Ten Points for Transforming the U.S. Health Care System

February 15, 2005

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The United States spends more than any other nation on health care—well over twice the per capita average among industrialized nations. Health expenditures have grown from $1.3 trillion in 2000 to $1.7 trillion in 2003, and the portion of gross domestic product consumed by the health sector over that period has increased from 13.3 percent to 15.3 percent. Yet it is increasingly clear that our money is not buying the best care.

The U.S. health care system excels in some areas. But on many measures of quality, it delivers poor-to-middling results. Among the system's most significant problems is the growing number of Americans lacking health insurance—up from 39.8 million to 45 million between 2000 and 2003, a 14 percent increase that fell hardest on working adults.

What Americans want—and what our high spending should buy—is the best health care in the world. It's an achievable goal. But to reach it will require that we transform the health system to achieve better care for all.

Transformational change is not the same as radical restructuring. We do not need to replace our current system with a single-payer, all-government system or eliminate fee-for-service methods of payment; nor do we need to eliminate public insurance or convert Medicare into competing systems of private insurers. We do need to make sure that we are getting commensurate value for what we spend. The big question, of course, is how. Work by The Commonwealth Fund and others suggests a 10-point strategy for change:

1. Agree on shared values and goals
Today, we tolerate a system that compromises the health of our workforce, strains our economy, and deprives many Americans of a healthy and secure retirement. We need a national discussion about our shared values and goals. We have the talent and resources to achieve a high-performance health system, but first must identify what we want as a society and hope to achieve over time.

2. Organize care and information around the patient
Each patient needs a "medical home," a personal clinician or primary care practice that delivers routine care and manages chronic conditions. People with ready access to primary care use emergency rooms less and know where to turn when they are worried about a medical problem. Continuity of care with the same physician over time has been associated with better care, increased trust, and patient adherence to recommended treatment.

Ideally, a patient's medical home would maintain up-to-date information on all care received by the patient, including emergency room services, medications, lab tests, and preventive care. It would not serve as a "gatekeeper" to other services but would be responsible for coordinating care, ensuring preventive care, and helping patients navigate the system.

3. Expand the use of information technology (IT)
As Donald Berwick, M.D., president of the Institute for Healthcare Improvement, has said, "Information is care." Physician visits and specialized procedures are important, but so is information that lets patients be active partners in their care.

Modern information systems are a boon to patients as well physicians. Patient registries, for instance, can track whether people with problems such as diabetes or asthma are getting recommended follow-up care or whether their conditions are well controlled. Decision-support systems can help physicians make diagnostic and treatment decisions. Information systems can improve the efficiency of care, ease appointment scheduling, facilitate medication refills, and eliminate duplication of tests.

The health care sector has been slow to embrace IT, despite wide recognition that it is difficult to provide safe, high-quality, responsive care without it. To encourage speedier implementation, private insurers may need to establish differential payments for providers with and without appropriate technology. Public programs could use their leverage to accelerate change—as happened in 2003, when the Medicare program implemented a requirement that almost all doctors submit claims electronically.

4. Enhance the quality and value of care
The quality and cost of health care vary widely from place to place within the U.S. For example, according to the Dartmouth Atlas of Health Care, the cost of reimbursed Medicare outpatient services (adjusted for age, sex, race, illness, and other regional factors) varied in 1996 from $795 to $237 per enrollee, depending on the hospital referral region, with an average of $444. Such variations suggest that by examining the distribution of health expenditures, identifying best practices and spreading those models, we could make improvements. Such disparities suggest that by examining the distribution of health expenditures, identifying best practices, and spreading those models, we could make improvements.

In one Fund-supported project, advanced practice nurses provide post-hospital care, including home visits, to congestive heart failure patients enrolled in private Medicare managed care plans. Randomized control trials have demonstrated that the technique reduces re-hospitalization, and thus annual care costs, by one-third. Fund-supported evaluation of "business cases" for quality suggest other approaches, from monitoring of cholesterol-reducing drugs to redesigning primary care to make it more accessible to low-income patients.

5. Reward performance
Paul Batalden, M.D., coined the phrase, "Every system is perfectly designed to get the results it gets." If we want fundamentally different results in health care, we need to be prepared to change the way providers are rewarded. There is widespread consensus that current methods of payment are "misaligned," not only failing to reward quality but actually creating perverse incentives to avoid sicker and more vulnerable patients. And the "disincentives" go further. The current system typically pays hospitals on a per-case, per-diem, or charge basis; individual physicians on a fee-for-service basis; and integrated health care delivery systems on a capitation basis. Under those terms, hospitals may be penalized if they reduce hospitalization rates or shorten hospital stays, and physicians may be penalized if they keep chronic conditions well controlled. Only integrated health care delivery systems are rewarded for efficiency gains, but they are not rewarded for achieving higher quality.

