Controlling Health Care Coststhrough Agency Oversight:

The Conflict between the Morally Right and the Socially Feasible

February 18, 2011February 18, 2011

David Orentlicher, MD, JDDavid Orentlicher, MD, JDVisiting Professor of LawVisiting Professor of Law

University of Iowa College of LawUniversity of Iowa College of LawSamuel R. Rosen ProfessorSamuel R. Rosen Professor

Indiana University School of Law-IndianapolisIndiana University School of Law-Indianapolis

PPACAPPACA Major impact on access to health Major impact on access to health

carecare By 2019, 94 percent of Americans will By 2019, 94 percent of Americans will

be covered (up from 83 percent now)be covered (up from 83 percent now) Legal residents under the age of 65Legal residents under the age of 65

Little impact on health care cost Little impact on health care cost inflationinflation Costs will rise 6.7 percent a year Costs will rise 6.7 percent a year

between 2015 and 2019 instead of between 2015 and 2019 instead of 6.8 percent a year6.8 percent a year

Cost containmentCost containment If PPACA neglected cost containment, If PPACA neglected cost containment,

how can we address the problem in how can we address the problem in the future?the future? Scholars regularly—and rightly—propose Scholars regularly—and rightly—propose

public, transparent processes for deciding public, transparent processes for deciding limits on coveragelimits on coverage

Americans cannot make explicit choices Americans cannot make explicit choices when life-and-death decisions are at stakewhen life-and-death decisions are at stake Either public transparent processes never Either public transparent processes never

make the difficult choices, the difficult choices make the difficult choices, the difficult choices that are made unravel, or the processes are that are made unravel, or the processes are discardeddiscarded

The highest spending countryThe highest spending country Health care spending in economically-Health care spending in economically-

advanced democraciesadvanced democraciesUSUS $7,290/capita 16% of GDP $7,290/capita 16% of GDPSwitzerlandSwitzerland 61% of US 61% of US 67% of US 67% of USCanadaCanada 53% of US 53% of US 63% of US 63% of USGermanyGermany 49% of US 49% of US 65% of US 65% of USJapanJapan 35% of US 35% of US 51% of US 51% of USNew Zealand 34% of USNew Zealand 34% of US 57% of US 57% of US

OECD Health Data 2009 (2007 data except 2006 Health Data 2009 (2007 data except 2006 for Japan)for Japan)

Inadequate return on our health care Inadequate return on our health care $$

US health system is less efficient US health system is less efficient than systems in:than systems in: Spain, France, Germany, Austria, ItalySpain, France, Germany, Austria, Italy UK, Denmark, NorwayUK, Denmark, Norway Japan, China, AustraliaJapan, China, Australia Canada, Mexico, Colombia, VenezuelaCanada, Mexico, Colombia, Venezuela

Evans, et al., 323 BMJ 307 (2001)Evans, et al., 323 BMJ 307 (2001) US patients treated in higher-cost US patients treated in higher-cost

communities have similar outcomes communities have similar outcomes to US patients in lower-cost to US patients in lower-cost communitiescommunities

Higher prices in USHigher prices in US Costs are higher in US in large part Costs are higher in US in large part

because prices for health care because prices for health care services are higherservices are higher Governmental buyers of health care in Governmental buyers of health care in

single-payer systems can bargain more single-payer systems can bargain more effectively than can US insurance effectively than can US insurance companies with doctors, hospitals and companies with doctors, hospitals and pharmaceutical companiespharmaceutical companies

Hospital mergers have led to greater Hospital mergers have led to greater negotiating leverage for sellers of negotiating leverage for sellers of health care health care

Peterson & Burton, Congressional Research Service (2007)Peterson & Burton, Congressional Research Service (2007)

Physician incentives to over-provide Physician incentives to over-provide carecare

Fee-for-service reimbursement => Fee-for-service reimbursement => quality-insensitive physicians and quality-insensitive physicians and hospitalshospitals When physicians and hospitals are paid When physicians and hospitals are paid

more to do more, regardless of outcome, more to do more, regardless of outcome, they’ll do morethey’ll do more

Especially when they lose money on higher Especially when they lose money on higher quality care (Urbina, NY Times, Jan. 11, 2006)quality care (Urbina, NY Times, Jan. 11, 2006)

