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Original article URL: http://bridgemi.com/2014/08/common-sense-health-care-reforms-can-save-billions/

Guest commentary

Common sense health care reforms can save billions

 David Hutton is a Searle Assistant Professor of Health Management and Policy, Assistant Professor of Industrial and Operations Engineering, University of Michigan Health System and Center for Healthcare Research & Transformation Fellow

David Hutton is a Searle Assistant Professor of Health Management and Policy, Assistant Professor of Industrial and Operations Engineering, University of Michigan Health System and Center for Healthcare Research & Transformation Fellow

According to the Organization for Economic Co-operation and Development, the United States has health outcomes similar to if not worse than other developed countries. But we outspend them on health care by a two-to-one margin, spending over 17% of our GDP. We are not getting great value for our high health spending.

High health spending causes big problems for Michigan’s governments and businesses. Retiree health insurance costs have played an important part in the Detroit bankruptcy, and healthcare expenses add more than $1,500 in costs for every car sold by Michigan automakers. These high costs lead insurance premiums to increase, making them unaffordable (a prime complaint of those who have chosen not to purchase health insurance).

To cut costs, many may suggest across-the-board spending cuts, but these haven’t worked because they can discourage access to valuable, life-saving procedures. We ought to find creative ways to redirect our spending to health care that gives us the best value or “bang for the buck.”

Doing this could retain or improve our population’s health at lower costs. For example, co-pays are typically set based on the cost of the drug or procedure, but not based on the value that drug or procedure gives to patients. There is a growing body of evidence assessing the cost effectiveness or value of healthcare interventions. This information could be used to inform the redesign of insurance policies to encourage the most valuable care.

Exhibit A for waste

Consider the case of the biologic drug Lucentis, used to treat degenerative eye diseases. Lucentis costs $2,000 per dose and is administered once a month. One doctor billed Medicare $11,789,850 in 2012 for Lucentis injections. However, there is an equally-effective drug, Avastin, available for $50 per dose. Numerous studies comparing these drugs clearly show that treating new patients with Lucentis is not a cost-effective therapy when compared with treating them with Avastin.

But Medicare and most private insurance companies will pay for both therapies. Insurance policies could be changed to encourage using Avastin as the first-line therapy by restricting reimbursement for Lucentis or changing reimbursement and co-pays to favor Avastin. Not only could taxpayers and insurance ratepayers save more than $1 billion dollars per year by using the cheaper drug, Avastin, but a vulnerable senior without supplemental insurance could also save co-pays of almost $5,000 a year.

Warren Buffett describes US health costs as “a tapeworm eating at our economic body.” We need more honest discussions about the costs and value provided by health services. We can no longer shy away from the very real trade offs between health outcomes and the resources we spend to achieve them. We should not spend billions on care that does not improve our health.

There are some recent encouraging developments. The University of Michigan’s Center for Value-Based Insurance Design (VBID) has developed creative solutions like changing insurance co-pays to encourage high-value care and discourage wasteful spending. These ideas were included in the Affordable Care Act and in Michigan’s Medicaid expansion legislation, the Healthy Michigan Plan.

These ideas have bipartisan support and have been championed by Michigan leaders including Senator Debbie Stabenow, Congressman John Dingell and Governor Rick Snyder. Michigan is already leading in health care innovation with programs like Healthy Michigan.

Business leaders and health insurance companies in Michigan should continue that spirit of innovation by re-designing policies to encourage high-value health care and discourage wasteful spending. Doing so could help protect Michigan’s economy and its most vulnerable citizens.

Bridge welcomes guest columns from a diverse range of people on issues relating to Michigan and its future. The views and assertions of these writers do not necessarily reflect those of Bridge or The Center for Michigan.

21 comments from Bridge readers.Add mine!

  1. Erwin Haas

    I do believe that Avastin is not licensed to ophthalmologic use; the FDA as well as numerous other governmental “benefits” cause most of the health care cost excesses.

    Medical care costs exploded in 1966 after medicare and -caid were introduced. Numerous economic studies have documented that the Certificate of Need laws blunt competition and increase health care costs by 10% (Herzlinger when she was at the FTC.) The private insurance market is fragmented by state regulators guarding their satrapees. The FDA serves the monopolies of large drug companies. And so it goes.
    I’d hate to have a professor at U of M make medical decisions (too many of my relatives are grads, I know the tribe well). Better we de-fund the bureaucracies protecting the corporate interests, subjecting them to the tender mercies of the marketplace.

    1. Elvis5674

      This is form the National Institutes of Health, and it does appear that both can/are be/being used to treat age-related macular degeneration.

      http://www.nih.gov/news/health/apr2012/nei-30a.htm

      1. Erwin Haas

        The NIH is not the FDA; the latter confers on drugs valuable legal status. Medical science be damned.

  2. John S.

    Avastin is an anti-cancer drug. There seem to be three options: laser surgery, vitamins, and lucentis. When I asked my eye doctor, he was vague about the costs/benefits of these different approaches to dealing with wet macular degeneration. The main point of the article is excellent. Why not insist on evidence based care? There are so many expensive drugs out there that have serious side effects and only minimal patient benefits beyond a placebo or a generic drug. There’s seldom discussion of the most obvious and best way of controlling health care costs–let’s get healthier as a population through better nutrition, exercise, cutting down on alcohol, tobacco, and drug use, wearing seat belts, wearing bicycle and motorcycle helmets, etc. Nobody wants the nanny state, but there are limits to what medicine can do, and for a very long time now the benefits of medicine have been vastly exaggerated.

    1. Elvis5674

      This is form the National Institutes of Health, and it does appear that both can/are be/being used to treat age-related macular degeneration.

      http://www.nih.gov/news/health/apr2012/nei-30a.htm

      1. John S.

        Thanks for the information and I’ll be looking into it.

