Synopsis and Overview

Framing synopsis. Healthcare cost increases continue to outpace the price and spending growth rates for the rest of the economy by a considerable margin (Bureau of Labor Statistics, 2009). At $2.5 trillion and 17 percent of the nation’s gross domestic product in 2009 (CMS, 2009), health spending in the United States commanded twice the per capita expenditures of the average for other developed nations, and concerns have never been higher on the economic implications for individuals, families, businesses, and even the overall capacity and fiscal integrity of critical functions for government at the federal, state, and local levels (Kaiser Family Foundation, 2009a; National Association of State Budget Officers, 2009; Orszag, 2007; Peterson and Burton, 2008).

Moreover, there are compelling signals that much of health spending does little to improve health, and, in certain circumstances, may be associated with poorer health outcomes. Between 2000 and 2006, for example, Medicare spending on imaging services more than doubled, with an over 25 percent increase in use of advanced imaging modalities such as nuclear medicine and CT scans compared to an 18 percent increase in readily available standard imaging modalities such as X-rays and ultrasounds, despite the increased risks associated with advanced imaging services (GAO, 2008). Several recent assessments of institutional and regional variation in costs and volume of treatment services indicate that, in many cases, care profiles that are 60 percent more expensive have no quality advantage (Fisher et al., 2003). Medicare spending per capita by hospital referral region, for example, varied more than threefold—from $5,000 to over $16,000—yet there appeared to be an inverse relationship between healthcare spending and quality scores.

In the face of these urgent challenges, the Institute of Medicine (IOM)—with the support and encouragement of the Peter G. Peterson Foundation—convened four meetings throughout 2009, under the umbrella theme The Healthcare Imperative: Lowering Costs and Improving Outcomes. These meetings explored in detail the nature of excess health costs, current evidence on the effectiveness of



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Synopsis and Overview Framing synopsis. Healthcare cost increases continue to outpace the price and spending growth rates for the rest of the economy by a considerable margin (Bureau of Labor Statistics, 2009). At $2.5 trillion and 17 percent of the nation’s gross domestic product in 2009 (CMS, 2009), health spending in the United States commanded twice the per capita expenditures of the average for other developed nations, and concerns have never been higher on the economic implications for individuals, families, businesses, and even the overall capacity and fiscal integrity of critical functions for government at the federal, state, and local levels (Kaiser Family Foundation, 2009a; National Association of State Budget Officers, 2009; Orszag, 2007; Peterson and Burton, 2008). Moreover, there are compelling signals that much of health spending does little to improve health, and, in certain circumstances, may be associated with poorer health outcomes. Between 2000 and 2006, for example, Medicare spending on imaging services more than doubled, with an over 25 percent increase in use of advanced imaging modalities such as nuclear medicine and CT scans compared to an 18 percent increase in readily available standard imaging modalities such as X-rays and ultrasounds, despite the increased risks associated with advanced imaging services (GAO, 2008). Several recent assessments of institutional and regional variation in costs and volume of treatment services indicate that, in many cases, care profiles that are 60 percent more expensive have no quality advan- tage (Fisher et al., 2003). Medicare spending per capita by hospital referral region, for example, varied more than threefold—from $5,000 to over $16,000—yet there appeared to be an inverse relationship between healthcare spending and quality scores. In the face of these urgent challenges, the Institute of Medicine (IOM)—with the support and encouragement of the Peter G. Peterson Foundation—convened four meetings throughout 2009, under the umbrella theme The Healthcare Im- perative: Lowering Costs and Improving Outcomes. These meetings explored in detail the nature of excess health costs, current evidence on the effectiveness of 

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2 THE HEALTHCARE IMPERATIVE approaches to their control, the primary opportunities for improvement in the near- and long-terms, and the policy levers necessary to engage. The motivating proposition for the series of meetings was to reduce healthcare costs by 10 percent within 10 years without compromising patient safety, health outcomes, or valued innovation. Leading experts from across the nation presented papers and participated in the discussions reflected in this summary publication. The ideas encapsulated throughout this summary reflect only the presentations, discussions, and suggestions that coursed throughout the workshops and should not be construed as consensus or recommendations on specific numbers or actions. As defined in the meeting planning and presentations, excess health costs derive from the dynamics at play in six overlapping domains of activity. • Unnecessary services • Services inefficiently delivered • Prices that are too high • Excess administrative costs • Missed prevention opportunities • Medical fraud Because of the overlaps, the difficulty of measurement, and the subjectivity in- herent in estimates made under conditions of scientific uncertainty, precision was elusive for estimates of the total amount of excess in the costs of health care. It was, however, notable that estimated totals from three separate approaches discussed in the workshops—extrapolation from observed geographic variation within the United States, contrasting overall U.S. expenditure levels with those of member countries in the Organisation of Economic Co-operation and Development (OECD), and summing the lower bounds of the various estimates for the six domains considered in the IOM workshops—amounted to approximately $750 billion, $760 billion, and $765 billion, respectively, for excess U.S. healthcare costs in 2009. As meeting discussions focused on the factors at play that give rise to patterns of unnecessary costs, certain elements were most commonly discussed as prominent drivers, noted below and generally working in a mutually reinforcing fashion. • Scientific uncertainty • Perverse economic and practice incentives • System fragmentation • Opacity as to cost, quality, and outcomes • Changes in the population’s health status • Lack of patient engagement in decisions • Under-investment in population health Discussions on strategies and policies shown in limited assessments to offer solid prospects for simultaneously lowering costs and improving health outcomes included a number of key levers to address the drivers of excess costs. • Streamlined and harmonized health insurance regulation • Administrative simplification and consistency • Payment redesign to focus incentives on results and value • Quality and consistency in treatment, with a focus on the medically complex • Evidence that is timely, independent, and understandable

