In a nutshell
- What is the problem? The United States spends trillions of dollars on health care each year. A significant part of this spending appears to be wasted due to inefficiencies and misaligned incentives. Some policy changes could plausibly reduce these inefficiencies, causing significant fiscal and humanitarian improvements.
- What are possible interventions? Many existing efforts aim to improve the overall cost-effectiveness of the health care system. Using alternatives to fee-for-service payment, bundling payment for common types of care, or more transparent pricing, amongst other approaches, could reduce the amount spent on health care while holding constant or improving quality of care. Some other policy proposals that also might reduce costs, such as relaxing scope-of-practice laws to give nurse practitioners more autonomy or easing restrictions on immigrant doctors, don’t appear to be at the center of the broader discussion of cost and quality. A funder could potentially support a variety of different kinds of research or advocacy to advance these policy changes.
- Who else is working on it? Health care policy and access is an area of interest of a number of large foundations. Major foundations that work in this area include the Robert Wood Johnson Foundation, the Kaiser Family Foundation and the Commonwealth Fund. We’re hoping to investigate some of the subfields listed above more deeply to get a better sense of the overall “crowdedness” of the field.
Published: May 2015
Published: May 2015
What is the problem?
We find it helpful to break down current issues within US health care into three subcategories:1
- Public health: Well-known issues such as obesity, smoking, alcohol and violence pose significant public health concerns, as do less discussed issues such as accidental drug deaths.
- Increasing access to care: The 2010 Affordable Care Act attempts to expand health insurance coverage to more Americans, but there is lots of uncertainty and room for experimentation around how best to achieve this, as well as room for further potential expansion.
- Improving the trade-off between cost and quality of care: The US spends significantly more on health care than other developed economies, but this excess spending does not appear to increase quality of care.
This investigation was primarily concerned with the third point, improving the trade-off between cost and quality.
The US spends more on health care than any other industrialized nation, both as a percentage of GDP and on a per capita basis. Total health care spending in 2012 was $2.6 trillion according to the OECD,2 which represents 16.9% of GDP (significantly higher than the OECD average, 9.3% of GDP).3 There seems to be consensus among experts that this higher level of spending does not correspond to better care.4
Misaligned incentives for health care providers, payers and consumers appear to be responsible for a large part of this discrepancy between cost and quality. We found broad agreement that the combination of fee-for-service payment arrangements, limited price transparency, and insurance that limits patient incentives to save costs (all of which are widespread in the US) incentivize health care providers to increase the volume of tests and services provided to patients, regardless of whether these tests and services will improve outcomes.5 While these are by no means the only source of inefficiency in American health care, they seem to account for many of the commonly cited problems in the system. However, many different diagnoses of the “root causes” of America’s high health care costs have been offered, and we do not have a strong sense of which are most accurate or most “fundamentally” correct.6
What are possible interventions?
Our impression is that health care reform in general is a large and crowded field, with many different players and a high level of funding. Much of this funding appears to be directed towards changing incentive structures so that health care is delivered more cost-effectively. Examples of efforts to shift incentives include:
- The formation of Accountable Care Organizations (ACOs), which was made possible by the Affordable Care Act.7 These are groups of health care providers (typically physicians and hospitals) which pool responsibility for the financial and medical outcomes of their patients. Where they are able to produce good outcomes at lower cost, they share in some of the financial savings.8
- “Bundling” payments for certain types of treatment. The idea behind bundling is that aggregating the expenses for a single episode of care (for example, a joint replacement) or a certain period of time should incentivize providers to reduce the cost of care and standardize practices for similar procedures.9 Bundling by episode has been the subject of a successful pilot by Medicare, and the ACO model is based around bundling a set of patients together across a given time frame.10
- Promoting price transparency. Limited access to prices makes it difficult for decisions to be made based on value, whether the relevant decision-maker is a patient choosing a provider, a doctor prescribing treatments, or a hospital purchasing equipment. Increased price transparency should also incentivize sellers to lower their prices.11 A number of public initiatives already make some pricing information available; further policy proposals and private entrepreneurs aim for greater transparency.12
This list is not exhaustive. Our general understanding is that there are many ongoing efforts to change incentives and to address broad cost/quality issues; although we aren’t confident, we suspect that this area may be well covered by existing organizations. For this reason, we are interested in looking into issues which might not be taken care of by efforts to realign incentives or broadly address the cost/quality problem. Below, we outline several issues which we feel may be promising opportunities, but which are somewhat orthogonal to the approaches described above.