    2. Michael

      Excellent commentary and I agree with you!!

  3. Jeff

    Health care reform and common sense… Ne’er the two shall meet.

    Drug companies have no reason to reduce prices. They curtail spending by reducing their greatest expense which is research. Insurance companies have no reason to reduce prices because the more money that goes into the health care pie, the more valuable their slice of the pie becomes. Much like higher educatiion, the health care cow grazes leisurely without any concern of meeting a butcher, passing on whatever costs it wants to increase onto an increasing overburdened consumer.

  4. R.L.

    I am on medicare.. As unpopular as it may be we must do something soon to address treatments ,medications,surgeries etc. If we don’t we will be in serious trouble in the next decade. R.L.

  5. Lori

    Health care decisions should be made by DOCTORS. They are the ones who are EDUCATED on the matter. The problem is with the pharmaceutical and insurance industries and their unethical practices. See the “SICKO” documentary from 2007 as a starting point.

  6. Ken McFarlane

    Common sense moves are fine and should be taken, but serious surgery is required. Detach insurance coverage from employment. Remove the profit motive from health care. Create a Public Health Service by combining Medicare, Social Security, and the VA. Give doctors a good, but not obscene salary. Set up Health Care as a right for all and as a noble public service. Ahh, it’s nice to dream.

    1. Patsy

      Opening social security (retirement funds) to the health care industry would certainly be the dream of the health/drug cabal. We need medicare for all and expand social security as a universal retirement system; taxing companies to support both systems instead of providing tax incentives to them for providing the benefits. I guess we have a better chance of protecting ourselves from corrupt or incompetent politicians than we do of protecting ourselves from the health care and investment management profiteers.

      We will never have a healthier population if we continue to protect the profits of the health/drug cabal by increasing copays and premium sharing as that prevents low income people from seeking early care because they cannot afford to pay their new and ever increasing “share” of the cost. I have family members who dropped insurance because they could not afford to use it and decided the best solution would be to spend the money instead on getting some basic care. Which, of course, left them exposed to dire consequences if a major illness or accident occurred.

    2. George Ranville

      Ken, Utopia. You want to turn the rest of the medical community into the VA. Not a good idea as evidenced by how poorly that government-run health care organization operates. In that type of organization there is no incentive for anyone to do anything positive – so they don’t. Just the bare minimum.

  7. Dave

    Doctors are businessmen. They make decisions like business man. I had the same surgery twice in the last 3 years, a cist removed. The first DOCTOR, was very concerned that I get an MRI at a hospital he owned part of before the surgery. 6 months after the surgery, the cist was back. The second DOCTOR did not own part of the hospital, and did not think that an MRI was necessary. The cist has been gone for 2 years. In a capitalist system, shouldn’t the better DOCTOR make more? Wasting $5,000 on an MRI made Doctor #1 more money, we need to fix that, and giving the doctors all the say, as we have in the pasty, is a major mistake.

  8. Neil

    Obamacare makes healthcare government centered. The citizen must make healthcare patient centered. The citizen must be become educated about health and sickness. The educated citizen learns that he/she has choices. One choice is between drug medical care and natural healing. The wellness or holistic doctor can recognize and treat diseases that MDs are not trained for.

  9. Dixie Wong

    A message from Acting US Surgeon General: ” We don’t have health care. We have sick care”, ” It is our patriotic duty to walk and to cook”!

  10. Susan Bender

    Means test Medicare. Too much is absolutely free, which is ridiculous. There’s way too many tests ordered and I never remember a patient asking, “What good is this test going to do for me?” It is truly a medical-industrial complex and patients don’t have enough information to make slow down the malignant ball that keeps rolling downhill faster. Fewer people than ever read newspaper or watch the real “news” so how are they going get exposed to the facts they need to know? Maybe when it hits your personal pocketbook, people will start asking questions.

  11. Bob Thompson

    Once again, the irony is that I sound like the true conservative here. All of the biggest economies in the world use some sort of socialized health care systems or government regulated health care systems that include free market and private health care organizations, and they attract all of the same pharmaceutical companies and health related businesses that earn healthy profits while providing better care at lower costs. That’s based on facts – not idealogical or political beliefs, and/or worse scare tactics!

  12. Bob Thompson

    (While I know it’s not good internet manners to reply to my own reply…) And to add insult to injury, with very few exceptions, every country we have “rebuilt” since WWII, including most recently Iraq, we have instituted public health care systems (as well as free education up to and including college!) Huh! Again, I sound like the conservative here! (Dare I harken back to Thomas Aquinas and Natural Law – God’s will is self evident! And this comes from an agnostic! But another fact for all of my religious friends, the current system marginalizes the most vulnerable in our communities. Doesn’t sound very Christian to me!)

    I have no interest in business models that rely on me or the poor to pay the health care costs of the employees from such as companies as Dollar Store or Walmart. Any and all for profit companies have no other interest than to maximize their profits and lower their costs – including “externalizing costs” such as health care – passing that cost to some else.

  13. Bob Johnson

    Many of these comments suggest better ways of determining health costs. Some of the comments are valuable but all evade any answer to the question of who will enforce any price decisions. One simple step forward would be simply to require that hospitals publish the price of all their services, publically, in a way accessible to all. Then let the market decide. Right now, the price of nearly everything that hospitals do is hidden from public view.

  14. John P. Sullivan

    The single biggest problem with health cost is insurance. It’s the wrong financial model for health care. Insurance is fine for property, life and other risks, but it’s too expensive for health care. Our best approach is Medicare for all. Health care should be largely non-profit thereby removing unnecessary overhead marketing, sales and administrative costs. Medicare operates on 3 to 4% overhead while insurance companies overhead costs range from 15% to 30%.

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