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EDITOR’S NOTE: Healthinsurance.org’s Curbside Consult is a periodic informal dialogue with medical and health policy experts about pressing issues of the day.

David Cutler Harold Pollack

David Cutler, author of The Qualify Cure, left, and Curbside Consult host Harold Pollack

David Cutler is Otto Eckstein professor of Applied Economics at Harvard University. He served on the Council of Economic Advisers and the National Economic Council during the Clinton Administration and has advised the Presidential campaigns of Bill Bradley, John Kerry, and Barack Obama as well as being Senior Health Care Advisor for the Obama Presidential Campaign, where he played a key role in the design of what became the Affordable Care Act.

I caught up with him last week for a Curbside Consult, in which we discussed his new book, The Quality Cure, about the American health care system. In Part 1 of our three-part interview, we talked about what it might take to reduce waste in the U.S. healthcare system and what types of incentives might improve healthcare delivery.

Here’s Part 2:

Below is a transcript of our conversation. It’s been edited to make the translation between spoken and written English.

Transcript of Part 2 (of 3):

Controlling health care cost growth

Harold Pollack: Your book described many approaches to improve quality of care. But what really panics people in Washington across the political spectrum isn’t quality but healthcare costs. How are we doing in getting a handle on controlling health care cost growth?

David Cutler: Surprisingly to some, medical care cost growth has slowed enormously. The past decade – but particularly the past few years – it’s been most noticeable. Even as the economy has recovered from the recession – not incredibly well but somewhat – health cost growth shows few signs of going up. That’s really quite interesting.

Some of this is due to the Affordable Care Act and the incentives it created. I don’t know why that’s a controversial statement. It is. Some of it is clearly a result of ACA, for example, hospital readmission rates are way, way down. Hospital infection rates had been going down, but they’re going down even more. Medicare payments were reduced in the ACA, and there were other changes.

The system itself is also changing less than it was. There’s less technological change of a truly cost-increasing variety. The new Hep-C drug is notable both because of its potential to spend a lot, but also because we haven’t had anything like that in a while. It’s unusual.

Harold Pollack: I’m not sure I should be happy about that. It’d be nice if we had more blockbuster cancer drugs.

David Cutler: That’s correct, especially if they worked. The truth is there’s no obvious sense in which slow cost increases are good or rapid cost increases are bad or the reverse. It depends on why. The only thing we can say with absolute certainty is that if you get inefficiency out of the system, that’s good.

If, for example, you have fewer people getting infections in hospitals because of better hygiene or because of better post-surgical monitoring, then that’s good. If we developed seven more drugs like the hep-C drug that cured various kinds of cancer but were expensive, we wouldn’t necessarily complain about that.

ACA and the slowdown in cost increases

Harold Pollack: You’ve credited ACA with at least some of the slowdown in costs. I take it that you’re an unbiased observer … Maybe you want to out your own role in the health reform trajectory.

David Cutler: I was a senior healthcare adviser to Barack Obama in 2008. I helped write what would become the very, very first draft of the Affordable Care Act: not the legislative language, but the outline of it. Then, I worked hard for its passage because I believe it’s a genuinely good thing and a genuinely important thing for our country.

I do think it’s important if you are someone like you or me, who is an academic, to be honest about things. I like to celebrate those parts of the ACA that are working well. Those parts that are not working well – I get sad about these, but I’m not afraid to talk about them, and you can’t be afraid to talk about them.

Harold Pollack: What are the pieces of the Affordable Care Act that are slowing health care cost growth and accomplishing some of the other things you just talked about?

Reform provisions that help

David Cutler: To some extent, there are direct payment changes. For example, there were reductions in Medicare payment to hospitals and to Medicare Advantage plans. There are reductions in payments for hospitals with high readmission rates. There are continued penalties for hospitals with high infection rate.

To some extent, it’s a changing ethos. ACA set us on the track of moving away from fee-for-service payment and towards more bundled value-based payment. What amazes me is that every hospital executive believes that’s coming, even if they’re not actually paid that way now.

They’re establishing programs to become more efficient – even though, as you said, at the moment for many hospitals, efficiency is actually associated with revenue loss. They suspect that that’s not going to last, that the economics will be made to work out. By the way, it’s incumbent upon us and public policy to make sure that works out. Otherwise things will go back to the way they were.