- Changing state scope-of-practice laws to reduce restrictions on nurse practitioners (also known as “advanced practice registered nurses”, or APRNs). Nurse practitioners perform some of the same services as doctors, but are under restrictive regulation in many states.13 Allowing nurse practitioners to contribute more to primary care could be especially beneficial if, as one projection shows, the number of medical students entering internal and family medicine falls while the number of nurse practitioners increases in coming years.14 Our impression is that the evidence to date indicates that nurse practitioners deliver a similar quality of care to more highly trained doctors in the subset of cases that they handle.15
- Making state regulations more compatible with one another, to allow health providers to practice across state lines. This may become a more important issue if tele-medicine (diagnosing and treating patients remotely via video and sound connections) becomes more prevalent.
- Reducing the barriers preventing immigrants to the US with medical backgrounds from practicing, whether by allowing more doctors to immigrate or making it easier for immigrants to use foreign medical certifications in the US.
- Addressing antitrust issues, including hospital monopolies and barriers to entry in the health care industry.16
We have not investigated these policy proposals thoroughly and are not confident in the likely returns to pursuing them, but we are interested in exploring them further for two main reasons:
- We would tentatively guess that the overall field of cost/quality reform efforts is fairly crowded, and we think that issues that don’t straightforwardly fit into that framework could possibly be relatively neglected, and therefore relatively more promising.
- Smaller subfields are typically easier to investigate. If further investigation suggests that these subfields do appear relatively neglected, the broader cost/quality landscape may not be as crowded as we have assumed, and we may want to invest further resources in investigating the whole field.
Further work to advance these proposals would likely take the form of research or political advocacy. A funder could support any of a variety of organizations to advocate for particular policies, develop policy proposals, or research existing health systems.17
Who else is working on this?
Health-related causes represent a major target of philanthropic spending; in 2012, US foundations granted more money towards this area than to any other.18 Influencing health policy and increasing access to care makes up a small portion of this total, on the order of several hundred million dollars per year.19
Some of the foundations we have come across which work in this space are:
- Robert Wood Johnson Foundation (RWJF): the largest health foundation in the United States. Policy and access issues account for a sizable minority of their grants.
- Kaiser Family Foundation: an operating foundation focused on health policy analysis.
- Commonwealth Fund: supports research on health care issues as well as making grants aiming to improve health care practice and policy.
- Gordon and Betty Moore Foundation
- California Wellness Foundation
- California Endowment
- Cambia Health Foundation
- John A. Hartford Foundation
- Scan Foundation
- Blue Shield of California Foundation
It is also worth noting that the recent passage of the Patient Protection and Affordable Care Act has made a significant amount of funding available for local pilots to experiment with new models; one source puts the amount of funding available at over $22 billion.20
Questions for further investigation
Our research in this area has been relatively limited, and many important questions remain unanswered by our investigation. Amongst other topics, further research on this cause might address:
- How successful have previous efforts by philanthropists to influence health care reform been? As part of our history of philanthropy research project, we hope to learn more about the role of different philanthropic actors in the passage of the Affordable Care Act.
- Which specific strategies are being pursued by the major funders in this field, what do they hope to achieve, and what gaps might remain?
- What kinds of resources are being directed towards the ideas we list above that are not likely to be solved by changing the overall systemic incentives?
We rely heavily on a conversation with David Cutler. For general background, we also read the books The Quality Cure by David Cutler and Where Does it Hurt? by Jonathan Bush, as well as the articles Big Med, The Cost Conundrum and Letting Go, written by Atul Gawande and published in the New Yorker.