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 SYNOPSIS AND OVERVIEW • Transparency requirements as to cost, quality, and outcomes • Clinical records that are reliable, sharable, and secure • Data that are protected, but accessible for continuous learning • Culture and activities framed by patient perspective • Medical liability reform • Prevention at the personal and population levels These are listed in approximate order of the frequency with which they were dis- cussed and do not necessarily reflect an order of priority. For example, the workshop series focus was primarily on medical treatment, and not on prevention, although the latter was clearly discussed as a major strategy of importance. Similarly, medical fraud was specifically not a focus of these discussions but also clearly important to address. In addition, often mentioned was the fact that, like the drivers, they too are interactive with each other, underscoring the fragility of strategies that are singular in nature. Certain of the participants, invited to offer insights specific to the challenge of reducing healthcare costs by 10 percent within 10 years, individually identified the approaches below as prime candidates for strategy and policy attention to lower costs while improving outcomes, given what is currently known about both the nature of the problems and the availability of potential solutions. Care-related costs • Prevent medical errors • Prevent avoidable hospital admissions • Prevent avoidable hospital readmissions • Improve hospital efficiency • Decrease costs of episodes of care • Improve targeting of costly services • Increase shared decision-making Administrative costs • Use common billing and claims forms Related reforms • Medical liability reform • Prevent fraud and abuse Finally, meeting participants identified a number of possible issues and activities for follow-up attention of the Institute of Medicine and its Roundtable on Value & Science-Driven Health Care (formerly the Roundtable on Evidence-Based Medicine), including: consideration of what a strategic roadmap might look like for action priorities and cooperative engagement by Roundtable members; improving the methodologies for estimating the nature and implications of unnecessary healthcare costs; assessing the approaches and potential impact of greater transparency as to healthcare costs, outcomes, and value; and strategies and approaches for providing better perspective to the public on the nature and potential impact of measures to lower costs and improve outcomes of health care in the United States.

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 THE HEALTHCARE IMPERATIVE National health expenditures are projected to be about $2.5 trillion in 2009, and with growth highly likely to continue to surpass rates for infla- tion (CMS, 2009), the economic consequences grow increasingly serious for individuals, families, and businesses, as well as states and the federal government. While the consumer price index—a measure estimating the av- erage price of consumer goods and services purchased by households in the United States—decreased by 1.5 percent between August 2008 and August 2009, prices for medical services increased by 3.3 percent over the same time period (Bureau of Labor Statistics, 2009). As concerns have increased amidst an economic recession, a dominant theme in the health reform dia- logue has been the need to control healthcare spending. It was in this context that the Institute of Medicine’s (IOM’s) Round- table on Value & Science-Driven Health Care (formerly the Roundtable on Evidence-Based Medicine), with the support of the Peter G. Peterson Foundation, hosted the four-part series The Healthcare Imperative: Lower- ing Costs and Improving Outcomes. This Summary presents the insights and perspectives arising during the workshop discussions, which explored the drivers of spending, the promising methods of cost control, and the opportunities and barriers to implementing policies. The motivating goal of the series was to identify ways to reduce healthcare spending by 10 per- cent from projected expenditures in the United States within the next decade—without compromising health status, quality of care, or valued innovation. Part of the National Academies, the IOM has served as the congressio- nally chartered adviser to the nation on matters of health and health care since its establishment in 1970. With a dedicated commitment to improving the quality of care delivered in the United States, the IOM has conducted a number of highly influential studies—such as To Err Is Human (IOM, 2000), Crossing the Quality Chasm: A New Health System for the 2st Century (IOM, 2001), and Rewarding Provider Performance: Aligning Incentives in Medicare (IOM, 2007)—which have drawn attention to key shortfalls in the performance of the healthcare system, led to demonstrable changes in policy, and helped identify priorities for improving the delivery system. Similarly, the Peter G. Peterson Foundation acts as an independent, nonpartisan convener and facilitator devoted to the mission of increasing public awareness of the nature and urgency of key economic challenges threatening the nation’s fiscal future, and accelerating action by identifying sensible, sustainable solutions. Engaging the range of issues—from debts and deficits to excessive energy consumption and a lagging educational sys- tem—threatening the nation’s financial future, the Peterson Foundation has committed significant resources and attention to the area of healthcare costs and solutions given health care’s direct impact on the economy, including their support for this workshop series.

