Health reform and the election, part one: McCain and Obama promise lower health care costs

Forty-seven percent of registered voters say that health care is an extremely important consideration in their vote for president, according to a June CNN/Opinion Research Corporation Poll. Not surprisingly, then, both presidential candidates have outlined proposals to reform the nation's health care system. Central to each proposal is a plan to lower health care costs. In the first part of a series about health care issues and the election, experts say actually achieving lower health care costs (or even slower increases in costs) may be easier said than done.

Forty-seven percent of registered voters say that health care is an extremely important consideration in their vote for president, according to a June CNN/Opinion Research Corporation Poll. Not surprisingly, then, both presidential candidates have outlined proposals to reform the nation's health care system.

Central to each proposal is a plan to lower health care costs. Actually achieving lower health care costs (or even slower increases in costs), though, may be easier said than done. According to his official website, John McCain "proposes a number of initiatives that can lower health care costs."

"If we act today," the proposal states, "we can lower health care costs for families through common-sense initiatives" including promoting coordinated care, greater use of information technology to reduce costs, reforming the payment system, and bringing transparency to health care costs (among others).

Barack Obama also outlines a health care proposal that includes cost-cutting measures. According to the official Barack Obama website, "The Obama plan will improve efficiency and lower costs in the health care system." Under the Obama plan, "the typical family will save up to $2,500 every year." Obama's cost-saving measures include "adopting state-of-the-art health information technology systems" and increasing competition.

If the candidates' cost-saving plans sound similar, it's because they are, said Mark Pauly, professor of health care systems at the Wharton School of Business. "The things the candidates most agree on are the gizmos du jour to reduce health care costs and increase quality."

Last November, the School of Health Management and Policy at the W. P. Carey School hosted its inaugural Health Economics and Policy Lecture. Pauly, who was the guest lecturer, said that "if a candidate is promising higher quality health care at a lower cost you should be skeptical." In Part 1 of a series on health care reform and the election, experts at the W. P. Carey School discuss the issues.

Experts are "skeptical" about plans to reduce health care costs

It turns out that the candidates' "gizmos du jour" aren't proven ways to reduce health care costs, Pauly said. "We don't know whether tools like information technology will work for sure to slow increases in health care costs. Most have 'if only' clauses," he said. "As in, 'IT would help reduce costs if only physicians would adopt and use it properly.'"

The problem, Pauly said, is that no one knows how to make those "if only" clauses come true. His advice, then: "Don't bet the farm on these proposals actually working to reduce costs." Michael Furukawa, assistant professor at the School of Health Management and Policy, agrees, citing a "disconnect between hope and reality." The problem, he says, is that there's little scientific evidence to show that tools like information technology — electronic records, for example — actually work to reduce costs.

"The candidates assume that IT will reduce net health care costs, but there are only a few studies that suggest such a result," Furukawa said. One study, for example, produced by RAND, showed a reduction in costs from "fully interoperable electronic records." But that, Furukawa said, brings us back to "if only."

"The study assumes that practitioners would be able to pay for the new IT system, would fully adopt it, do the hard work to integrate it with their current systems and work out reliability issues and then use it properly." Those assumptions are unlikely, Furukawa said. Instead of betting the farm on information technology, Furukawa suggests that policymakers should be looking at what's driving rapid increases in health care costs.

Getting at the real drivers of increasing health care costs

In his lecture last November, Pauly said that contrary to popular belief, price increases are not the main reason for increased spending on health care in the United States (they account for about a quarter of the spending increases, he estimates). Instead, "the quality of health care is better than it used to be, due to new technology, and it's the higher cost of higher quality care that is increasing spending."

So, Furukawa said, "Any health care reform proposal that fails to provide concrete ways to slow the use of technology will not be able to slow increases in health care costs. Yet the benefits of medical technologies — which lead to improvements in the quality and quantity of life — have been proven to be quite high. "When economists have been nervy enough to try to estimate what improvements in life are worth, they conclude that the benefit-to-cost ratio is from 4:1 to 7:1," Pauly said last November.

In other words, the benefit of medical technologies is far higher (between four and seven times higher) than the costs of those technologies. But, Furukawa said, rarely do practitioners or policymakers stop to question whether the use of a new medical technology is appropriate. "Not all spending on medical technologies is good spending, especially when there's so much practitioner discretion," Furukawa said.

