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The Need to Improve Value in Health Care

INTRODUCTION

Health care in the United States can, in certain circumstances, be the best in the world. Technology and innovation have allowed immense progress in clinical care. Yet, in this milieu of progress, U.S. per capita national health expenditures are far greater than those of any other country—50 percent higher than the second highest and twice as high as the average for Europe (Peterson and Burton, 2007). U.S. healthcare costs are projected at nearly $2.5 trillion, about 17 percent of the entire economy (Sisko et al., 2009), and the Congressional Budget Office estimated that Medicare and Medicaid alone will account for nearly a quarter of the economy by 2050 if healthcare costs grow at just 2 percent more than GDP per capita each year (Congressional Budget Office, 2007). Despite the amount of spending on health care, uncoordinated care has led to frustration for patients and providers, fostered an unacceptable level of harmful medical errors—many of which are serious (IOM, 2000), and resulted in overall national performance that ranks us below at least three dozen other countries on basic health parameters, despite our health spending (Peterson and Burton, 2007).

The challenges of improving health outcomes while curbing rising healthcare expenditures and maintaining incentives for innovation among providers, pharmaceutical and medical device manufacturers, insurers, and employers have become especially acute in the face of the current economic state of both the U.S. and the global economy. World financial markets have been thrown into a precarious state of instability, and the United States and many other countries are in a period of sustained recession. The



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1 The Need to Improve Value in Health Care INTRODUCTION Health care in the United States can, in certain circumstances, be the best in the world. Technology and innovation have allowed immense progress in clinical care. Yet, in this milieu of progress, U.S. per capita national health expenditures are far greater than those of any other country—50 percent higher than the second highest and twice as high as the average for Europe (Peterson and Burton, 2007). U.S. healthcare costs are projected at nearly $2.5 trillion, about 17 percent of the entire economy (Sisko et al., 2009), and the Congressional Budget Office estimated that Medicare and Medicaid alone will account for nearly a quarter of the economy by 2050 if health- care costs grow at just 2 percent more than GDP per capita each year (Con- gressional Budget Office, 2007). Despite the amount of spending on health care, uncoordinated care has led to frustration for patients and providers, fostered an unacceptable level of harmful medical errors—many of which are serious (IOM, 2000), and resulted in overall national performance that ranks us below at least three dozen other countries on basic health parameters, despite our health spending (Peterson and Burton, 2007). The challenges of improving health outcomes while curbing rising healthcare expenditures and maintaining incentives for innovation among providers, pharmaceutical and medical device manufacturers, insurers, and employers have become especially acute in the face of the current economic state of both the U.S. and the global economy. World financial markets have been thrown into a precarious state of instability, and the United States and many other countries are in a period of sustained recession. The 2

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2 VALUE IN HEALTH CARE U.S. government has to contend with these challenges while also facing an aging population, many with multiple medical conditions (Martini et al., 2007; Meara et al., 2004; Strunk and Ginsburg, 2002), medical care entitle- ment payouts of unprecedented and unparalleled cost (Social Security and Medicare Boards of Trustees, 2008), and an underlying absence of a single agreed-upon measure of value in health care. The need to enhance the value obtained from health care led the Insti- tute of Medicine’s (IOM’s) Roundtable on Value & Science-Driven Health Care to host a workshop entitled “Value in Health Care: Accounting for Costs, Quality, Safety, Outcomes, and Innovation,” part of the Learning Healthcare System series, in November 2008. Through a multistakeholder forum for discussion of key perspectives on measuring and improving value in health care, presenters and attendees identified the key barriers, opportunities, and next steps necessary to improve value in health care in the United States. Presenters at this workshop specifically discussed various approaches to assessing and improving value, in terms of both maximizing what we gain in patient outcomes and minimizing what we give up, especially the oppor- tunity costs of expenditures on less effective treatments. The sessions also addressed a number of new and promising tools and organizational arrange- ments currently being used in the United States in an attempt to increase value, as well as both near-term opportunities and long-term strategies to align the many elements of the healthcare system to promote value. The chapters in this report highlight common themes from the discussions and provide summaries of the presentations from a variety of perspectives. The principal purpose of each of the 8 Roundtable workshops and reports so far is to establish a conceptual framework within which to consider important dimensions of a value-driven health system and to develop an agenda for action to facilitate moving forward. In the three years since the Roundtable was established, the calls for increasing health system value have increased, in large part because of growing evidence that continuing to provide health services in the way we currently do is financially unsustainable and does not result in optimal patient outcomes (Fisher et al., 2003; Peterson and Burton, 2007). The following summary of a keynote address by David M. Walker of the Peter G. Peterson Founda- tion eloquently expresses the bleak financial trajectory of current healthcare spending in the United States and its implications for the future welfare of the American people and provides the economic and financial context driv- ing the need for action.

