Reducing healthcare costs requires emphasizing quality rather than quantity, says Peter Orszag, PhD, former director of the Office of Management and Budget and now vice chairman of the Institutional Clients Group at Citigroup, Inc. He believes bodies such as the Independent Payment Advisory Board can help change the financial incentives that challenge providers, ultimately driving down cost. “Providers are often financially penalized for moving toward lower-intensity practices, even if those practices produce the same or better quality,” he says. Orszag recently shared his thoughts on healthcare payment reform with hfm.

Q. Many techniques to reduce healthcare spending have been discussed and debated. In your opinion, what are the most promising ways to reduce healthcare spending?

A. Although many steps can help to reduce healthcare costs over time, the most important involve changing the information and incentives facing providers. Increased consumer-cost sharing would help, but this technique is inherently limited because high-cost cases are such a large share of total costs and it's implausible that we will ever impose very high cost-sharing on those cases. So in addition to an increased emphasis on consumer-directed health care, we need to focus on what drives provider behavior.

Currently, we have huge variation in how health care is practiced. For example, at UCLA’s Cedars-Sinai Medical Center, 60 percent of patients saw 10 or more physicians in the last six months of life between 2001 and 2005; at the University of Wisconsin, only 25 percent did. At Cedars-Sinai, only 20 percent of patients enrolled in hospice care toward the end of life; at the University of Wisconsin, 40 percent did.

The variations tend to be larger for those conditions and procedures where we have the least information about the appropriate level of...

Continued on hmfa.org