Testimony: Controlling Costs and Increasing Efficiency in Health Care

March 10, 2009

The Subcommittee on Health of the House Committee on Energy and Commerce invited me to testify this morning about the opportunities and challenges that the Congress faces in trying to make the health care system more efficientso that it can continue to improve Americans health but do so at a lower cost. In my remarks I emphasized serveral points:

Evidence suggests that a substantial share of our national spending on health care contributes little if anything to overall health. Policymakers could seek to improve efficiency by changing the ways that public programs pay for health care services or by encouraging such changes in private health plans. In both sectors, those changes could in turn exert a strong influence on the delivery of care.

Reducing unnecessary spending without also affecting services that do improve health is challenging, but many analysts think that providing stronger incentives to control costs and generating and disseminating more information about the effectiveness of carecould be important steps.More information is needed about which treatments work best for which patients and about what quality of care different doctors, hospitals, and other providers deliver. But absent stronger incentives to improve value and efficiency, the effect of information alone will generally be limited. Many analysts would agree that payment systems should move away from a fee-for-service design and should instead provide stronger incentives to control costs and ensure reward value. Many analysts would also agree that the current unlimited tax exclusion for employment-based health insurance dampens incentives for cost control. Those incentives could be changed by restructuring the tax exclusion in ways that would encourage workers to join health plans with higher cost-sharing requirements and tighter management of benefits.

Despite broad support among analysts for moving in these directions, there is substantial uncertainty about the effects of many specific policies. In particular, many policies in these areas might not yield substantial savings within a 10-year window. There are a number of reasons for this. In some cases, savings materialize slowly over time because an initiative is phased in. In other cases, initiatives thatwill generate savingssuch as prevention efforts or disease managementhave substantial costs to implement. In some cases, initiatives cause reductions in national health spending that the federal budget does not capture. In yet other cases, new structures for health care delivery improve health but do not provide incentives to reduce costs. And in other cases, limited evidence about effects on efficiency is available.