In other words, spending more on a new technology is not always better — in terms of improving a patient's quality or quantity of life — than spending less on an older technology. Furukawa gave the example of a new knee replacement device that's specifically designed for women (in contrast, the "old" knee is used for both women and men). The new gender-specific knee is $10,000 more expensive, and has been rapidly adopted, even though it may not make a difference for the patient.

"Even as the Baby Boomers age, we think we're still young," said Eugene Schneller, professor at the School of Health Management and Policy and director of the Health Sector Supply Chain Research Consortium. That mentality, Schneller says, leads to an increased use of new medical technologies, and a demand for all the latest bells and whistles.

"It used to be that supplies were a very small portion of a patient's total hospital bill. Today, supplies make up 30 percent of the total cost — and of that, 60 percent of the costs are physician preference items such as hips and knees," Schneller said. The question policymakers and practitioners should be asking, Schneller said, is what uses of medical technologies are appropriate. "We're in a medical arms race," he said.

"Practitioners are keen to spend money just to rule out possible problems. And often, there aren't great standards for how practitioners look at medical technologies." Both Schneller and Furukawa see information technology playing a role in helping practitioners determine which medical technology is most appropriate. "We need a much better information technology system to help practitioners know what works and doesn't work in certain cases," Schneller said.

For example, Furukawa said that there are large variations among states in spending on medical technologies. In Florida and California, for example, spending is 2 or 3 times higher than in Minnesota or South Dakota, yet patient results are not markedly different.

Information technology, then, "could help standardize best practices for procedures like knee replacements across the country and help practitioners look more strictly at which device is really the most appropriate for each particular patient," Furukawa said. Yet even then IT tools can only help if physicians adopt them, Furukawa said, harkening back to Pauly's "if only" clause.

What candidates should be saying about health care costs

One obstacle on the path to large-scale adoption of IT tools is cost. "If only we could pay the cost of full integration of information technology systems," Furukawa said, "but we don't even have a handle on what the total cost would be." What experts do know, Furukawa said, is that adoption of IT tools is currently low and price is an issue. Yet they don't know what the subsidy should be for practitioners to adopt new IT systems.

"And even providing a subsidy is no guarantee that practitioners will fully integrate IT systems into their practices," Furukawa said. "Information technology is a tool that practitioners can use to change their organizations and change their culture to decrease costs. But any sort of proposal for IT integration will have to specify a way to get physicians to adopt the new system. And changing physician behavior is harder than simply providing $10 billion in subsidies," Furukawa said.

So if neither John McCain nor Barack Obama is talking about reductions in health care costs in a way that makes sense now, what would make sense? "The candidates should be discussing their view of the role of government in keeping health care costs down," Schneller said.

While Pauly certainly sees a role for government in health care, on the subject of reducing costs he said, "If there are great ideas — like the implementation of electronic records — then a competitive market would be a great way to try them out. The government doesn't have to adopt them, babysit them and foster them along. The market ought to do that itself."

The current system, Pauly said, subsidizes employment-based health insurance by shielding income that goes to health insurance premiums from income taxes — even for people in the upper-middle and upper income classes. "Within this current system, there's not a lot of incentive for me to change my behavior — to go to a doctor who's more efficient because he uses IT tools, for example."

"Generally markets reward people for making efficient choices," Pauly said. "But this market is somewhat distorted." A good step for the government, then, Pauly said, would be to remove those distortions. "There ought to be the right incentive for practitioners to adopt — and patients to demand — efficiency-enhancing tools like information technology."

Nobel Laureate and W. P. Carey School economics professor Edward Prescott says. "A reliance on the market is the solution," he said. "Health care is too important not to be left to the market as we do food, housing, and clothing. The U.S. system used to work well before the massive government interference. What is needed is competition."

Bottom Line:

• While both presidential candidates propose to reduce health care costs, experts suggest that achieving higher quality health care at a lower cost is highly optimistic, at best.
• McCain and Obama's proposals are plagued by "if only" clauses ("if only practitioners would adopt information technology tools," for example) — and no one knows how to make those "if only" clauses a reality.
• Policymakers should be looking at what's really driving rapid increases in health care costs — the use of new technologies — and questioning whether the use of new technologies is always appropriate.
• Information technology tools could help standardize best practices and help practitioners look more strictly at which device is really the most appropriate for each particular patient — if only practitioners adopt those IT tools.
• Adoption of IT tools among medical practitioners is currently low and price is an issue; yet experts don't know what the subsidy should be (if there should be one at all) for practitioners to adopt new IT systems.
• The candidates should be discussing their views of the roles of the government and the market in keeping health care costs down.