One step toward combating this misalignment might be to create a new type of group practice, perhaps called "accountable physician practices," that would be responsible for meeting quality and efficiency targets. Payment could be made through a blended system of fixed monthly fees for enrolled patients, fee-for-service, and bonuses for performance. For hospitals, payment could be based on diagnosis—the method currently used by Medicare—with bonuses for meeting quality targets.

6. Simplify and standardize
Health care administrative costs are far higher in the U.S. than in other countries and are the most rapidly rising component of health expenditures. This is partly explained by the major role of private insurers, whose premiums cover advertising, sales commissions, reserves, and profits. Instability of coverage, and high costs associated with enrolling and disenrolling millions of people each year from private and public health plans, is another factor. The proliferation of insurance products, each with its own complex benefit design and payment methods, also inflicts high administrative costs on hospitals, physicians, and other providers.

Standardizing practice in five areas—payment methods, benefits, claims administration, provider credentialing, and quality standards—would preserve innovation and choice while improving efficiency, effectiveness, and equity.

7. Expand health insurance and make coverage automatic
The greatest problem in the U.S. health care system—the one that sets us apart from every other industrialized nation—is its failure to provide health insurance coverage for all. Forty-five million Americans are uninsured, and one-fourth of adults under age 65 are uninsured at some point during a given year.

The United States has considered proposals to achieve universal coverage for almost a century. Other countries have achieved that goal by covering their citizens under automatic coverage, either through public programs or a mix of public and private insurance. Their citizens do not experience gaps in coverage, and administrative costs are therefore markedly lower. More important, no one is denied access to essential services.

A bold strategy would be to automatically enroll all Americans in some form of health insurance. Everyone would be covered under one of four private or public group insurance options: a new pool modeled on the Federal Employees Health Benefits Program, employer coverage, Medicare, or the Children's Health Insurance Program (CHIP). Individuals would have a choice of coverage, and those not exercising a choice would be assigned to a plan best fitting their circumstances. Enrollment could be checked through the federal income tax system or by state clearinghouses when people seek care.

8. Guarantee affordability
Findings from the 2003 Commonwealth Fund Health Insurance Survey indicate that over 71 million Americans under age 65 have medical bill problems or accumulated medical debt. Sixty-two percent of people who reported those problems said they were insured at the time their bills were incurred.

Those financial burdens could be relieved by establishing ceilings on out-of-pocket liability for individuals, using mechanisms that would ensure that no American is required to spend more than 10 percent of income on health care. Setting a floor on coverage—for example, by extending CHIP coverage to anyone earning below 150 percent of poverty—would be a practical way to guarantee that the most vulnerable do not fall through the cracks.

9. Share responsibility for health care financing
Even more difficult than restructuring public programs is determining employers' responsibility for financing the health benefits of their employees. The percentage of workers receiving coverage through their own employers has been eroding for several decades, a trend that appears to have accelerated during the recent economic slowdown. When employers do not cover their own employees, the cost is borne by other employers, government programs, and individuals.

A good strategy here would be to develop a mix of incentives and disincentives to encourage all employers to help finance coverage for their workers. Employers purchasing qualified coverage for all employees could be eligible for "reinsurance," with the federal government picking up most of the cost for employees with health expenses over a given threshold. Certain tax benefits could be conditional on contributing a minimum amount toward coverage for employees, and small businesses could be given an opportunity to purchase coverage through a group pool.

10. Encourage collaboration
All of these changes would be much easier to accomplish in a climate of cooperation, both between the public sector and private insurers and employers and among health care providers.

Possible areas for collaboration include the establishment of common payment methods, performance rewards, and benefit packages. The public sector should probably take the lead in funding research on cost-effectiveness and improving quality and efficiency, creating a national institute on clinical excellence and efficiency, and establishing information technology standards. The private sector should probably take the lead in promoting professionalism and incorporating quality improvement processes in organizational accreditation and certification of health care professionals.

No one expects this sort of change to happen quickly or easily, even within a collaborative environment. The challenges are substantial. But so are the opportunities, and the expertise, to address them. For our part, we seek to be a catalyst for transformational change by identifying promising practices in the United States and internationally and by contributing to solutions that could help us achieve such a vision. At this critical juncture, we hope our work will contribute toward achieving a 2020 vision for American health care with better access, improved quality, and greater efficiency—for all.

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February 2005