Benedic Ippolito offers ideas for cutting American health care costs.
The data show that health spending poses a first-order challenge for federal policymakers, especially if recent cost trends persist. Any serious effort to address long-term spending and revenue imbalances must therefore confront rising health care costs, particularly in the major health programs. This reality does not justify indiscriminate cuts to health care spending, however, as some expenditures generate substantial health and welfare gains. Instead, policymakers should focus on spending least likely to deliver value—most often where markets lack key features such as competition or transparency, or where government program create poor incentives or facilitate wasteful spending. …
… Consolidation represents a consistent challenge in public and private health care markets. As I have previously written, it is a major contributor to spending that is weakly tied to value …
… There are several opportunities to reduce incentives to consolidate and improve market functioning. Policymakers can continue working to expand Medicare’s use of site-neutral payments where appropriate.Doing so would not only lower Medicare spending, but give hospitals less incentive to acquire other entities, like doctor’s offices. …
… There are several examples where spending in public programs is loosely tied to value or beneficiary wellbeing. For instance, evidence suggests that Traditional Medicare (TM) does a poor job of constraining the use of low value services. Large spending variation across the country—which is driven by differences in use of services as opposed to prices—is not systematically tied to variation in enrollee characteristics or outcomes. Indeed, efforts to increase antifraud efforts have been shown to reduce geographic variation in TM. Policymakers should consider further efforts to monitor and deter the use of services that drive spending but not health outcomes in TM (the recently announced “WISeR” model from CMS is consistent with this goal). There are also opportunities to address prices in TM that are likely set inappropriately. …
… Finally, federal policymakers should reconsider the use of open-ended subsidies for health care in general (i.e., subsidies which increase indefinitely with the cost of health care). These arrangements are common across the U.S. health care landscape.