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 SYNOPSIS AND OVERVIEW THE BURDEN OF RISING COST With projected expenditures of $4.4 trillion in 2018, national health spending could potentially grow more than 300 percent over the course of just 18 years (CMS, 2009). According to projections from the Congressional Budget Office (CBO), federal spending on Medicare and Medicaid alone will increase from about 5 percent of gross domestic product (GDP) in 2009 to more than 6 percent in 2019 and approximately 12 percent by 2050, mostly from growth in per capita costs (Elmendorf, 2009b). If healthcare costs grow at just 2.5 percent more than GDP per capita, by 2050 Medicare and Medicaid expenditures will account for nearly a quarter of the entire U.S. economy (Orszag, 2007). The costs of health care have therefore not just strained the federal budget; they have affected state governments and the private sector as well. In 2008, Medicaid spending accounted for approximately 21 percent of total state spending and represented the single largest component of state spending (National Association of State Budget Officers, 2009). These levels of healthcare expenditures have restricted the ability of state and local gov- ernments to fund other priorities, most prominently the needed investments in education (The White House, 2009). In the private sector, healthcare costs have contributed to slowing the growth in wages and jobs (National Coalition on Health Care, 2008). While health insurance prices rapidly escalated and employers cut back on the provision of health insurance benefits (Kaiser Family Foundation, 2009b), the number of uninsured rose from 45.7 million in 2007 to 46.3 million in 2008 (U.S. Census Bureau, 2009). On the individual level, the average cost of annual health insurance pre- miums for a family of four exceeded $13,000 in 2009, growing five percent in just a single year (Kaiser Family Foundation, 2009a). Health insurance premium increases have consistently exceeded inflation and the growth in worker’s wages, forcing individuals to spend increasing amounts of their income simply to maintain health coverage (Kaiser Family Foundation, 2009b). Estimates of the real increase in per capita income devoted to health spending over the next 8 decades have been calculated to be almost 120 percent (Chernew et al., 2009). Fifty-three percent of Americans said their family limited their medical care in the past 12 months because of cost concerns, 19 percent reported serious financial problems due to medical bills, with 13 percent depleting all or most of their savings and 7 percent unable to pay for basic necessities such as food, heat, or housing (Kaiser Family Foundation, 2009c). While the United States has the highest per capita spending on health care of any industrialized nation—50 percent greater than the second high- est and twice as high as the average for Europe (Peterson and Burton, 2008), it continually lags behind other nations on many healthcare out-

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 THE HEALTHCARE IMPERATIVE comes, including life expectancy and infant mortality (Anderson and Frog- ner, 2008; Docteur and Berenson, 2009). Employers and employees in other industrialized countries spend about 63 percent of what the United States spends on health care, but U.S. workforce health trails by about 10 percent. Indeed, the emerging economies of Brazil, India, and China rank behind the United States by about 5 percent on workforce health measures, but these countries spend only a fraction—about 15 percent—of what the United States spends on health care (Milstein, 2009). The relatively poor perfor- mance in health outcomes relative to investment suggests ample opportunity for improvement on both costs and outcomes. This prospect is supported by findings that high spending areas in the United States—spending $6,304 per capita compared to $3,922 per capita in the lowest spending quintile in 1996—utilize sixty percent more frequent physician and hospital visits, test- ing, and use of procedures yet achieve no quality advantage (Fisher et al., 2003). Together, these findings underscore the opportunities to lower costs without impacting clinical outcomes. About the Discussion Series To explore the issues and opportunities central to lowering health- care expenditures in the United States, the IOM Roundtable on Value & Science-Driven Health Care convened the four-part series The Healthcare Imperative: Lowering Costs and Improving Outcomes in May, July, Sep- tember, and December of 2009 at the National Academies in Washington, DC. These meetings were part of the Roundtable’s Learning Health System series. The series aimed to gather stakeholders in a trusted venue to engage the issues and concerns needed to facilitate the development of a health- care system that not only delivers best practices and adds value with each clinical encounter, but adds seamlessly to the knowledge base for health improvement. Motivated by the proposition noted above of reducing per capita health spending in the country by 10 percent within 10 years with- out compromising health status, quality of care, or innovation, the meet- ing objectives included: characterizing and discussing the major causes of excess healthcare spending, waste, and inefficiency in the United States; considering the strategies that might reduce per capita health spending in the United States while improving health outcomes; and exploring policy options relevant to those strategies. With the guidance of a planning committee consisting of leaders representing the various healthcare stakeholders, four meetings were organized: • The first workshop, titled Understanding the Targets and convened on May 21-22, explored the major drivers of healthcare spending

