NCPA - National Center for Policy Analysis


May 12, 2009

A health industry offer on Monday to trim costs by $2 trillion over the next decade found a skeptical audience among health care economists, who say such savings might materialize only if many parts of the industry are ready to sacrifice.

President Barack Obama announced a voluntary offer made by a consortium of hospitals, insurance companies, drugmakers and doctors to cut the growth rate for health care spending by 1.5 percentage points a year.

Economists say true spending reductions will require much more than nips and tucks.  They involve one theme people in the system generally don't want to hear, according to Jean Mitchell, a Georgetown University health economist: Everybody is going to have to make less money if we're really going to rein in costs.

According to Dr. Mark McClellan, an economist who ran Medicare and the Food and Drug Administration for President George W. Bush:

  • Significant changes in the way hospitals and doctors are paid also may be necessary.
  • For instance, past attempts to restrain Medicare payments haven't worked in part because they force doctors to cycle more patients through their office to make up for the declining revenue.
  • Doctors then spend less time with each patient or on coordinating that care; a system that ties payment more to quality, rather than quantity, must be developed.

According to Harvard University economist David Cutler, trillions of dollars in savings are possible over the next couple decades, but they won't happen "just by waving your hands."  He sees plenty of financial fat to trim in the system:

  • Medical mistakes -- which can range widely from infections developed in hospitals to improper prescriptions -- can cost as much as $100 billion a year.
  • A lack of preventive medicine and poor care coordination also can drive up costs by leading to patients who need more extensive care.

Another economist, John C. Goodman, dismissed the industry offer as rhetoric.  Goodman, president of the Dallas-based National Center for Policy Analysis, said topics like care coordination and electronic medical records have been studied and don't yield significant savings.

"I don't see anything new here and no reason to take any of this seriously," he said.

Source: Tom Murphy, "Health economists: Savings will require sacrifice," Associated Press/Forbes, May 11, 2009.


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