Perspective
Beyond the “R Word”? Medicine's New Frugality
N Engl J Med 2012; 366:1951-1953May 24, 2012DOI: 10.1056/NEJMp1203521
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open through May 9, 2012
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Quietly, Washington policymakers have begun to concede the need to weigh health care's benefits against its costs if our country is to avert fiscal ruin. That costs must be counted against benefits is common sense in other domains — and among health policy professionals. But it's anathema in public discussion of medical care. To silence talk of tradeoffs, politicians invoke the “R word” — rationing.
The R word's power to stop conversation reflects the popular belief that cost should be no object at the bedside. This belief has circumscribed elected officials' efforts to control medical spending. Both Democrats and Republicans have stuck to variants on a standard story: cutting services that yield no value will do enough. Proposals from both parties have thus emphasized care coordination, administrative efficiency, and the elimination of useless interventions.
And much can be done along these lines. State-of-the-art management methods, research on comparative effectiveness, and incentives for providers to apply this know-how can make care cheaper and better.1 It has become common wisdom that 30% of health care spending, or $800 billion a year, is wasted on ineffective measures. But cutting this 30% (an estimate from the Dartmouth Institute for Health Policy and Clinical Practice2) is a distant hope. Useless care, critics note, is easy to spot after the fact; it's much more difficult to recognize at the moment of clinical decision.3
The Patient-Centered Outcomes Research Institute created by the Affordable Care Act (ACA) will move us forward on this front. So will initiatives like the American Board of Internal Medicine Foundation's new “Choosing Wisely” campaign, which has enlisted 17 medical specialty societies in an effort to discourage overuse of tests and treatments. But high-quality studies of clinical effectiveness can cost tens of millions of dollars and take many years; they're unlikely to identify much of the wasted 30% in the near term.
Even if we could eventually eliminate that waste, we would merely postpone the reckoning. Medical costs typically increase by a few to several percent per year (after adjustment for inflation). So shaving, say, 3 percentage points each year from the 30% could hold spending steady for a decade or so. But once we cut the entire 30%, costs will resume their rise — unless we start saying no to some beneficial care. Eliminating only ineffective care would shift the cost curve down but wouldn't change its slope.
Grudgingly, policymakers have begun to recognize this reality. Their actions, though not their words, move beyond the standard story. Some controversial ACA provisions discourage the development and use of technologies that deliver therapeutic benefits. The Independent Payment Advisory Board (IPAB) will have the power to nudge providers toward more frugal practice by changing Medicare payment policies — and clinicians' incentives — when spending exceeds target levels. Accountable care organizations may achieve efficiencies and encourage quality, but their financial rewards for thrift will disincline doctors to order some tests and treatments that yield benefits.
Beyond Medicare, the “luxury tax” on employment-based health plans looms as a powerful constraint on the adoption of new therapies. Initially, the effect will be minimal: family coverage won't trigger the tax unless it's priced above $23,000. But the number of Americans affected will grow rapidly, since the liability threshold will rise more slowly than will per capita health spending. (For decades, medical costs have risen 2 to several percentage points faster than the Consumer Price Index [CPI], but the luxury-tax threshold will increase annually by only 1 percentage point more than the CPI.) Thus, over time, this tax will become a more potent deterrent to the adoption of expensive interventions. Employers will pay the tax, but workers will bear its burden as firms shrink salaries to cover the cost. Preferences will probably shift toward medical frugality as employees opt, at the margin, for higher pay over more generous coverage.
The same basic strategy animates Republican proposals to stem spending growth by converting Medicare into a subsidy for purchasing private insurance. The subsidy would increase more slowly than would overall health care spending — House Republicans propose limiting it to the growth of the gross domestic product (GDP) plus 0.5%.4 Thus, beneficiaries would have to choose between paying the full additional price for plans that keep pace with rising costs and enrolling in plans that economize sufficiently to keep their costs within the subsidy cap. Like the luxury tax, this model relies on private plans to do the clinical limit setting.
Health plans can achieve this degree of frugality only by becoming more selective in adopting new technologies. The same goes for accountable care organizations that pursue Medicare “shared savings” and doctors and hospitals that adapt to IPAB payment reforms. Such frugality will mean forgoing some therapeutic benefit: without perfect information about clinical effectiveness, it's not possible to say “no” only to nonbeneficial technologies.
Other proposals could hasten this new frugality. Last year's federal debt-ceiling deal calls for Medicare cuts that could catalyze the development of thrift-promoting incentives. Some lawmakers support raising Medicare's eligibility age. That would shunt “young” seniors into the private insurance market, subjecting them to the same economizing incentives that most younger Americans face as premiums rise. And since the “young elderly” are sicker, on average, than today's private insurance subscribers (few of whom are of Medicare age), premiums would increase for most of those who are covered by plans to which these seniors subscribe. Employer-provided plans would approach the luxury-tax trigger faster, intensifying pressure on businesses, workers, and retirees to choose cheaper coverage.
Discussions in Congress about capping the tax exclusion of employment-based health benefits have also become more serious. For deficit cutters, this massive exclusion is a tempting target. Capping it would push labor markets toward thriftier medical coverage as employers substituted higher wages for taxable health benefits.
The new frugality can hold medical spending to an affordable long-term growth rate if its incentives to restrain the adoption and use of new technologies are phased in. But public officials take a large risk by refusing to admit that this restraint will mean forgoing therapeutic benefits. Political rivals, as well as stakeholders who are harmed by such restraint, will call attention to this effect, as incentives for saying “no” begin to bite. America's entrepreneurs of revelation — lawyers, journalists, and others — will expose hidden tradeoffs between cost and therapeutic possibility. The likely backlash would postpone our reckoning with health care spending.
The 1990s recoil against managed care offers a warning. Exposés of financial incentives to withhold treatment, anger at health maintenance organization (HMO) bureaucrats, and expectations of access without regard for cost led to managed care's failure as a means of thrift. When, in 2000, the U.S. Supreme Court said “inducement to ration care goes to the very point of any HMO scheme,”5 it acknowledged what health plans had not. The Court allowed such “inducement” under the federal law governing employee benefits, but by then consumers were in revolt.
The ACA itself offers a channel for backlash. The IPAB's power to promote thrift through Medicare payment reform is constrained by a prohibition on issuing “any recommendation to ration health care.” Stakeholders intent on resisting the new frugality could sue under this provision; thus, in both law and politics, the R word threatens long-term cost containment.
There's talk of a “grand bargain” on the federal deficit, but any deal that doesn't reckon with medical costs would be chimerical. Medicare and Medicaid are the main drivers behind nightmarish long-term deficit projections, and U.S. health spending is on track to reach more than one fourth of the GDP by 2035. Democrats and Republicans must come together to tell Americans that we can't afford all the things that medicine can achieve — and that we must make painful choices between health care and other needs. Unless we can do so, without wielding the R word against leaders who speak frankly about these choices, serious cost control will not be sustainable.
Disclosure forms provided by the author are available with the full text of this article at NEJM.org.
This article (10.1056/NEJMp1203521) was published on May 2, 2012, at NEJM.org.
Source Information
From the Georgetown University Law Center, Washington, DC.
- References
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