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 SYNOPSIS AND OVERVIEW growth, focusing on five broad categories: unnecessary services; inefficiently delivered services; excess administrative costs; prices that are too high; and missed prevention opportunities. • The second workshop, titled Strategies That Work and held on July 16-17, focused on the potential of various strategies to lower healthcare spending while improving outcomes, including knowledge enhancement-based strategies; care culture and system redesign-based strategies; transparency of cost and performance; payment and payer-based strategies; community-based and transi- tional care strategies; and entrepreneurial strategies and potential changes in the state of play. • The third workshop in the series, titled The Policy Agenda and held on September 9-10, explored the policy options to speed adoption of previously discussed strategies to control the drivers of health- care spending. • The final meeting in the series, titled Getting to 0 percent: Oppor- tunities and Requirements and held on December 15-16, explored in greater detail the priority elements and strategies key to achiev- ing 10 percent savings in healthcare expenditures within 10 years, without compromising health status, quality of care, or valued innovation. In addition, a commissioned paper was made available as a resource for discussion at the third workshop. This paper placed the preliminary cost estimates offered by presenters at the first two workshops in the context of additional national estimates in the literature. The commissioned paper along with an accompanying summary table, workshop agendas, planning committee and speaker biosketches, and listing of participants are included as appendixes to this publication. COMMON THEMES As might be expected for a meeting series exploring—somewhat uniquely—the full range of issues as complex as those involved in under- standing and engaging the nature of excessive health costs, discussions throughout the meeting were rich, informative, enlightening, provocative, and, in some cases, even startling. Workshops are explicitly designed to highlight the views of individual participants, and not to seek consensus. Such is certainly the case with the structure of the presentations and discus- sions in The Healthcare Imperative: Lowering Costs and Improving Out- comes. Nonetheless, a number of oft-mentioned—and general—recurring themes coursed throughout the discussion, noted in Box S-1 and summa- rized below, related to the broad challenges, drivers, and possible levers.

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 THE HEALTHCARE IMPERATIVE BOX S-1 Common Themes Cost and outcome challenges • Health cost excesses with personal, institutional, and national consequences • Health outcomes far short of expectations • Fragmented decision points, inconsistent principles, political distortions Drivers of the shortfalls • Scientific uncertainty • Perverse economic and practice incentives • System fragmentation • Opacity as to cost, quality, and outcomes • Changes in the population’s health status • Lack of patient engagement in decisions • Under-investment in population health Levers to address the drivers • Streamlined and harmonized health insurance regulation • Administrative simplification and consistency • Payment redesign to focus incentives on results and value • Quality and consistency in treatment, with a focus on the medically complex • Evidence that is timely, independent, and understandable • Transparency requirements as to cost, quality, and outcomes • Clinical records that are reliable, sharable, and secure • Data that are protected, but accessible for continuous learning • Culture and activities framed by patient perspective • Medical liability reform • Prevention at the personal and population levels The Challenges Health Cost Excesses with Personal, Institutional, and National Consequences Discussions underscored the expense of our country’s healthcare spend- ing both quantitatively and qualitatively. Peter R. Orszag, in his keynote address in Understanding the Targets, explained that federal spending on Medicare and Medicaid would grow to unprecedented levels over the com- ing decades if cost growth continued at uncontrolled levels. He highlighted that Medicare spending per capita by hospital referral region varied more than threefold—from $5,000 to over $16,000—and that this very sub-

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9 SYNOPSIS AND OVERVIEW stantial variation in cost per beneficiary in Medicare is not correlated with overall health outcomes—and, in fact, that the opposite may be the case. Describing the relationship between growing healthcare costs and other sec- tors of the economy, he also discussed how increasing demands placed on states by Medicaid costs have crowded out other state priorities and limited growth in state appropriations for public education, putting, for example, public universities at risk and at clear competitive disadvantage with their private counterparts in faculty recruitment. Health Outcomes Far Short of Expectations Several participants also identified and underscored that not only do our high expenditure levels have a negative impact on families’ household budgets and personal health, but the significant variation in care intensity (and expenditures) occurring across the country does not yield notably dif- ferent outcomes. Indeed, some of the facilities with the best outcomes have lower costs. Often noted was that despite our spending patterns, clinical outcomes, such as life expectancy at birth and care for chronic disease, fall behind in comparison to other countries. Racial disparities in access lead to poorer outcomes, lost productivity, and lower quality of life, which, when compared to groups with the best health outcomes, cost the United States an estimated $229 billion between 2003 and 2006 in direct and indirect medical costs and in the costs of premature death (Laveist et al., 2009). While portions of the population are able to navigate and obtain care almost on demand, others need to rely on the safety net of emergency rooms for the entirety of their care. Even for the insured, the costs of care, geographical impracticalities, and cultural barriers hinder access to care (Devoe et al., 2007; Ngo-Metzger et al., 2003). Fragmented Decision Points, Inconsistent Principles, Political Distortions Clear from the discussions was the multifaceted nature of the problem, ranging from poor care coordination, lack of consistent evidence-based guidelines, and medical errors resulting from multiple handoffs, to incon- sistencies in the policies of health insurance regulators, payment systems that encourage volume over value, and political influences that sometimes overturn scientific determinations. The clearest common denominator is the level of fragmentation in key system decision points, which challenges both the timely marshaling of evidence for decisions and consistency of its application. While almost two-thirds of consumers believe that their care is already evidence-based (Brownlee, 2009), many participants identified the lack of consistency with which evidence-based medicine is truly prac-