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2 THE NEED TO IMPROVE VALUE IN HEALTH CARE THE NEED TO IMPROVE VALUE IN HEALTH CARE David M. Walker, Peter G. Peterson Foundation On March 4, 1789, the Constitution of the United States of America established a new national government for this country. The Founding Fathers believed that the federal government had a limited and specific role in American life. Responsible only for matters of national concern, the fed- eral government presided over such areas as national defense, foreign policy, national finances, the postal service, and the federal judicial system. At that time, the federal government accounted for 2 percent of the nation’s economy. Today, the federal government’s budget accounts for approximately 21 percent. Sixty-two percent of the current budget is devoted to entitlement programs—Social Security, Medicare, and Medicaid—and expenditures unrelated to the express and enumerated powers that the Founding Fathers envisioned (Peter G. Peterson Foundation, 2008). Some of these expansions can easily be justified; others are questionable. Many things change over time, but certain principles and values should be timeless. In the late 1700s, Americans believed in thrift. Two hundred years ago, Americans believed in individual opportunity and the need to provide a level playing field to ensure that each person could maximize his or her innate abilities. In the beginning, the citizenry believed in stewardship (Steigerwald, 2008). In recent years, the words “thrift” and “stewardship” have disappeared from the English lexicon. The government has encouraged Americans to spend money and to charge as much as possible. Starting in the 1980s, the government and the public became “addicted to debt.” Debt became tolerable and acceptable regardless of the prevailing state of the economy. Americans started using credit cards to buy a cup of coffee. The stigma of declaring bankruptcy at both individual and corporate levels has almost disappeared (Steigerwald, 2008). Individual opportunity has yielded to a belief in entitlement to a broad array of costly benefits. Worse, some efforts to provide equal opportunity through our tax system and social insurance programs resulted in middle- and upper-class welfare. Our perspective as a country and as individuals has fundamentally shifted. Our public morality has been transformed. The beginning of the Republic was inculcated with the notion of stewardship—a sense of our collective and individual responsibilities not only to make today better but also to better position ourselves for future generations. It is in that basic regard that our elected officials have failed. We face a number of serious sustainability problems, and health care

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2 VALUE IN HEALTH CARE is the largest of the challenges before us today. We have built an amalgam of healthcare policies and structures based on a myopic view of today. We have fallen far short of creating a forward-looking, integrated, and sustain- able system—one that aligns incentives to encourage people and institutions to behave properly; fosters transparency by providing information about both cost and quality so that providers, patients, payers, and purchasers can understand the value of services and make better choices; and increases accountability for poor choices. Our current healthcare “system” could, if not reformed, bankrupt this nation. The United States is the only country that writes a blank check for health care. Even Sweden, which has socialized medicine from cradle to grave, limits how much of its federal budget and how much of its economy will be dedicated to health care. At the end of September 2007, the U.S. government had amassed $53 trillion of debt on the crest of unfunded promises for Social Security and Medicare (Social Security and Medicare Boards of Trustees, 2008). This translates to $175,000 for every person in the United States and 90 percent of the net worth of every American household (Walker, 2008). So, how do we fix our healthcare “system”? The answer does not lie in a single piece of sweeping legislation, but an integrated plan with many parts, all aimed at these four objectives: 1. Universal coverage for basic and essential health care that meets societal needs, not unlimited individual wants. Basic care includes wellness promotion, preventive services such as immunizations, and protection against catastrophic events. It should not include taxpayer-paid futile care. 2. A budget for federal healthcare expenditures that sets limits. Without checks and balances in place, our healthcare expendi- ture outlays will bankrupt our government. Today, those costs grow 2.6 percent faster than the rest of the economy every year (Congressional Budget Office, 2007). We need to explore strategies such as competitive bidding in government-sponsored healthcare programs, limiting access to high-cost drugs, reimbursing lower- cost alternative treatments, and streamlining administration. 3. National evidence-based practice standards for the practice of med- icine and for the issuance of prescription drugs in order to improve consistency, enhance quality, reduce costs, and dramatically reduce litigation. 4. Enhanced personal responsibility and accountability for health and wellness. We have to reverse the perversity of our incentives today and stop subsidizing bad behavior and health choices. The United