This subdivision of issues was suggested by David Cutler in a conversation with the Open Philanthropy Project. GiveWell’s non-verbatim summary of a conversation with David Cutler on October 17, 2014
Total spending figures from: Total healthcare expenditure, OECD StatExtracts
% GDP figures from Frequently requested data, OECD Health Statistics 2014
- “Nearly everyone thinks that the U.S. spends more on health care than it should and that this excess spending does not contribute to increased quality of care.” GiveWell’s non-verbatim summary of a conversation with David Cutler on October 17, 2014
- “This increased dedication of economic resources to the health sector, however, is not yielding commensurate value in terms of improving population health or patients’ experiences with care.” The Commonwealth Fund Commission on a High Performing Health System 2013
- “This paper, the latest installment in an annual series, uses the most recent OECD data to present a series of snapshots of the health systems in the thirty OECD countries in 2000. Together these snapshots show that the United States spends more on health care than any of the other OECD countries spend, without providing more services than the other countries do. This suggests that the difference in spending is mostly attributable to higher prices of goods and services.” Anderson et al. 2003, Pg 90.
- “There is broad consensus among policy experts that U.S. health spending is inappropriately high and that the healthcare system is woefully inefficient. Some analysts believe high prices for medical care lie at the heart of the spending problem.” White et al. 2014, Pg 3.
- “Reimbursement under the fee-for-service (FFS) model generates a strong incentive to perform a high volume of tests and services, regardless of whether those services improve quality or contribute to a broader effort to manage care.” Bipartisan Policy Center 2012, Pg 8.
- “Fee-for-service, the predominant method of paying for health care in the United States, is an unsustainable payment approach that rewards volume, resulting in an increase in the number of health care services that are provided, regardless of the outcome of the service.” Robert Wood Johnson Foundation 2013, Pg 1.
- “As a nation, we pay too much for health care, in large part because of the excessive prices charged by health care providers, manufacturers, and suppliers. A key reason why those prices are so high is because almost all health care prices are hidden, which hinders market competition and keeps patients and their health care providers from making fully informed decisions.
Imagine receiving a bill for $8,000 for car or home repairs without having first had a chance to receive a price estimate or the opportunity to comparison shop. That scenario is preposterous, yet it is exactly how we pay for our health care. Each year, our nation spends more than $8,000 per person on health care, but patients have little to no idea how much each procedure, medication, or hospital stay actually costs. And unlike many other goods and services, higher health care prices do not necessarily reflect higher quality.
In the rare cases in which prices are publicly available, they are usually of little value to patients. For example, listed prices are not the same as a patient’s out-of-pocket costs, and the listed price most likely reflects only one part of a patient’s treatment. In order to lower health care costs, we must fix each of these problems—health care prices must not only be transparent, they must also be easy to understand.
Secrecy in health care pricing distorts the market in other ways, and it is not just patients who are kept in the dark about health care prices. For instance, doctors make referrals without knowing the prices charged by other providers; they select medical devices for use in procedures without knowing the costs of the products or whether less-expensive alternatives may produce similar or even better outcomes. A recent study found that orthopedic surgeons correctly estimated the cost of a device only 21 percent of the time.
In fact, at almost any point in the health care delivery system, the lack of meaningful, readily available price information raises costs.” Calsyn 2014, Pg 1.
- “There is widespread agreement that current methods of paying for healthcare contribute to both high costs and poor quality. Not only do they create strong incentives to increase the volume of services delivered, current payment methods often create barriers to delivering higher‐quality and more efficient care and can even penalize healthcare providers for keeping people healthy, reducing errors and complications, and avoiding unnecessary services.” Miller 2010, Pg 2.
- “There is broad consensus among policy experts that U.S. health spending is inappropriately high and that the healthcare system is woefully inefficient. Some analysts believe high prices for medical care lie at the heart of the spending problem. But privately insured patients traditionally have had little reason to worry about prices because they were shielded by generous insurance coverage. Historically, even if they wanted to comparison shop, patients seeking price information would have had to burrow through the thickets of secrecy and technical jargon surrounding healthcare prices.” White et al. 2014, Pg 3.