Harold Pollack: Under the surface of a polarized debate, I suspect that your conservative counterparts agree that we need to move away from the fee-for-service model, that we must figure out some way to make bundled payments work, that we must have accountability for outcomes. That adds up to a reimbursement system that looks a lot like what you advocate in The Quality Cure.

David Cutler: Some of the most ardent adherents of that view – whom I cite in the book and deservedly – are Gail Wilensky and Mark McClellan, each of whom ran Medicare and Medicaid under Republican administrations. Each feels strongly that we need to make these changes, or otherwise the system will not work. That’s one indication.

The other indication comes from the map one might construct of states that are doing interesting things on cost and quality – either in terms of legislation they’ve passed or are considering, or in terms of the federal monies they’ve received to address about these issues. Looking at that map, you could not tell which states are blue and which states are red. The states that are really trying to do things are all over the board – from the most liberal to the most conservative.

Who’s working on cost and quality?

Harold Pollack: That illustrates the reality that state governments are accountable to actually do stuff. They must pay bills, and they must take care of hundreds of thousands of people. There’s less of that accountability in Washington, where the typical legislator is not directly responsible for anyone.

If you’re a governor and you don’t happen to get along with the White House, you still have to make your public hospitals work. You still have to figure out a way to make Medicaid more functional in serving super-expensive patients.

David Cutler: States government does not have the luxury of inaction. Since ACA was passed four years ago, there has been this huge health policy shift away from Washington to the states.

Washington just has these god awful stagnant debates: Should we repeal the law? Let’s take another repeal vote. Let’s beat up on the insurers because they’re not telling us what we want to hear. Whatever it is, they’re just stuck in neutral. Meanwhile the states have to do things and they’re saying: We’ll do it.

Not all of these states will be successful, but that’s okay. I look at what states are doing – including the very red ones which I am slightly less inclined to like – and I said, “Boy, that’s a really great thing. I sure hope that they’re successful with it.”

Room for ACA improvement

Harold Pollack: You’ve mentioned that you’re proud of various aspects of ACA. You said we should also be honest about the things that are not working out or that need to be changed. What would you go back and change at this point?

David Cutler: On the legislative end, a number of things were left undone. They didn’t go far enough in transitioning Medicare out of fee-for-service payment. That could have gone much farther.

I would have liked to have done some malpractice reform. I would have liked ACA to have been much stronger in giving consumers the information they need by mandatory disclosure of information by insurers and providers …

Mandatory disclosure

Harold Pollack: Can you describe for our readers what mandatory disclosure actually is? Many people won’t be familiar with that.

David Cutler: The typical American has a health insurance policy with a deductible of, say, $1,000. They have no way of knowing if you need a particular procedure, if your doctor recommends a particular procedure, how much will it cost you at different places to get that.

To be concrete, let’s say your doctor says you need a colonoscopy. And you say” “Okay, fine, how much will it cost?” It turns out most providers cannot actually tell you how much it will cost you before you get the colonoscopy. People have zero ability to figure out how to use their cost sharing wisely.

That $1,000 deductible is much more than the typical American has in the bank. So people care a lot about having the ability to shop. At the moment, they cannot do it. That’s just a travesty.

Who should provide cost information?

Harold Pollack: If we required healthcare providers to give that information, could they actually do it?

David Cutler: Not necessarily the providers … Let’s think about the colonoscopy for a second. Colonoscopy may be several hundred or a couple of thousand dollars. What’s more meaningful for me is what my cost sharing will be. That is, I don’t care so much about the total amount. I care about out of my wallet how much am I going to have to pay.

For that, you need to go beyond just the provider. You don’t care so much about how much is that facility going to charge. You need the information from the insurance company: What’s my deductible? How much of that have I used already? What are the prices that they’ve negotiated with different providers? A lot of that is going to have to come from the insurer rather than the provider.

Harold Pollack: Boy, lack of familiarity with these terms and people’s general issues with numeracy would be tremendous barriers.

David Cutler: These would be huge barriers. What I would want would be a situation like this: I go to the doctor, and the doctor says, “You know, you should have a colonoscopy.” He or she swipes my insurance card and up on their screen would pop up a list of all the places where I could get a colonoscopy and how much I would pay at each of them.

Sitting there with me, the doctor can then say, “You know what, you would pay a lot doing it here but this other place is actually extremely good, if anything better and much cheaper. So rather than doing what we usually do which is to send people here, I’m going to recommend that you go to this other place, save yourself a lot of money and get a very good or better scan.”