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0 THE HEALTHCARE IMPERATIVE ticed. Individual attendees cited inconsistent guideline application as lead- ing to variations in clinical decisions and practice patterns. To address the interests of the various stakeholders in health care, who frequently fail to harmonize in the best interests of patients, attendees asserted the need for multipronged solutions. Suggestions to effectively address the root causes of spending growth in the nation ranged from regulatory policy reform to provider and consumer-based initiatives. The Drivers Discussions identified a number of factors driving expenditure growth, noting several in particular. Scientific Uncertainty Many participants remarked that the development of clinical evidence needed significant investments, given the continuous emergence of new therapies, pharmaceuticals, and technologies. Despite the work of vari- ous medical and scientific organizations, the gap between practice needs and available guidance was described as growing. An additional level of near-term complexity was introduced by emerging insights from the field of genomics (Farnham, 2009; U.S. Department of Energy Biological and Environmental Research Program, 2009). Discoveries about genetic varia- tion clearly increase the amount of information needed to properly target diagnostic and therapeutic interventions. When tools are available to ap- propriately triage insights from research into application for targeting, care should eventually become much more specific and effective (Pollack, 2008). Perverse Economic and Practice Incentives Various attendees cited the current, predominantly fee-for-service re- imbursement system as providing perverse incentives, rewarding volume of services over the delivery of high-value services. Citing the variable rates of back surgeries, invasive cardiac interventions, and rates of specialist consultations between hospitals, states, and regions that yielded no dis- cernible quality differences (Delaune and Everett, 2008), many participants discussed the need to shift the focus to patient-centered value. Compound- ing the problem of economic incentives promoting volume over value, the implicit pressures of the medical liability environment and defensive medi- cine were noted as contributing substantially to the delivery of unnecessary services. Much higher reimbursement levels for specialty over primary care further distort the incentives for certain services.

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 SYNOPSIS AND OVERVIEW System Fragmentation Discussions highlighted the pervasive fragmentation of the health - care system on virtually every dimension—providers, payers, regulators, consumers—as a fundamental challenge to efficient and effective care. Fragmented communication between providers, duplicative testing and the absence of vital information compromise both outcomes and economic prospects—discontinuities that pose costs to both patients and society (Valenstein and Schifman, 1996). While patients were described as having to complete paperwork requesting the same information again and again, providers were also identified as suffering from a lack of harmonization around administrative policies and reporting requirements from payers and quality monitors. Information needed for provider credentialing was requested repeatedly by differing institutions, consuming time and resources that could otherwise be spent on patient care (Healthcare Administration Simplification Coalition, 2009). Opacity as to Cost, Quality, and Outcomes Without meaningful and trustworthy sources of information on health- care costs, quality, outcomes, and value, patients were described as becom- ing disempowered in the decision-making process. One participant likened being a patient in the healthcare system to being a tourist in a foreign coun- try without knowledge of the language, geography, or customs (Rein, 2007). Similarly, without reliable, publicly available information on resource use and quality, providers were identified in several discussions as lacking either an understanding of their performance relative to their peers or an impetus to improve the value of the care they deliver. Many proposed that current approaches to improving health care in the United States are grounded in market forces, but those forces cannot work properly until consumers have better information about the nature and value of the elements. Changes in the Population’s Health Status Since 48 percent of Medicare beneficiaries have at least three chronic conditions and 21 percent have five or more conditions, it has been esti- mated that approximately 60 million Americans have multiple morbidities, a number that is expected to increase to 81 million by 2020 (Anderson and Horvath, 2002). Additionally, projections place levels of obesity at 41 per- cent by 2015 (Wang and Beydoun, 2007), with consequences for diabetes, heart disease, hypertension, cancer, and osteoarthritis. In conjunction with an aging population, several attendees suggested that the changing demog- raphy of the nation’s health precipitated the need to increase prevention ef-

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 THE HEALTHCARE IMPERATIVE Richard J. Gilfillan of Geisinger Health System, Dolores L. Mitchell of the Massachusetts Group Insurance Commission, Meredith B. Rosenthal of Harvard University, Jonathan S. Skinner of Dartmouth College, John Toussaint of ThedaCare Center for Healthcare Value, and Reed V. Tuckson of UnitedHealth Group. As the participants considered the opportunities present within the cur- rent delivery system to lower costs and improve outcomes, the substantial scale of the inefficiencies was underscored. While the attendees discussed published literature and earlier workshop presentations indicating that 20 to 30 percent of current expenditures could be trimmed without consequences for quality or outcomes (Fisher et al., 2003), certain attendees offered the view that, based on their experiences with ongoing improvement initiatives, the amount of waste present in the healthcare system may even be greater, perhaps in some circumstances and settings as much as 50 percent. As an example, the findings of the Health Care Value Leaders Network were discussed. Two of these findings were that: (1) 80 to 90 percent of steps in the care process were not value-additive, and (2) with the application of the Toyota Production System to streamline clinical services within an institu- tion, systematic waste reduction could possibly trim as much as 50 percent of costs, while simultaneously improving quality. The attendees discussed priority areas of opportunity, such as avoidable hospitalizations and readmissions and the provision of unnecessary services. They focused on high-yield strategies, ranging from decreasing the costs of episodes of care to medical liability reform to shared decision-making, as well as considering care-related costs, administrative costs, and related reforms. Several insights were offered by multiple individual attendees on the common elements of successful strategies: • Reorientation to patient-centered value among all stakeholders (patients, providers, payers, manufacturers, and regulators) is nec- essary, and eliminating the inefficiencies and waste replete in the costs of care and healthcare administration begins with the basics: better attention to patient needs and perspectives, and payment mechanisms that drive the delivery of value over volume. However, it was also emphasized that the rewards involved must be quite large in comparison with the income at stake for providers if the effort is to both cover the implementation costs and justify the resources involved in maintaining a coordinated effort to minimize costs and improve outcomes. • Payment reform provides a critical tool to realign economic in- centives within the delivery system. Additionally, targeting both utilization and pricing of clinical services is needed to ensure the