Examples of other ways to break down the important factors behind the high cost/quality ratio:
- Reinhardt, Hussey and Anderson 2004, Pg 12-15: “Factors Driving High U.S. Health Spending
- GDP per capita…
- Distribution of market power and prices…
- The capacity of health systems…
- Administrative complexity and costs…
- Unwillingness to ration health care”
- Bipartisan Policy Center 2012, Pg 6-7: “The drivers listed below represent both structural barriers to the reduction of health care spending within the current system (such as the fee-for-service system of health care reimbursement) and more dynamic, changing aspects that will impact the overall growth rate of health care spending (such as the increasing prevalence of chronic disease). Broadly, these health care cost drivers include:
- Fee-for-service reimbursement;
- Fragmentation in care delivery;
- Administrative burden on providers, payers and patients;
- Population aging, rising rates of chronic disease and co-morbidities, as well as lifestyle factors and personal health choices;
- Advances in medical technology;
- Tax treatment of health insurance;
- Insurance benefit design;
- Lack of transparency about cost and quality, compounded by limited data, to inform
- Cultural biases that influence care utilization;
- Changing trends in health care market consolidation and competition for providers and insurers;
- High unit prices of medical services;
- The health care legal and regulatory environment, including current medical
malpractice and fraud and abuse laws; and
- Structure and supply of the health professional workforce, including scope of practice restrictions, trends in clinical specialization, and patient access to providers.”
- Reinhardt, Hussey and Anderson 2004, Pg 12-15: “Factors Driving High U.S. Health Spending
“One of the main ways the Affordable Care Act seeks to reduce health care costs is by encouraging doctors, hospitals and other health care providers to form networks which coordinate patient care and become eligible for bonuses when they deliver that care more efficiently.
The law takes a carrot-and-stick approach by encouraging the formation of Accountable Care Organizations (ACOs) in the Medicare program. Providers make more if they keep their patients healthy. About four million Medicare beneficiaries are now in an ACO, and, combined with the private sector, more than 428 provider groups have already signed up. An estimated 14 percent of the U.S. population is now being served by an ACO. You may even be in one and not know it.” FAQ on ACOs, Kaiser Health News
“In concept, an ACO is a shared savings arrangement under which a set of healthcare providers—principally physicians and hospitals—assume some financial risk for the cost and quality of care delivered to a defined population of patients. If, collectively, an ACO’s participating providers are able to improve quality, enhance patients’ care experience, and limit per capita costs, they are rewarded with a share of the savings.” Kroch et al. 2012, Pg 9.
“The philosophy behind much current policy — including the Affordable Care Act (ACA) — is that aggregating fee-for-service reimbursement into payments for broader bundles of care will lead to greater efficiency in the provision of care and thus lower costs.” and “In summary, our results suggest that it is possible to achieve very substantial health care savings by moving from a fee-for-service model to bundled payments for episodes of care, whether in a standalone program or as a component of an overall global-payment model.” Cutler and Ghosh 2013, Pg 1075.
- “Medicare made bundled payments to hospitals and physicians to cover all services connected with heart bypass surgeries, and Medicare spending for those services declined by about 10 percent… Bundled-payment arrangements are generally viewed as arrangements in which a single payment from an insurer covers services that typically are furnished by two or more providers. Such arrangements are not commonly used by private insurers, primarily because of the challenges in designing and implementing bundled-payment systems. Results are available from a single independent evaluation of one major demonstration in Medicare that tested bundled payment: For the Medicare Participating Heart Bypass Center Demonstration, Medicare made bundled payments that covered all inpatient hospital and physician services for coronary artery bypass graft surgeries performed at seven hospitals.” Nelson 2012
- “Thus, if we want to make medical care more rational, we first need to eliminate the profits that flow from use of excessive services. The clearest way to do this is to move reimbursement to a bundled basis. Rather than charge more for each Cesarean delivery and NICU stay, what if each pregnancy were bundled into one payment, from prenatal care to delivery and complications (if any)? How aggressively would hospitals and obstetricians look at their patterns of elective inductions if each one cost money and simultaneously led to worse outcomes?
The Affordable Care Act (ACA) made a start on this, but there is much more to be done. For example, we know that when hospital and physician payments are bundled together for hip and knee replacements, costs per procedure decrease and quality of care improves (see here and here). The ACA authorizes yet another demonstration of this system of payment, with the possibility of making this payment system national policy based on the results.
