How to Tackle Health Spending Without Taking the Easy — and Wrong — Path

Health care spending continues to increase at a rate that exceeds the growth of inflation — reaching $3.5 trillion in 2018 alone. These mounting costs create significant pressure for policymakers to act.

A range of potential approaches exists. Unfortunately, some of these approaches, such as the proposed use of an international pricing index for Medicare Part B drug pricing, are blunt policy tools that use a blanket approach focused solely on price reduction to address rising costs. We believe that the nuance applied in other industries to understand the root causes of rising costs and examine trade-offs — or in this case, evaluate health gains/losses versus costs — is a better approach to address rising health spending.

New research by RTI Health Solutions and my group, the National Pharmaceutical Council, illustrates how these more nuanced approaches can be applied to better diagnose and target problematic areas. In a new paper in Health Affairs, we examine the temporal impact of prevalence changes, general inflation and associated health gains/losses on overall health spending.

To do so, we examined health spend for the leading seven causes of death and illness between 1995 and 2015 to estimate changes in the cost and burden of each disease over the past 20 years.

A critical component of this research is that when we assessed those seven conditions — heart disease, stroke, breast cancer, lung cancer, chronic obstructive pulmonary disease, diabetes and HIV — we carefully controlled for two factors that often confound health spending discussions. We adjusted for inflation as well as for the growth in each condition by looking at per-patient costs. In an aging society, we expect to see more cases of cancer and heart disease, so looking at the spend in aggregate risks conflating demographic growth with changes in price or utilization.

The study found that for six of the seven disease areas, the 20-year spend was both cost-effective and improved patient outcomes. What’s more, while total medical costs continue on an upward trend, the analysis found that a significant portion of increases can be explained by changes in disease prevalence and inflation. The role of increased prevalence in driving spending suggests that more targeted approaches such as improving prevention efforts may create a greater impact on rising costs for these conditions than policies focused on unit costs.

In four of those seven conditions, the improvements in health were associated with declining per-person costs. In heart disease, stroke, lung cancer and HIV, we have achieved a longstanding goal of health policy: better outcomes for lower costs.

In breast cancer and diabetes, we saw better outcomes for a modest additional cost. Only in COPD did we spend more and get less in 2015 than we did in 1995. This underscores the need to tailor future cost-management strategies specifically for diseases where increased spending is not leading to commensurate benefits.   

The challenge, then, is not so much the easy work of cutting medical spending by finding the places where the numbers are biggest, but rather the much-harder task of examining — and eliminating — the places in our health care spending where the value delivered is smallest. Making that shift, from thinking about cost in isolation to thinking about costs in relation to benefits, is the only way that we can reverse the long, slow slide toward an unsustainable health care system.


Michael Ciarametaro serves as the National Pharmaceutical Council’s vice president of research.

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