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2 THE NEED TO IMPROVE VALUE IN HEALTH CARE States is first in the world in cost, but we are also first in the world in obesity. The United States is on an imprudent and unsustainable path. More blank checks for health care will lead us into deeper debt and culminate in a bankrupt government. Comprehensive healthcare reform must rest on these four principles: universal coverage for basic and essential health care, limits on federal healthcare spending, national evidence-based prac- tice standards, and enhanced personal accountability. More fundamentally, however, we must return to the basic tenets of the nascent Republic of the United States. We have to judge the success of our policies and reforms not only by the benchmark of how they will address problems today but by asking ourselves: How can we fulfill our roles as stewards of a better, more equitable, more effective, and more responsible United States for the generations to come? REFERENCES Congressional Budget Office. 2007. Projected financial spending in the long run. http:// www.cbo.gov/ftpdocs/82xx/doc8295/07-09-Financing_Spending.pdf (accessed February 2009). Fisher, E. S., D. E. Wennberg, T. A. Stukel, D. J. Gottlieb, F. L. Lucas, and E. L. Pinder. 2003. The implications of regional variations in Medicare spending. Part 1: The content, quality, and accessibility of care. Ann Intern Med 138(4):273-287. IOM (Institute of Medicine). 2000. To err is human: Building a safer health system. Washing- ton, DC: National Academy Press. Martini, E. M., N. Garrett, T. Lindquist, and G. J. Isham. 2007. The boomers are coming: A total cost of care model of the impact of population aging on health care costs in the United States by major practice category. Health Serv Res 42(1 Pt 1):201-218. Meara, E., C. White, and D. M. Cutler. 2004. Trends in medical spending by age, 1963-2000. Health Aff (Millwood) 23(4):176-183. Peter G. Peterson Foundation. 2008. The state of the union’s finances: A citizen’s guide to the financial condition of the United States government. New York: Peter G. Peterson Foundation. Peterson, C. L., and R. Burton. 2007. U.S. health care spending: Comparison with other OECD countries. http://digitalcommons.ilr.cornell.edu/keyworkplace/311 (accessed March 23, 2009). Sisko, A., C. Truffer, S. Smith, S. Keehan, J. Cylus, J. A. Poisal, M. K. Clemens, and J. Lizonitz. 2009. Health spending projections through 2018: Recession effects add uncertainty to the outlook. Health Aff (Millwood) 28(2):w346-w357. Social Security and Medicare Boards of Trustees. 2008. Status of the Social Security and Medicare programs. Washington, DC. Steigerwald, D. 2008. Did the Protestant ethic disappear? The virtue of thrift on the cusp of postwar affluence. Enterprise & Society 9(4):788-815. Strunk, B. C., and P. B. Ginsburg. 2002. Aging plays limited role in health care cost trends. Data bulletin No. 23. Washington, DC: Center for Studying Health System Change.

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2 VALUE IN HEALTH CARE Walker, D. 2008. Saving our future requires tough choices today. http://www.gao.gov/cghome/ d08465cg.pdf (accessed February 2009).