Example of clinic that switched from Example of clinic that switched from salary to commission on fees generated; salary to commission on fees generated; doctors scheduled more appointments doctors scheduled more appointments and ordered more blood tests and x-raysand ordered more blood tests and x-rays

Hemenway, 322 NEJM 1059 (1990)Hemenway, 322 NEJM 1059 (1990)

PPACA and cost controlPPACA and cost control Many different provisions designed Many different provisions designed

to contain coststo contain costs Largest savings through reductions Largest savings through reductions

in Medicare reimbursementin Medicare reimbursement Serious question whether all of the Serious question whether all of the

provisions really address the cost provisions really address the cost problemproblem PPACA doesn’t take on the major PPACA doesn’t take on the major

drivers of higher costs other than to drivers of higher costs other than to some extent through demonstration some extent through demonstration projectsprojects

Next steps for cost controlNext steps for cost control Many different strategiesMany different strategies I’ll discuss a strategy common to I’ll discuss a strategy common to

a wide range of proposals for a wide range of proposals for reformreform The creation of an independent The creation of an independent

agency that will decide how to agency that will decide how to ration our limited health care ration our limited health care dollars through a public, dollars through a public, transparent processtransparent process

Public, transparent processesPublic, transparent processes Ruger’s shared health Ruger’s shared health

governance paradigmgovernance paradigm Fleck’s informed democratic Fleck’s informed democratic

consensus modelconsensus model Daschle’s Federal Health BoardDaschle’s Federal Health Board PPACA’s Patient-Centered PPACA’s Patient-Centered

Outcomes Research InstituteOutcomes Research Institute Proposals differ in terms of who has Proposals differ in terms of who has

responsibility for decidingresponsibility for deciding All provide for a public, transparent All provide for a public, transparent

processprocess

Public, transparent processesPublic, transparent processes But public, transparent processes But public, transparent processes

for life-and-death decisions for life-and-death decisions provoke intolerable social conflictprovoke intolerable social conflict Calabresi and Bobbitt, Calabresi and Bobbitt, Tragic ChoicesTragic Choices

Inevitably, some important social Inevitably, some important social values will be sacrificedvalues will be sacrificed If we favor patients who will receive If we favor patients who will receive

greatest benefit, we disfavor greatest benefit, we disfavor patients with the greatest needpatients with the greatest need

We therefore try to disguise We therefore try to disguise rationing choicesrationing choices

Public, transparent processesPublic, transparent processes Examples of failed public, Examples of failed public,

transparent processestransparent processes Allocation of kidney dialysisAllocation of kidney dialysis Oregon Health PlanOregon Health Plan Certificate-of-need legislationCertificate-of-need legislation Breast cancer screening guidelines Breast cancer screening guidelines

revision in 2009revision in 2009 UK’s National Institute of Health and UK’s National Institute of Health and

Clinical Excellence (NICE)Clinical Excellence (NICE)

Using non-transparent processesUsing non-transparent processes Protect against pitfalls of non-Protect against pitfalls of non-

transparencytransparency Arbitrary and biased decision makingArbitrary and biased decision making

Reform the economic incentives Reform the economic incentives that drive doctors and other that drive doctors and other providers to provide too much providers to provide too much carecare Pay physicians salary or capitation Pay physicians salary or capitation

(with quality-based bonuses)(with quality-based bonuses) Minimize outside sources of income Minimize outside sources of income

that encourage more carethat encourage more care

OECD Organisation for Economic Co-operation Organisation for Economic Co-operation

and Development (www.oecd.org). The and Development (www.oecd.org). The 33 member countries include: 33 member countries include: U.S., Canada, Mexico, ChileU.S., Canada, Mexico, Chile Denmark, Norway, Sweden, FinlandDenmark, Norway, Sweden, Finland U.K., France, Germany, Netherlands, U.K., France, Germany, Netherlands,

SwitzerlandSwitzerland Portugal, Spain, Italy, Greece, Turkey, IsraelPortugal, Spain, Italy, Greece, Turkey, Israel Hungary, Czech Republic, Slovak Republic, Hungary, Czech Republic, Slovak Republic,

Slovenia, Poland Slovenia, Poland Japan, KoreaJapan, Korea Australia, New ZealandAustralia, New Zealand