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

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.