Keeping Health Care Spending on a Sustainable Path


In 2014, the US spent $3.08 trillion on health care, about 17.5 percent of the nation’s economic output or gross domestic product (GDP). Experts project that by 2025 annual national spending on health care will increase to $5.6 trillion and account for 20.1 percent of GDP. These projections assume that over the long term, health care spending will grow faster than the economy, despite moderate growth in public- and private-sector health care spending since the 2008 economic recession.

High health care spending affects individuals, families, and employers. Individuals and families face higher health care premiums and cost-sharing, and employers and governments must pay more for health insurance and services. In response, employers are finding ways to limit their exposure to health care costs by cutting back on benefits, shifting to high-deductible health plans, or dropping coverage altogether.

Public- and private-sector cost-containment approaches should address the root causes of unproductive cost growth and not cut needed benefits or shift costs from one party to another. One of the primary causes of long-term spending growth is the use of expensive (and often unproven) medical technologies, including prescription drugs, tests, and procedures. Also, provider payment systems have incentives that fuel cost growth. Studies reveal a large amount of waste and inefficiency in the system, such as overuse and duplication of services, medical errors, preventable hospitalizations, and lack of preventive care that could have forestalled or completely prevented the need for treatment.

Potential cost-containment strategies—key transformations in the organization and delivery of care hold great promise not only for improvements in quality and efficiency but for cost containment as well. Capitalizing on these transformations, however, may require funding to conduct comparative effectiveness research and develop tools for using it.

Comparative effectiveness research would provide an objective basis for selecting appropriate procedures, preventive services, and interventions (e.g., new prescription drugs and other emerging technologies).

More widespread use of health information technology would help clinicians adhere to evidence-based practice guidelines, eliminate service duplication, and reduce errors (e.g., those caused by illegible handwriting). It would also facilitate information sharing among healthcare providers, including home- and community-based service providers, thus promoting coordination; remind clinicians and patients to use preventive services; and enhance consumers’ self-management and engagement by affording them easy access to their personal health information. It would streamline administrative processes through electronic appointments and speed retrieval of test results.

Better aligning of payment with desired outcomes (e.g., pay-for-performance strategies) would encourage higher-quality, more effective, and more efficient care. Examples include payments for bundled services or episodes of care, lower payments for preventable hospital readmissions, and shared-risk strategies like those explored in the Medicare Physician Group Practiced Demonstration. Another example is refusing payment for services that should never be provided (“never events”), such as surgery on the wrong body part. New payment methods that create such incentives should include robust risk adjustment so that providers do not avoid high-cost patients. They should also include measures that assess performance.

Improved care coordination, particularly for individuals with chronic conditions, would improve quality and potentially save resources by avoiding duplicative tests and repeated hospital visits. Coordination among clinicians should improve the quality of care patients receive as they transition among clinicians and care settings. Research is needed to inform optimal methods of service delivery. It would be beneficial to consider how operations research could inform clinical practice.

Consumer incentives to encourage the use of higher-value services could lead to cost savings if patients seek care from the most effective and efficient practitioners and providers.

Keeping Health Care Spending on a Sustainable Path: Policy

Cost containment

In this policy: FederalState

Federal and state governments should initiate cost-containment measures that effectively constrain growth in price, volume, and intensity of health care services without compromising quality of care or inappropriately denying access to care. Cost-containment efforts should not create incentives to shift costs inappropriately to patients or other payers.

Payment reform

In this policy: FederalState

Federal and state governments should initiate, test, and evaluate payment approaches that create incentives for providers to be more efficient and effective and that reward good-quality care. Payment approaches should have robust risk adjustment (so that providers do not benefit from avoiding high-cost patients) and be designed to hold providers accountable. In addition they should be fully transparent, fair, and feasible to implement and administer. Meaningful performance measures will be needed to determine where to set payment levels.

Found in Keeping Health Care Spending on a Sustainable Path