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Report: Health System Overhaul Could Save $1.5 Trillion over the Next Decade

By Miriam Straus

December 18, 2007 -- Major health care system changes, combined with universal health insurance, could save $1.5 trillion compared to projected spending growth over the next 10 years, according a report released Tuesday by the Commonwealth Fund.

The analysis, prepared by the Commonwealth Fund and the Lewin Group, found that placing an additional $2.00 tax on a pack of cigarette to support tobacco interventions would result in an overall savings of $191 billion over the next decade. Public obesity programs, financed by a federal tax of one cent per 12 ounces of sugar-sweetened soft drinks, would yield a total savings of $283 billion.

The report, which examines 15 specific policy options, highlights four major goals: producing and using better information, promoting health and disease prevention, aligning incentives with quality and efficiency, and correcting price signals in the health care market.

"Many in the public are frustrated that the debate [on health care policy] has taken place on a fairly abstract level," said James J. Mongan, the president of Partners HealthCare Systems and the chairman of the Fund's commission that studied the findings. "This report has dollars attached."

"Most of these savings are extremely optimistic," said Joseph Antos, a health policy expert from the American Enterprise Institute. For example, tobacco taxes are already high, and people still smoke. "We are down to people who have a true physical addiction. Taxation isn't going to do much to curb their smoking," said Antos, who supports the tobacco public health interventions but not the consumption tax.

He also is skeptical of the obesity prevention programs funded through a tax on soft drinks. "Anyone who has a weight problem and wants to lose weight knows how difficult that is," said Antos, noting that social, psychological, and body chemistry factors aspects all play a role in obesity.

The largest projected savings in the report, estimated at $368 billion, comes from establishing a Center for Medical Effectiveness and Health Care Decision-Making which would examine different treatment options to design which ones are most effective and help incorporate the information into insurance benefit design. Urban Institute President Robert Reischauer called this option an essential building block to overhauling the nation's health care system.

But others caution that savings and positive health outcomes may be slow and difficult to achieve with "comparative effectiveness." An analysis released Tuesday by the Washington consulting firm Avalere Health states that a number of factors, such as how such an entity would be funded and how a program is created and operates will impact how quickly and to what extent any new federally funded comparative effectiveness research program could generate savings.

Commonwealth Fund President Karen Davis noted that the report includes options supported by advocates across the political spectrum. One suggestion is to establish competitive bidding between Medicare plans and traditional Medicare, allowing beneficiaries to choose whether to pay for the extra benefits of Medicare Advantage. While beneficiaries would pay more, the overall health systems savings is estimated at $104 billion over the next decade, the report concludes.

The report also suggests establishing a Medicare pay-for-performance program for all hospitals similar to the current Centers for Medicare and Medicaid Services/Premier Hospital Quality Incentive Demonstration. By reducing Medicare payments though a decline in hospital readmissions, this option could save $34 billion over the next decade.

Other suggestions from the report include promoting health information technology (saving $88 billion over 10 years), giving the Secretary of Health and Human Services the authority to negotiate or set price limits for Medicare prescription drug plans ($43 billion over 10 years), and strengthening care coordination ($194 billion over 10 years).

"We must address the problems of the uninsured and rising costs," said Davis. "This report kicks off the discussion with models for achieving savings that will allow us to get real value for what we spend on health care."

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