Plan To Slash U.S. Health Costs May Be Tough Pill To Swallow

By DAVID HOGBERG
INVESTOR'S BUSINESS DAILY | Posted Thursday, July 02, 2009 4:30 PM PT

When someone takes out a scalpel, it's usually going to hurt — a lot.

Yet Peter Orszag, President Obama's budget director, claims the U.S. could slash $700 billion in annual medical costs without affecting quality.

That would make it much easier to pay for sweeping health care reform, which is struggling on Capitol Hill over cost concerns.

But divining and adopting best practices is trickier than Orszag may realize, some researchers say.

The head of the Office of Management and Budget draws heavily on the Dartmouth Atlas of Health Care. The atlas has found that Medicare spending varies greatly across the U.S., yet higher spending regions have no better and, at times, worse outcomes than regions that spend less. For example, Miami spends 30% more than Minnesota, but patients aren't any healthier.

Less Is More?

Areas with coordinated care and more primary-care physicians tend to use fewer resources than those with more disjointed care and more specialists.

"We would be on a path toward a much more efficient system," Orszag said recently of achieving health care reform. "When you go to see your doctor, that doctor will have much more information about what specifically is likely to work for your diagnosis, and will have better incentive to be providing high-quality care to you rather than just more care."

But knowing the right treatment is often quite difficult.

"The difference is in the utilization of services that are in the 'gray area' of medicine," said Amitabh Chandra, a public policy professor at Harvard who has worked closely with the Dartmouth Atlas. "These are services that don't lend themselves to clinical trials. Reasonable physicians will disagree over what the right rate of treatment is."

Chandra cites CT scans and MRIs. "They are undoubtedly valuable, but there is an unlimited amount of patients you can perform these procedures on."

Greg Scandlen, head of the conservative Consumers for Health Care Choices at the Heartland Institute, said: "It is often impossible to know ahead of time what is going to work and what won't. The notion that a physician should only deliver services that he knows ahead of time will work ignores real-life conditions."

Chandra largely agrees with that but thinks Orszag understands the nuance and difficulty of eliminating medical waste.

Scandlen is less charitable: "It's offensive that a bean counter like Orszag should Monday-morning-quarterback physician decisions."

Dr. Elliot Fisher, principal investigator at the Dartmouth Atlas, has urged the Obama administration to use the buying power of Medicare and Medicaid to inform patients and incentivize providers to adopt the practices of good organized-care centers like the Mayo Clinic.

"If we're thoughtful about creating incentives for organized systems to form . . . we could get the kind of performance that we want," Fisher recently told NPR.

Scandlen responds: "To say we're going to create some kind of management system that will turn everything into the Mayo Clinic is absurd. Bureaucrats miss the human element of all of this stuff. Mediocre people can take any kind of management system and turn it into something not very good."

The Real World

Even assuming that experts can identify best practices, can they impose their will? Doctors, hospitals, drugmakers and patients will all demand that their treatments, their choices, are approved.

It will be hard to resist the media and political pressure when, say, a patient dies because Medicare did not permit a particular drug or test.

Dr. Richard Cooper of the Wharton School says it is unwise to base policy on the Dartmouth Atlas, as Medicare is a poor measure of total health care spending.

"Higher health care spending results in better health outcomes," Cooper said. "Dartmouth is measuring regional variation in sociodemographic characteristics, not health care spending."

He argues that areas with higher Medicare spending tend to be areas that are poorer, have lower total health care outlays and have more medical problems.

Chandra says Cooper's measures aren't reliable and that his own research suggests that areas with higher Medicare spending also have higher total health spending.