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 SYNOPSIS AND OVERVIEW full savings potential of any bundle of strategies to lower costs and improve outcomes. • Multimodality should characterize health reform plans because while payment reform appears to be the most likely to yield near- to mid-term savings, infrastructure elements such as health informa- tion technology and comparative effectiveness research are neces- sary to facilitate and amplify the effectiveness of payment reforms. In particular, nonmedical industries provide many instructive les- sons regarding successful cost-lowering practices, including use of data to inform quality improvements, incentive structures that reward value creation, and worker-driven processes and culture. • Specificity with regard to policies, responsible actors, and assump- tions enables focus of initiatives, not just in legislation but also through institutional leadership and public–private partnerships at both state and regional levels. • Incrementalism—the need for multiple small savings decisions re- lated to re-aligned incentives and improved system efficiency— rather than a single large decision—will be necessary to achieve 10 percent savings. Apart from large savings likely to be pos- sible from streamlining and harmonizing administrative claims forms and reporting requirements, success of the broad reform approaches required will likely depend on smaller gains—target- ing utilization, pricing, and delivery—in each of the many strategic loci. • Transparency and accountability across public and private sectors can foster efficiency and quality improvement initiatives by pro- viders, informed provider selection by patients, and value-based payments by payers. • Collaboration among all those affected by healthcare reforms, including subspecialty provider societies, payers, and patients, is required to overcome inertia and fear of change. Considering the Opportunities Participants reviewed the range of strategies explored throughout the workshop series and, working in small groups followed by open discus- sion, considered opportunities for strategies aimed at providers, patients, and payers. Their discussion centered on care-related costs, administrative costs, and related reforms. Within each of these broad categories, they considered an array of specific initiatives as well as the requirements and assumptions inherent to each. In addition, the participants discussed their views on the approximate range of savings that might be achieved through

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 THE HEALTHCARE IMPERATIVE implementation of these strategies, drawing on workshop presentations and their own experiences. Payment reform was discussed throughout the meeting as a necessary and potent component of a value-driven agenda to lower costs and improve outcomes. Many of the participants observed that payment reform may be implemented in a variety of forms, ranging from bundled payments to global payments and salaries for providers, but they emphasized pay- ment reform as a tool and an underlying requirement for achieving many of the goals discussed at the meeting. For example, to stimulate initia- tives to reduce medical errors, several attendees suggested that creation of bundled payments for hospitalizations include the costs of readmissions due to any cause within 30 days. Another form of payment reform akin to pay-for-performance included linking a portion of provider payments to documented use of decision aids to encourage shared decision-making. Regardless of the form, payment reform was noted throughout the meeting by various individuals as fundamental to aligning provider incentives with quality and efficiency. In the discussions, the participants individually identified high-yield sav- ings opportunities based on their own experiences. The ten cost-reduction opportunities explored in greater detail during the meeting focused primar- ily on care-related costs, but also included administrative costs and related reforms (Box S-4). While acknowledging that substantial additional analytic work was required to refine and strengthen the analytics, based on estimates provided throughout previous workshops on excess costs, and informed by their own individual knowledge bases, the sum total of the individual opinions of the various participants, speaking not for all in the group but to their own areas of expertise, resulted in first approximations of $360 billion to $460 billion in annual savings, which might be achieved by 2018 (in 2009 dollars). Across the areas noted in Box S-4, participants expressed personal opinions on the range of savings opportunities, including $8 billion to $12 billion from preventing medical errors, $44 billion to $48 billion from preventing avoidable hospital admissions, $16 billion to $20 billion from preventing avoidable hospital readmissions, $38 billion to $80 billion from improving hospital efficiency, $32 billion to $53 billion from decreasing the costs of care episodes, $9 billion to $20 billion from improving targeting of costly services, $6 billion to $9 billion from increasing shared decision- making, $181 billion from utilizing common billing and claims forms, $20 billion to $30 billion from medical liability reform, and $5 billion to $10 billion from preventing fraud and abuse. To account for the increased primary care practice costs necessary to achieve implementation of several of the strategies discussed, several participants suggested that a one-third offset be employed, yielding a total savings of approximately $240 billion

