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Obama Adviser: Healthcare Cost Curve May Bend Down Without Reform

Morgen on October 12, 2009 at 1:05 pm

David Cutler is a prominent Harvard economics professor who was a key architect of President Obama’s health reform proposal during the election campaign. While he is apparently not serving in the Administration as reported earlier this year, he has continued to be a very vocal advocate for health reform with numerous media appearances in recent months. He’s not a disinterested party. Which makes these comments from Cutler published in the New England Journal of Medicine earlier this month more than noteworthy:

If there is one certainty about the health care sector, it is that its costs increase over time. U.S. health care spending has more than doubled as a share of national income over the past half-century, and most forecasters believe that the steep growth will continue. The Congressional Budget Office, for example, projects that health care spending will account for one third of the U.S. gross domestic product (GDP) by the middle of this century, up from 17% today. In their latest report, the Medicare trustees have forecast similar growth rates for Medicare costs.

But what if this conventional wisdom is wrong? In my view, several pieces of evidence suggest that increases in health care costs might actually moderate significantly, if not decline relative to the GDP, over the next few decades — even without the type of systemic changes proposed in current legislative efforts. As a result, the financing crisis in health care could be much less dire than most people believe.

Cutler makes the case for a decreasing cost curve based on three factors: 1) a declining pipeline of new drugs and medical devices, 2) the potential for technology to lower the administrative costs of health care, and 3) improvement in the management of chronic health conditions.  With regards to the first point, he also argues that the costs of new drugs and devices coming onto the market will decrease over time as many of these will be more effective and less expensive to produce as alternatives currently available on the market.

The most important thing to note here is that these are all market forces which Cutler is referring to. And I believe there is a strong basis for his arguments, especially with regards to the potential for efficiencies to be gained through the increased application of technology. I’ve been involved in one way or another with Info Tech consulting my entire career, and it is widely known that most segments of the health care industry, particularly the providers, are grossly lagging in IT innovation. In many cases, they are 2 or more generations behind in implementing best practices and best-of-breed computer systems.

Now, lest anyone think that Cutler is blatantly undermining the Administration’s arguments for healthcare reform, he closes his article with a statement reaffirming his belief that reform is necessary. But given the importance that the Administration has placed on “bending the cost curve” as an argument for reform, I think Cutler’s arguments are deserving of more attention. Particularly, I think the question should be asked whether the reforms included in ObamaCare will actually subvert the sort of market-driven cost savings which Cutler envisions. At a minimum, it seems to me that the massive expansion of coverage and care envisioned by Democrats could very quickly overwhelm the ability of providers to implement the strategic and organizational changes necessary to realize these savings.

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Category: Health & Education |

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