But at this point, no more lessons are needed. There is no reason why Medicare, Medicaid, and private insurers should not proceed immediately to bundle together inpatient care, physician services, and postacute services for the most common acute admissions. Such a change would be relatively straightforward to implement and would save an enormous amount of money. And the evidence so far suggests that quality would improve.” Cutler 2013
- “In concept, an ACO is a shared savings arrangement under which a set of health care providers—principally physicians and hospitals—assume some financial risk for the cost and quality of care delivered to a defined population of patients. If, collectively, an ACO’s participating providers are able to improve quality, enhance patients’ care experience, and limit per capita costs, they are rewarded with a share of the savings.” Kroch et al. 2012, Pg 9.
- “Prices for the same services vary substantially within the same geographic area. Yet consumers almost never receive price information before treatment. Price transparency would allow consumers to plan ahead and choose lower-cost providers, which may lead high-cost providers to lower prices.” Emanuel et al. 2012, Pg 951.
- “As a nation, we pay too much for health care, in large part because of the excessive prices charged by health care providers, manufacturers, and suppliers. A key reason why those prices are so high is because almost all health care prices are hidden, which hinders market competition and keeps patients and their health care providers from making fully informed decisions… patients have little to no idea how much each procedure, medication, or hospital stay actually costs. And unlike many other goods and services, higher health care prices do not necessarily reflect higher quality. In the rare cases in which prices are publicly available, they are usually of little value to patients. For example, listed prices are not the same as a patient’s out-of-pocket costs, and the listed price most likely reflects only one part of a patient’s treatment. In order to lower health care costs, we must fix each of these problems—health care prices must not only be transparent, they must also be easy to understand. Secrecy in health care pricing distorts the market in other ways, and it is not just patients who are kept in the dark about health care prices. For instance, doctors make referrals without knowing the prices charged by other providers; they select medical devices for use in procedures without knowing the costs of the products or whether less-expensive alternatives may produce similar or even better outcomes. A recent study found that orthopedic surgeons correctly estimated the cost of a device only 21 percent of the time. In fact, at almost any point in the health care delivery system, the lack of meaningful, readily available price information raises costs.” Calsyn 2014, Pg 1.
- Calsyn 2014 goes into detail on current public and private initiatives to increase transparency. In short: “Fortunately, policymakers across the political spectrum as well as private-sector entrepreneurs are starting to focus on this issue. More than 30 states now require disclosure of at least some minimal level of health care price information, and last year, the Centers for Medicare & Medicaid Services released large amounts of Medicare claims data for the first time.” Calsyn 2014, Pg 2.
- We also heard from David Cutler about several non-profit initiatives to make existing data more accessible. GiveWell’s non-verbatim summary of a conversation with David Cutler on October 17, 2014:
- “The Laura and John Arnold Foundation has funded the Center for Healthcare Transparency, which is trying to consolidate data from state systems and disseminate their findings. This project will take a couple of years.
- The High Value Healthcare Collaborative at Dartmouth University is gathering electronic medical record data to compare high-performing health care systems.
- The Commonwealth Fund has published reports on the practices of high-performing health care systems.”
“In many cases, nurse practice acts are unnecessarily restrictive and keep NPs from providing the comprehensive primary care services permitted by their licenses and educational preparation.” Naylor and Kurtzman 2010, Pg 896.
“The number of medical students and residents entering primary care or pursuing careers in general internal medicine or family practice is steadily decreasing. However, the nation is benefiting from the relative growth among [nurse practitioners], whose per capita supply is projected to increase annually by an average of 9 percent.” Naylor and Kurtzman 2010, Pg 894.
Naylor and Kurtzman 2010 is a systematic review of the evidence around nurse practitioners in primary care. “The first randomized trial comparing the two types of practitioners’ outcomes in Canada was published in 1974. Results from that study demonstrated that patient outcomes, including mortality; satisfaction; and physical, emotional, and social functioning, among those seeing nurse practitioners were equivalent to those seeing physicians.
