(Bloomberg Opinion) -- The first priority for President-elect Joe Biden’s still-to-be-announced health-care team will be the pandemic, which will consume its attention through next summer. But once Covid-19 is under control, it will be essential to return to the effort to make U.S. health care work better. Biden’s appointees should aim to build on the improvements in efficiency provided by the 2010 Affordable Care Act — and also find ways to provide extra health-care capacity during emergencies, a need that the pandemic has vividly demonstrated.
The ACA included a variety of provisions that, in combination, were intended to slow overall health-care cost growth — in part by reducing the variation in Medicare costs across the country. Building on research from Dartmouth College, the Congressional Budget Office and others documented these substantial differences, and showed that they were mostly driven not by prices or patient health status but by variation in practice norms. Furthermore, there was no apparent correlation between higher spending and better outcomes. These revelations suggested, as I said in congressional testimony in 2008, that “substantial opportunities exist to reduce costs without harming health overall.”
Since then, clever studies of people who move from one part of the country to another have confirmed that regional differences in Medicare costs are unrelated to health status or outcomes.
Soon after the ACA was passed, health-care cost growth decelerated dramatically, and by much more than predicted in 2010. Now new research shows that regional differences in Medicare spending also narrowed.
Yongkang Zhang and Jing Li of Weill Cornell Medical College examined the regional differences from 2007 to 2017 and found that during those years the gap between the highest- and lowest-spending areas fell 14% — almost $500 per person. And the greatest change came immediately after Obamacare was passed.
The largest dollar reductions occurred for in-patient treatment, post-acute care and physician services. One interesting tidbit: In a 2009 New Yorker article, Atul Gawande highlighted McAllen, Texas, as a city with extraordinarily high Medicare spending. By 2015, as Gawande noted, spending in McAllen had declined sharply. Zhang and Li have documented the pattern: In McAllen, from 2009 to 2017, Medicare spending per person fell by more than 2% per year — the sharpest decrease in the country. McAllen has dropped from the top 10% of U.S. regions ranked by spending to the bottom 20%. Perhaps being the poster child of excessive spending nationally had an effect.
More broadly, Zhang and Li found a significant narrowing of regional differences from 2010 to 2014, immediately following the ACA’s passage, but little movement since then. This is encouraging, in that the early progress was not reversed, and it also suggests there are additional opportunities for improvement. As Zhang and Li put it, “The fact that the gap between high- and low-spending [regions] stabilized without an increase after 2014 may suggest that factors associated with earlier reduction in per capita spending variation across regions remained in effect. However, it also suggests that more recent policy has been less successful than some of the early ACA provisions in further reducing geographic variation in Medicare per capita spending.”
Unfortunately, their analysis did not extend to the years before the ACA. Regional differences in Medicare spending were diminishing from the mid-1970s to the mid-2000s, except for a brief period in the early 1990s, and it would be interesting to know whether the change just after the ACA was stronger or weaker than before.
For the Biden health-care team, the question is what more they can do to narrow spending differences. Over the past decade, the health-care system has digitized and telemedicine has advanced significantly, and both these changes create conditions for further progress. Experiments with paying providers differently — through bundled payments and accountable care organizations, for example — have not always proven successful, but they have indicated promising pathways forward. The Biden administration will have plenty of tools at its disposal to continue pushing down cost growth and closing spending gaps across the country.
The new hard question is how to think about hospital beds. In health care, Roemer’s law holds that bed supply creates its own demand — that the more beds there are, the more people will be hospitalized, regardless of need. Thus, health-care planners have constrained the growth in hospital beds to avoid encouraging unnecessary care. The pandemic, however, has underscored the need to have additional bed capacity available during emergencies. There are three ways to broadly do this. One is to maintain excess beds in hospitals, perhaps by having the government foot the bill, but not use them outside a pandemic. That approach would probably run into multiple political and practical problems. An alternative is to invest in the capacity to quickly build emergency hospitals if they are needed — as temporary hospitals were constructed in New York City and elsewhere early in this pandemic. A third approach, proposed by Leemore Dafny and Steven Lee of Harvard University, involves preparing post-acute facilities to provide surge capacity in any future pandemic.
For the next several months, the priority must be to fight the Covid-19 pandemic. Once that battle is won, health policy makers should return to the business of improving the efficiency of U.S. health care.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Peter R. Orszag is a Bloomberg Opinion columnist. He is the chief executive officer of financial advisory at Lazard. He was director of the Office of Management and Budget from 2009 to 2010, and director of the Congressional Budget Office from 2007 to 2008.
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