninsured and underinsured individuals and families, but that the bills will save even more – at least $36 billion worth of reductions in spending on Medicare, $16 billion as a result of reduced administrative costs, and an average of $53 billion per year as a result of modernization of the health care system.
It is this last item – modernization – that is intriguing. The authors believe that the savings resulting from modernization would be so large as to offset the entire cost of expanding health care coverage to all Americans … and that the amount of savings would continue to grow over the years. They project that savings from modernization will steadily increase over the next decade, reaching $180 billion in the year 2019. The authors give two reasons why modernization will reduce health care costs to this extent:
First, administrative expenses incurred by provider groups would decline as electronic medical records and incentives to use them appropriately are widely disseminated. The potential for administrative savings have been stressed by both provider groups and insurers, and are distinct from the reduction in insurance administration noted above. Second, reform would lead to fewer and less-costly acute care episodes. Preventing certain recurrent illnesses by coordinating care better and rationalizing what is done when a person becomes sick, bundling payments, paying more for quality care, and sharing savings with accountable provider organizations are all areas of potentially substantial savings.
The authors explain why they perceive such greater savings from modernization than have the Congressional Budget Office and the Centers for Medicaid and Medicare Services, which are the public agencies that are charged with the responsibility for making these kinds of predictions. The Commonwealth Fund authors state that these agencies fail to take account of what many researchers have observed:
the enormous inefficiency in health care relative to other industries: excessive administrative spending, wasted time and money, and resources spent passing along costs, not reducing them. They [other researchers] highlight the enormous potential for productivity improvement that reform can drive if it makes health care operate more like other industries.
There is evidence that the United States has underinvested in information technology in the medical field in comparison to other countries. (See this earlier report from the Commonwealth Fund on that subject.) However, I lack the knowledge and the training necessary to evaluate the Commonwealth Fund's prediction that we can achieve this level of savings from modernization in the field of medical care.
Visit Professor Huhn's website on health care financing reform for links to information about proposed legislation, studies and reports, public agencies, and private organizations concerned with this issue.
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RE:"The potential for administrative savings have been stressed by both provider groups and insurers, and are distinct from the reduction in insurance administration noted above."
I'm all for 'modernization' as a tool to help control healthcare costs. What still worries me is how far provider groups and insurers can be trusted to pass along reduced costs of doing business to the customers. As long as both of those classes are essentially structured as for-profit entities, I fear that they will still put the bottom line interests of their stockholders and partners ahead of reducing premiums and out of pocket expenses for the public. I'm not questioning the character of providers…but bu$iness is bu$iness.