Subsequently, the congressional Office of Technology Assessment (OTA) conducted two independent reviews of nonphysician providers in the United States. The OTA concluded that “within their areas of competence, nurse practitioners, physician’s assistants, and certified nurse-midwives provide care whose quality is equivalent to that of care provided by physicians. …Two recent systematic reviews substantiate this conclusion. In both reviews, patients seeing NPs were more satisfied, had longer consultations, and had more tests, with no appreciable differences in patient outcomes, processes of care, or resource use.
These results are confirmed by findings from three randomized clinical trials as well as two secondary publications of these trials. They are further reinforced by fourteen additional, descriptive studies comparing NP- and physician-delivered primary care. Nurse practitioners provided care that was equivalent to the care provided by physicians—and, in some studies, more effective care among selected measures than that provided by physicians.
Consistent findings included the absence of group differences in health status, treatment practices, and prescribing behavior. Also consistent were better results among NPs on measures of patient follow-up; consultation time; satisfaction; and the provision of screening, assessment, and counseling.” Naylor and Kurtzman 2010, Pg 894-5.
Several sources suggested to us that existing monopolies (exacerbated by hospital consolidations) and barriers to new entrants contributed significantly to high prices charged by hospitals.
- “A lack of competition among hospitals, often due to consolidation, is also a real issue.” GiveWell’s non-verbatim summary of a conversation with David Cutler on October 17, 2014
- “Though problems of excessive concentration and insufficient competition in health care markets are not new, markets for hospital services have recently presented the most serious competition policy issues. Traditional antitrust enforcement tools have done little to halt the extraordinary consolidation in local hospital markets over the last two decades, which has driven higher price increases for inpatient services. Comprehensive, US-style health insurance further enhances the pricing freedom of health care firms with market power.” Richman 2012, Pg iii.
David Cutler suggested to GiveWell that funding for detailed case studies of existing systems was limited. “It is currently difficult to get funding for on-the-ground research projects that examine individual health systems to understand which practices and policies work and which do not. Critics comment that findings from these single case studies are not generalizable. However, learning by example may be an important to step in understanding high-performing health systems.” GiveWell’s non-verbatim summary of a conversation with David Cutler on October 17, 2014
2012 data from the Foundation Center showed $5.00bn donated towards health, just larger than education at $4.97bn and human services at $3.50bn. FC 1000 Grants, Foundation Center
We found 3 sources which each point to health care policy and access philanthropy of a few hundred million dollars each year.
- Firstly: 2012 data from the Foundation Center gives a total of $172m for “policy, management and information”. This may not include grants focusing on access, but provides a lower bound. FC 1000 Health Grants, Foundation Center
- Secondly: Inside Philanthropy claims that health policy and access make up 4-5% of total health philanthropy. Combined with the Foundation Center’s estimate of $5bn spent on health philanthropy in 2012, this puts access and policy spending at around $200m-$250m.
- “Health policy and access is a relatively small cause within the larger area of health giving. With a large share of the big bucks going to medical research, hospitals, and other high-profile recipients, this area only receives about 4% to 5% of health-related grants annually. That number, however, is a step up from the 1% to 2% of grants that came in the early 2000s. This rise in giving is due in large part to the ACA.” Health Policy and Access Funding: Tips and Tricks, Inside Philanthropy
- Foundation Center data: FC 1000 Grants, Foundation Center
- Thirdly: a 2004 report on growth in health policy spending estimates that 2002 spending was also in the range of hundreds of millions. “Grant dollars targeting health policy activities more than tripled from 1995 to 2002, from just under $100 million to nearly $360 million.” Lawrence 2004
“The ACA authorizes more than $22 billion to support local innovation that tackles the big questions of how to sustain and improve America’s health care system by transforming how health care is paid for and delivered to patients. This investment in experimentation focuses on initiatives that improve healthcare quality, reduce costs, build the health care workforce, diminish ethnic and racial disparities, and promote transparency. Over one hundred demonstration projects, pilot programs, and grants target funding to local health care providers and non‐profit organizations, state and local governments, and public/private partnerships.” Cohen 2010, Pg 1.