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9 SYNOPSIS AND OVERVIEW BOX S-4 Estimated Health Cost Savings Selected approaches: individual perspectives Estimated Savings in Year 10 Low High CARE-RELATED COSTS • Prevent medical errors $8 B $12 B • Prevent avoidable hospital admissions $44 B $48 B • Prevent avoidable hospital readmissions $16 B $20 B • Improve hospital efficiency $38 B $80 B • Decrease costs of episodes of care $32 B $53 B • Improve targeting of costly services $9 B $20 B • Increase shared decision-making $6 B $9 B ADMINISTRATIVE COSTS • Use common billing and claims forms $181 B RELATED REFORMS • Medical liability reform $20 B $30 B • Prevent fraud and abuse $5 B $10 B to $310 billion annually. Additionally, participants pointed out that the estimates discussed had not accounted for implementation and overhead costs. Additional Considerations The rising epidemic of obesity, an aging population with an increasing burden of chronic illness, and the influence of current health behaviors on future health status were also cited as considerations during the conversa- tions. With levels of obesity projected to exceed 40 percent by 2015 (Wang and Beydoun, 2007) and over 80 million Americans expected to have multiple co-morbidities by 2020 (Anderson and Horvath, 2002), Cutler and Tuckson underscored the importance of considering how health demo- graphic trends would impact future healthcare expenditures and thus the priority strategies to address them. Given the connection between health behaviors and these health trends, including the rising levels of multiple co-occurring chronic illnesses and the low rate of recommended preven- tive care, Everett and Mitchell drew attention to the issue of prevention, including community health programs that encourage healthy eating habits in schools, anti-tobacco legislation, and primary through tertiary preven-

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0 THE HEALTHCARE IMPERATIVE tion. Acknowledging that uncertainty exists about the cost effectiveness of many prevention initiatives, Tuckson noted that, regardless of its cost effectiveness, prevention is of critical importance to making gains in public and population health. While the participants highlighted a selection of particularly high-yield, cost-lowering strategies during the meeting, Mitchell and several others noted that many promising strategies, such as increased use of mid-level practitioners, additional ancillary providers (such as health coaches and nutritionists), salaried physicians, and a reassessment of the link between funding for medical education and hospital reimbursement, deserve further exploration and study as potential methods of lowering healthcare costs. Attendees also explored the underlying notion of accountability as critical to improving the health of the nation and to creating a culture in health care that values efficiency and quality. They emphasized that all stakeholders in health must bear responsibility if the delivery system is to be reformed. For example, while Gilfillan and Toussaint suggested that pro- viders bear responsibility for ensuring that care is delivered in the most ef- ficient, safe, patient-centered manner possible, Mitchell added that patients are responsible for improving their engagement in the decision-making process. Without a mission and common understanding of collaborative engagement and accountability, Cutler noted that successful development and implementation of policies that address stakeholder concerns would fall short of their full potential. Participant Leadership Responsibilities Building on the idea of accountability, several attendees cited the need to identify specific entities that would assume primary responsibility for oversight of implementation and evaluation to ensure that the maximum potential savings were realized. Within the context of ongoing efforts to enact healthcare reform legislation, participants pointed to the public sec- tor, including government at the local, state, and federal levels, as critical to providing oversight and ongoing support to the overall healthcare sys- tem infrastructure. Gilfillan stated that the role for government extended beyond the legislative branch to the executive branch as well. The Depart- ment of Health and Human Services and CMS were specifically viewed as setting important examples in payment reform and coverage, inasmuch as spending on the Medicare and Medicaid programs account for almost 40 percent of national health expenditures (CMS, 2009). Mitchell sug- gested that the increased provision of Medicare claims data as a public good to purchasers, plans, researchers, and the public would be a vital aid in analyses of cost and quality. Bailit termed the government, especially at the state and local levels, as critical to efforts at organizing providers and

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 SYNOPSIS AND OVERVIEW payers to affect changes in concert with ongoing national initiatives and in improving public and population health, including the physical and social determinants of health, such as education and community safety. In addi- tion, several participants observed that state governments play a critical role in overcoming problems in commercial insurance markets through insurance regulation. For example, Rosenthal suggested that states could adopt all-payer regulations that could align the basic structure of pay for performance or risk-sharing methods in a marketplace. Several participants highlighted the responsibilities that healthcare pro- viders—ranging from nurses and physicians to acute, intermediate, and long-term care facilities—and commercial payers must bear to successfully reform the delivery system. For example, Tuckson cited the Healthcare Administrative Simplification Coalition, a collaboration between providers and payers to streamline administration by simplifying the credentialing process, standardizing data exchange, and leveraging health information technology. Providers, payers, and purchasers were also seen as playing important roles in improving patient health behaviors by encouraging pre- ventive care and educating consumers on both the value of receiving care and the impact of individual health decisions on personal and population health. Patients and consumers were also said to bear significant responsibili- ties for their care. Opportunities to participate in a shared decision-making process that stimulates patients to fully understand the risks and benefits of the diagnostic and therapeutic options specific to their clinical condition could increase consumer awareness of the value of alternative treatments, suggested Bailit, Mitchell, and Everett. In addition, consumers need to gain better understanding of the evidence indicating that more is not always bet- ter, suggested another participant. Regardless of the specific stakeholder engaged, several attendees em- phasized that none of these stakeholder groups should act in isolation without consideration of the other groups. It was suggested that affecting beneficial change requires the involvement of all sectors of the healthcare system, strong accountability, and agreement on the goals of improving quality and value. NEXT STEPS FOR THE ROUNDTABLE Although the ideas encapsulated throughout this summary reflect only the presentations, discussions, and suggestions that coursed throughout the workshops, and should not be construed as consensus or recommendations on specific numbers or actions, many of the thoughts and potential follow- up actions fall within the scope of the Roundtable mission and provide

