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Bending the Cost Curve Michael Chernew May 20, 2010 Disclosures Consulting Grants Pharma Purchasers Other industry Government Pfizer AHIP Avalere MedPAC Genentech BCBSA Altarum CBO Panel of Health Advisors Abbot Anthem BCBS (Maine) HRET CMS Office of the Actuary Lilly Hewitt Mass Medical Society Pfizer Astra Zeneca PhRMA Continued spending growth should scare you Definitional issues matter Do we mean: – Cost per service [i.e. Price]? – Spending per disease? Spending at the population (national) level? Spending growth vs. level Spending High spending, rapid growth Low spending, rapid growth Low spending, slow growth Time Our debt is unsustainable 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 Debt / GDP (%) 100 90 80 70 60 50 40 30 20 10 0 Source: President’s Budget: http://www.cbo.gov/ftpdocs/112xx/doc11231/03-05-apb.pdf % GDP Health care is a major driver of debt Source: Congressional Budget Office. The Long-Term Outlook for Health Care Spending. http://www.cbo.gov/ftpdocs/87xx/doc8758/MainText.3.1.shtml Tax rate implications PROJECTIONS FOR 2050 SCENARIOS Tax code is indexed for inflation and growth in real income. Effect on Economy Effect on Taxes 1% Gap Real GDP reduced by 3% to 16%. Highest Bracket (35 60%) 2.5% Gap Substantial reductions in real GDP. Highest Bracket (35 92%) Source: CBO. Financing Projected Spending in the Long-Run. July 2007. Message 1: Health care spending GROWTH will slow Slow is not the same as Fall – Age adjusted, per beneficiary spending will still rise At the system level, the challenge is not how to do more with less money, but how to do more with ‘Less More’ money Controlling Spending Spending Accounting Spending = PRICE x QUANTITY Spending growth will not slow unless PRICE and/or QUANTITY growth slows Message 2: As we slow spending we must preserve value Defining Value Cost Saving Cost Effective $0 Not Cost Effective $100,000* Cost effectiveness ratio ($/Quality adjusted life year) Always relative to next best alternative * This should be higher ($250,000), but decline as overall spending rises Who Will Slow Spending What will slow spending growth Payment – Affects price, maybe quantity Benefit design – Affects quantity, maybe price Organization of medical practice – Affects quantity Message 3: Physicians, collectively, must shape the future – Develop care strategies – Design (or collaborate to design) incentive systems or they will be imposed upon you (said as if physicians do not have enough to do) Why Physicians They think clinically They control care decisions They care about the patients END