Slowing the Growth of Health Care Costs — Learning from International Experience

New England Journal of Medicine
Author: Karen Davis, Ph.D.

High health care expenditures and the growing number of people without health insurance set the United States apart from all other industrialized countries. The United States spends twice per capita what other major industrialized countries spend on health care but is the only one that fails to provide near-universal health insurance coverage. We also fail to achieve health outcomes as good, or value for health spending as high, as what is achieved in other countries.

The United States has been slow to learn from countries that have systematically adopted policies that curtail spending and enhance value. Chief among these are mechanisms for assessing the comparative cost-effectiveness of drugs, devices, diagnostic tests, and treatment procedures; implementation of information technology, including electronic repositories of patient medical information, across sites of care; easy access to primary care, including organized systems of off-hours care; a strong role for government in negotiating payment for care; and payment systems that reward preventive care, management of chronic conditions, care coordination, and health outcomes rather than volume of services.

No single silver bullet will transform the U.S. health care system, but a series of coordinated policy changes has the potential to substantially bend the curve of projected health care spending. Recent estimates prepared for the Commonwealth Fund Commission on a High Performance Health System indicate that $1.5 trillion could be saved over a 10-year period if a combination of options, including universal health insurance, was adopted. These options were specifically designed for the U.S. health care system and would preserve its mixed private–public system of financing rather than being contingent on the adoption of a single-payer system.

The option currently receiving the most attention is a system for generating more information about the effectiveness of medical treatments, weighing it against that of other diagnostic or treatment options, and assessing cost relative to benefits to determine whether more expensive therapies warrant their additional cost.5 In this effort, the United States can learn from the cost-effectiveness review systems in Britain and Australia.1 Britain's National Institute for Health and Clinical Excellence makes a judgment about the effectiveness of new drugs, devices, and diagnostic tools relative to existing technology and provides advice on clinical guidelines and management of individual medical conditions that is grounded in a systematic review of available evidence. It evaluates the incremental cost of a new technology per quality-adjusted life year and recommends that the National Health Service cover new technologies whose cost per unit of health benefit is below a certain threshold, such as $50,000 per quality-adjusted life-year.

We have no comparable process. Even a recent legislative proposal calling for a private organization funded by public and private sources to undertake effectiveness research stops short of recommending assessment of the cost-effectiveness of technologies or systematically basing insurance coverage decisions on such evidence. We need to ensure that new technology yields value over and above existing technologies, commensurate with its incremental cost. Investing in the knowledge needed to improve decision making and incorporating information about relative clinical value and cost-effectiveness into the design of insurance benefits would yield an estimated 10-year savings of $368 billion for our health care system.

We also lag behind other industrialized countries in the adoption of information technology. Only about one fourth of U.S. primary care physicians have electronic medical records, as compared with 90% in countries such as Britain, the Netherlands, and New Zealand. Denmark has a national health information exchange that contains all of a patient's relevant clinical information in a repository that is accessible to patients and all the providers caring for them. In the United States, accelerating providers' adoption of health information technology with the capacity to support decision making and share patient health information across sites of care could be financed through an assessment of 1% on insurance premiums and Medicare outlays. Estimates are that the initial investment could be recouped after 7 years, and the estimated net savings to the health care system could reach $88 billion over 10 years.

The third area in which the United States differs markedly from other industrialized countries is the financing and organization of primary care. Patients in many other countries are required to enroll with a primary care physician. In Britain, general practitioners receive bonuses accounting for up to 25% of their compensation in exchange for meeting quality targets in preventive care, managing chronic conditions, organizing care, and collecting patient feedback. In addition, primary care in Britain is easily accessible. The Netherlands and Denmark have excellent organized systems of off-hours care. The Netherlands funds the salaries of nurses placed in private physicians' practices to work with patients with selected chronic conditions. Analysis of the cost-savings potential of developing a system of "patient-centered medical homes" for primary care in the United States indicates that Medicare alone could save $194 billion over 10 years.

Other countries control high-cost services through payment practices and patient incentives. France, among other countries, negotiates prices for pharmaceuticals and eliminates cost sharing for highly effective medications. Germany uses a reference-pricing approach, whereby the insurance system pays the lowest price for comparably effective drugs, with patients paying any difference between the reference price and the actual price. Negotiating pharmaceutical prices would generate savings of $43 billion over 10 years in the United States. Japan, though it uses a fee-for-service system of payment, tightly controls rates of payments and, as a matter of deliberate policy, reduces the price of new technologies over time to encourage improved efficiency and productivity.

In some countries, specialist physicians are typically salaried hospital employees. Germany has also set aside a portion of its payments for contracts with providers delivering integrated care, such as cancer care. Moving to a bundled episode-of-care payment system that combines hospital and physician services for episodes of acute care in the United States would generate 10-year savings of $229 billion.

The issue, therefore, is not so much whether we know how to slow down the escalation of health care costs. Abundant international evidence, and even examples in the United States, demonstrate that higher quality, better access, and lower costs can be achieved simultaneously. Rather, the United States has been paralyzed by partisan divisions at the level of the federal government and by organized opposition from those who benefit from the status quo. The key to progress may lie in both a presidential administration committed to transformation of the health care system and a new policy process that is better insulated from special-interest political pressures. At a recent summit sponsored by the Senate Finance Committee, both Chairman Max Baucus and Federal Reserve Board Chairman Ben Bernanke raised the possibility of a "Health Fed" or a "MedPAC [Medicare Payment Advisory Commission] with teeth," which would be delegated by Congress to make specific payment and policy decisions under a broad policy framework established by Congress. This approach, applied first to Medicare, could accelerate the diffusion of policy innovations throughout the country and provide a testing ground for broader application to Medicaid and commercial insurers.

The status quo is unacceptable. Without serious commitment to change, health spending as a percentage of the gross domestic product will rise from 16% currently to 20% by 2017; and Americans without adequate insurance and access to essential services will continue to suffer avoidable health consequences. American resources and ingenuity are adequate for the challenge. What is required is national leadership and commitment to moving toward a high-performance health care system.

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