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Having a Broader Conversation About Healthcare Spending

Healthcare stakeholders must evaluate how to use resources more efficiently as it has become clear that driving down prices in one segment of care has not improved medical outcomes for the majority of patients.
Published Online: Feb 02,2018
Dan Leonard, President, National Pharmaceutical Council
Over the past decade, creative thinkers in government, industry, and academia have grappled with one of healthcare’s biggest challenges: how to slow the pace of spending while improving access to care. Their efforts have led to changes in public policy and spawned experiments in value-based contracts and other novel payment and delivery models.

By some measures, their efforts have paid off, as hospital systems, biopharmaceutical companies, health insurers, and clinicians have tested the new models, sometimes supported by government agencies. A dip in healthcare utilization is also playing a role. Recent government projections for growth in annual net expenditures, approximately 5.6% through 2025, are slightly lower than earlier estimates.1

On the surface, these trends seem encouraging. But what if it turns out that spending projections are down because families hit with higher insurance premiums and coinsurance are skipping doctor appointments or leaving prescriptions unfilled? In that case, we can’t honestly say that these efforts have been successful.
That’s why it’s time for us to have a broader, more honest conversation about healthcare spending. This may include striving to answer some daunting questions about how much spending is too much—or, is it worth the investment should the new spending prove to be of high value to patients? Healthcare isn’t unique. Our elected leaders have had similar conversations around spending on our nation’s defense in the past, and they will in the future as well. As part of this exercise, we must also consider which metrics or measures of health and longevity are reasonable and sensible for our society.

As a start in this direction, we can begin to elevate both the content and tenor of our national discussions about healthcare. Until now, too many of our conversations have focused on how to spend less, not necessarily on how to spend better. We gravitate toward policy proposals that employ blunt instruments such as arbitrary caps on prices or limits on spending in various sectors.

There are 3 problems with this way of thinking. First, not all care is created equal. If we can effectively squeeze out waste, whether it’s unnecessary administrative costs or expensive and ineffective interventions, we can allocate resources to treatments that deliver better outcomes. The National Academies of Sciences, Engineering, and Medicine, for example, claims that we spend $750 billion annually on low-value care or waste.2

Second, in our minds and our discourse, we often reduce healthcare to specific costs at a point in time rather than talking about a person’s lifetime investment in health. Third, we imagine that the tools and treatment options we offer patients today will be the same tomorrow—not realizing that investments in research will soon equip us with new treatments that keep people healthy and could cost far less than today’s interventions.

The search for silver bullets that deliver healthcare savings and the general confusion over costs versus investments account for our failure to address structural flaws, such as waste in the system. This is why I stress the need for new discourse among all stakeholders who share a commitment to helping patients. That includes pharmaceutical companies, hospitals, doctors, insurers, caregivers, and all other participants in the healthcare system that serves us today.

In recent years, stakeholders in each of these sectors have squandered precious time and resources on pointing fingers at other segments of the healthcare system. Recognizing that no segment is perfect, we should concentrate on strategies to enhance different areas and commit resources more wisely on what matters most for patients.

We also have to recognize that value isn’t synonymous with cost savings. We agonize over how to reduce the total bill for healthcare when, in fact, the real value for patients may lie in increased spending in one area and reduced spending in another. For example, with HIV in the 1980s and 1990s, most health spending occurred in the hospital or for palliative or hospice care. Today, HIV is being treated successfully with medications. Overall costs of treatment may not have come down, but health improvements have been dramatic.

With this in mind, last fall the National Pharmaceutical Council (NPC) issued a request for research proposals that looked at fundamental needs driving healthcare policy. In response, organizations submitted ideas that could help shift national discussions of value in more fruitful directions. Within this context, it’s permissible to ask whether there are reasonable limits to healthcare spending and, if so, how they should be defined.

To answer such questions, we need a better window into healthcare economics, including how investments in biopharmaceutical innovation today may affect future net spending. The impact may be highly positive if pharmaceutical advances reduce the need for costly in-patient procedures, as history suggests they will. If, at the same time, innovations prolong life expectancy, we will be confronted by a whole different set of cost calculations. The sooner we lay the groundwork for these trends in health care economics, the better.