U.S. Health Care The Rest of Reform

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by Tom Main, Jason Grau & Mike Weissel

As we write this article in late fall 2009, there is a feeling in the air that perhaps the United States is nearly done reforming health care. Nothing could be further from the truth. Reform should mean better care to more people for less money. The proposals currently before U.S. Congress may expand access but will do little for quality and cost.

The status quo is unsustainable. The U.S. spends more on health care than our peer countries, with results no better than theirs. Costs are growing two or three times faster than GDP, and there is reason to fear reform will have the unintended effect of rendering health insurance unaffordable for millions.

This means it is time to begin work on the rest of reform. High costs, poor quality, and poor value are built into the very structure of U.S. health care. But after many years of working with insurance plans and health care providers, Oliver Wyman has seen abundant evidence that U.S. health care spending can be reduced by 10% to 15% – and in some cases by 30% to 40%. The answer is not rationing and reduced benefits. Instead, it lies in coordination of care, alignment of incentives, and standardization. That is the path the next wave of reform must take.

In our work, we have learned that four issues are central to the cost/quality conundrum:

• Medically complex patients need coordinated care.
  Patients with multiple late-stage chronic or organic diseases make up less than 10% of non-elderly patients but account for half of all medical spending. They need someone to play "quarterback" in their care, eliminating duplication, setting priorities, and melding the inputs of multiple providers into a unified plan. In practice that rarely happens today. As a result, these patients often receive enormous amounts of care but not the right care, leading to continued expense.
  
  
• Care needs to rely on evidence-based medicine.
  A major contributor to high costs and poor quality is unwarranted variation in care, estimated in several major studies to exceed 40%. To date, our best tool to combat it is evidence-based medicine, preferably built into an electronic medical record system to prompt appropriate physician behaviors.
  
  
• Payment needs to be tied to outcomes.
  Many prescriptions, tests, and procedures produce little or no value for patients. They are ordered partly because of the economic incentives created by our fee-for-service reimbursement model. We need to replace that model, at least for some patients or conditions, with models that focus on outcomes and provide fundamental economic alignment for payers, health care providers, and patients.
  
  
• Patients need to be accountable.
  Tens of billions of dollars are wasted each year on treatments that patients either take improperly or do not take at all. We spend today on treatments doomed to fail and then spend again tomorrow because they have failed. Much responsibility for poor compliance rests with patients, but we have seen promising results from programs that create financial incentives for patient compliance.
  
  

These four ideas are the core of a new model known as Integrated Health Management. In our experience, the integration of the four is the magic ingredient that separates effective and ineffective health care innovation.

Congress cannot directly legislate effective, cost-efficient health care, but it can provide a helpful push through oversight of federal health care programs and government-funded studies. And legislators can remove roadblocks to progress. Some examples:

• Remove obstacles to delivering the best care.
  Health plans need to explore new techniques for changing provider and patient behavior — incentives for compliance, techniques to match the sickest patients with the most qualified physicians, and methods to encourage employers to implement novel approaches. Too often, federal and state laws and regulations stand in their way.
  
  
• Support innovation in health care delivery.
  The past few years have seen the emergence of new payment models, incentives to improve consumer engagement, risk-sharing contracts for prescription drugs, new approaches to complex care, and other innovations in the business of health care. These ideas need to be tested and the best ones adopted.
  
  
• Use government programs to build critical mass for best practices.
  Medicare, Medicaid, government military plans, and federal and state employee plans need to take the lead in improving cost-efficiency and quality. Medicare in particular has a tremendous ability to set standards. It should accustom physicians to value-based reimbursement and a new role for primary care; it should lead the move toward evidence-based medicine and electronic medical records.
  
  
• Support programs that reduce risk factors.
  It will take more than health insurance and doctors to reduce spending on health care. In the U.S., almost 40 million people have untreated or uncontrolled high blood pressure. More than 43 million adults smoke. More than 34 million have cholesterol levels defined as high-risk. These groups — and others — are time bombs waiting to create future cost explosions.
  
  

Health care is expensive partly because there is so much worth paying for: new treatments, new drugs, new techniques, and new tools. But the way we deliver and pay for care has not kept pace. The core characteristics of American health care ¡V fee-for-service reimbursement, lack of coordination, and badly aligned economic incentives — have enormous power. Unless they are changed, they will make reform unsustainable.

It is not easy to slow a $2 trillion snowball rolling downhill. Our hope is that public and private entities will work together in the months and years ahead to create a market structure for health care that promotes positive change, competition, and investment while advancing the public good. Let us use the second wave to make U.S. health care both sustainable and the envy of the globe.

Tom Main is a Chicago-based partner and U.S. market leader for Oliver Wyman’s Health and Life Sciences Practice. He can be reached at .

Jason Grau is a Chicago-based associate partner on the Strategy Consulting Team of Oliver Wyman. He can be reached at .

Mike Weissel is the Boston-based managing partner of the global Health and Life Sciences Practice of Oliver Wyman. He can be reached at .

This article is an abridged version of the first in a series of MMC Perspectives on Health Care Reform. The full article is available at www.mmc.com/knowledgecenter/healthcare_reform.php.