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2 THE HEALTHCARE IMPERATIVE initial ideas for further Roundtable and field consideration, including the following: • Developing a strategic roadmap. To apply the impressive and ex- tensive information gathered throughout the various workshops, many discussed the need for a national strategic roadmap to iden- tify the areas most likely to yield significant savings, the highest- priority strategies to realize those savings, and the specific steps needed to translate the potential into actionable recommendations that will result in truly lowered costs. • Improving the analytics. While the estimates presented during the workshops represent initial steps in providing a sense of the relative amounts of inefficiency in the delivery system and the potential im- pact of key strategies, participants frequently emphasized that ad- ditional work will be required to refine and strengthen the accuracy of the numbers and their cross-cutting nature. Several additional facets suggested for consideration included specific delineation of estimates across the public and private sectors as well as the unin- sured; consideration of areas of overlap between estimates, and of implementation and maintenance costs; and identification of the barriers to effective “spread” of successful strategies. In addition, the workshop presenters focused on the direct costs of health care, but the indirect costs of health care—ranging, for example, from those of absenteeism for unnecessary services to decreased invest- ments in education—also warrant consideration. • Engaging multiple stakeholders. Given the reality of abundant challenges and resistance to change, attendees observed that ef- forts to successfully control cost growth and lower spending while preserving innovation and outcomes could be achieved only with the cooperative efforts of the myriad stakeholders in health care— including patients, providers, manufacturers, payers, regulators, researchers, and policy makers, in both the private and the public sectors—aligned to improve insights, accelerate progress, and cre- ate a system grounded in delivering value to its constituents. • Informing health reform initiatives. As efforts to reform the deliv- ery system continue on both the federal and the local levels, specific attention was drawn to identifying inefficiencies in the healthcare system and the politically actionable policies to minimize them, because they carry paramount weight and clearly intersect with the goals of creating a value-based learning health system. • Enhancing transparency. Building on the observations expressed by many about the lack of information as to the costs, outcomes, and value from health care, work to enhance the transparency of

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 SYNOPSIS AND OVERVIEW system performance was viewed as particularly relevant for the Roundtable members, who represent the leadership of the key stakeholder sectors. • Focusing on strategies for more direct public engagement. As heard throughout the workshops, the desire for information and en- gagement among health consumers has grown over the past few decades, yet the range of information exchange between the public and policy makers needs further development. Effective and ef- ficient tools for translating technical language and information into accessible information for consumer use are required, as are methods of incorporating patient concerns and feedback into the policy decision-making process. Participants spoke of the role of education in clarifying the relationship between out-of-pocket costs and total medical spending, illustrating the impact of costs on all levels of society, and further motivating partnerships between con- sumers, providers, payers, and policy makers. While the ideas summarized above reflect only the presentations, discus- sions, and suggestions that spanned throughout the workshops and should not be construed as consensus or recommendations on the specific numbers or opportunities, they provide informative insights into the opportunities to lower costs and improve outcomes present within the current healthcare delivery system, and represent areas needing further consideration. As these conversations continue, additional observations and suggestions are wel- come and encouraged as the Roundtable continues to consider and explore these challenges and possibilities. REFERENCES Anderson, G. F., and B. K. Frogner. 2008. Health spending in OECD countries: Obtaining value per dollar. Health Affairs (Millwood) 27(6):1718-1727. Anderson, G., and J. Horvath. 2002. Making the case for ongoing care. Princeton: Robert Wood Johnson’s Partnership for Solutions. Baicker, K., and A. Chandra. Medicare spending, the physician workforce, and beneficiaries’ quality of care. 2004. Health Affairs (Millwood) Suppl Web Exclusives:W184-W197. Berenson, R., J. Holahan, L. Blumberg, R. Bovbjerg, T. Waidmann, and A. Cook. 2009. How We Can Pay for Health Care Reform. The Urban Institute. Brownlee, S. 2009. Perception vs. Reality: Evidence-Based Medicine, California Voters, and the Implications for Health Care Reform. http://www.effectivepatientcare.org/images/ 0909percent20CEPCpercent20Brownleepercent20Reportpercent20onpercent20EBM.pdf (accessed October 2, 2009). Bureau of Labor Statistics. 2009. Consumer Price Index-August 2009. http://www.bls.gov/ news.release/pdf/cpi.pdf (accessed October 2, 2009). Casalino, L., S. Nicholson, D. Gans, T. Hammons, D. Morra, T. Karrison, and W. Levinson. 2009. What does it cost physician practices to interact with health insurance plans? Health Affairs (Millwood) 28(4):w533-w543.

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