Harold Pollack: I wonder if it seems like there might be some sort of market incentive to provide that kind of service. At least for people like us, you could imagine out primary care doctor might try to sell himself or herself to us on their ability to provide that.

David Cutler: The whole administrative cost issue of healthcare is frightening because you’d think that someone should have an interest in providing it.

Indeed, most doctors want to be able to help people that way, but the insurance company computers are not set up to do it that way. The doctors don’t have computer links in their offices that would access insurance company computers.

We’ve evolved this system which is built to bill and to challenge bills and to collect money but that’s not built to treat people the way they ought to be treated.

Help wanted: Health care manager?

Harold Pollack: That’s a big challenge to change something like that. In social services, you could make a very similar point. These systems are really designed for eligibility determination and fraud detection. They could do so much more to help people.

David Cutler: It’s unfortunate. As I mentioned, I’ve thought about this by thinking about other industries, how healthcare compares to other industries. I often think about managing your health and managing your money. In both cases, there are things I want to do; that is, I want to be healthy when I’m old and I want to have money when I’m old.

In the case of managing my money, there are companies like Fidelity and Vanguard that will happily do everything for me. In the case of health, there is nobody who does that same thing. That’s notable.

In the money case, there was this guy who had this great index card to show you how to save. It’s very hard to convince people of it. But once you’re in the system, there are people who will help you. There’s no one in the health care system, really, who can help you in this way or who sees that as the way that they do well in the world.

Concierge medical care

Harold Pollack: Is that what concierge medical care does? I’m afraid my index card hasn’t been around long enough for me to comfortably access concierge medical care yet.

David Cutler: That’s one of the things concierge medical care is trying to do, and that’s why so many people are moving into it.

Harold Pollack: I would like to see a group of rich people who have very high-deductible plans and who use concierge care. I’d love to see what we’d learn about the markets that they might germinate.

David Cutler: I agree. In a lot of markets, you don’t need that many people to be price-conscious. You just need some people to drive the market well. For example, I don’t have to be super spiffy in figuring out car prices, but as long as there are people who are, they will drive car prices to make sense. The more people we have who are willing to do that job for me, the happier I am.

Harold Pollack: We’d like to see markets come into existence that reveal this information. If rich people are comparison-shopping for hip replacements, that could be very useful. Whatever qualms one might have about other aspects of concierge medicine, that could be a very positive development.

David Cutler: Absolutely. The studies indicate that people are very responsive to healthcare prices when they see them. If you raise people’s price for meds, they take fewer drugs. If you lower their price for doctor visits, they’ll go get more doctor visits. People are extremely price-responsive. Now we just have to get people the right information.

Limits to comparison shopping

Harold Pollack: Your book makes one really good point, though, which should temper our enthusiasm. You note the difference between Lasik and coronary bypass surgery. I can actually comparison-shop for my Lasik. As Ezra Klein likes to mention, I can’t comparison shop from a gurney.

David Cutler: There are limits. So the entire solution is not to make healthcare more like food or like automobiles. That’s an important limitation. In many ways, the role of the doctor is twofold. One is to make recommendations to you; and then second is to do the thing for you.

Of course, when you conflate those, you always get trouble. Because you can’t really know whether the doctor is really acting in your interest all the time. The physician has to be bought in. It can’t be patients in opposition to physicians, always questioning them because they’re not in a position to do that.

Harold Pollack: When my wife had her heart problem, I really had no information about any of the hospitals near me. I couldn’t do any comparison or cost or quality at all.

David Cutler: The amazing thing is that people don’t trust their insurer at all. They have no trust in their insurer. They trust their doctor, although it’s a little bit unclear where doctors get their information.

I think, by and large, the physicians get their information the same way people do, which is sort of by word of mouth. How that correlates with actual true outcomes in any sense is not particularly known.

I remember there was an apocryphal study I was told. I don’t know if it’s true. I never saw the study. Someone told me that if you do a survey of practicing lawyers, of what are the best law schools in the country, the sixth best law school is Princeton University Law School …

Harold Pollack: That’s awesome.

David Cutler: … which is somewhat ironic because Princeton does not have a law school.

Harold Pollack: As an alumnus, I take great pride in that.

David Cutler: The idea that the experts will always know the quality of the different institutions is just not right.

 

Part 1: Can we ‘do the right thing’ profitably?

Part 3: Looking beyond the botched ACA rollout

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