1. Alan M. Garber, M.D., Ph.D. Center for Primary Care and Outcomes Research Center for Health Policy Stanford University VA Palo Alto Health Care System PCOR/CHP 10 th Anniversary Celebration September 16, 2008 CENTER FOR HEALTH POLICY CENTER FOR PRIMARY CARE AND OUTCOMES RESEARCH

2. CENTER FOR HEALTH POLICY CENTER FOR PRIMARY CARE AND OUTCOMES RESEARCH

3. Alan M. Garber, M.D., Ph.D. Center for Primary Care and Outcomes Research Center for Health Policy Stanford University VA Palo Alto Health Care System PCOR/CHP 10 th Anniversary Celebration September 16, 2008

4. Alan M. Garber, M.D., Ph.D. Center for Primary Care and Outcomes Research Center for Health Policy Stanford University VA Palo Alto Health Care System PCOR/CHP 10 th Anniversary Celebration September 16, 2008

5. Alan M. Garber, M.D., Ph.D. Center for Primary Care and Outcomes Research Center for Health Policy Stanford University VA Palo Alto Health Care System PCOR/CHP 10 th Anniversary Celebration September 16, 2008

6. Alan M. Garber, M.D., Ph.D. Center for Primary Care and Outcomes Research Center for Health Policy Stanford University VA Palo Alto Health Care System PCOR/CHP 10 th Anniversary Celebration September 16, 2008

7. Should we be concerned about rising health expenditures? It’s about value

8. Should we be concerned about rising health expenditures? According to economists,  Increased longevity since 1970 worth $95 trillion (3x health spending)  Improvements in health and physical function highly cost-effective

11. Decade1 yearCost Per Life-Year Gained* 1960-70$36,086 1970-80$14,581 1980-90$62,234 1990-00$75,656 Sources: * Cutler, Rosen, and Vijan, 2006 Medical Progress: Cost Per Life Year Gained for a 45-Year-Old

12. Decade Undiscounted Life- Years* Discounted Life- Years** 1960-70$36,086$166,346 1970-80$14,581$64,078 1980-90$62,234$158,929 1990-00$75,656$246,906 Sources: * Cutler, Rosen, and Vijan, 2006; ** Additional calculations by Allison Rosen Cost Per Life Year Gained for a 45-Year-Old: Undiscounted and Discounted Life-Years

13. Citizens of other nations are also living longer

16. U.S. may not be getting as much value for health care dollar as other nations

18. It’s also about the money

19. Medicare sources of non-interest income and expenditures as a percentage of Gross Domestic Product Source: Office of the Actuary, CMS; 2008 Medicare Trustees Report

20. Medicare sources of non-interest income and expenditures as a percentage of Gross Domestic Product Source: Office of the Actuary, CMS; 2008 Medicare Trustees Report Unfunded liability $7600 per working age adult* *In constant 2008 dollars

21. Why we spend more: the usual suspects

22. High prices High Prices

23. High prices High Prices

27. Misaligned incentives

31. Cutting costs

32. Cutting costs with little political pain

33. Promote electronic health records $77 billion annual savings (Obama advisers) $88 billion 10-year savings (Lewin group)

34. Reduce administrative costs $ 43 billion annual savings (Obama advisers)

35. Prevention and disease management: $81 billion annually (Obama health advisers); more than $493 billion over 10 years (Lewin Group)

36. Additional opportunities for savings INITIATIVE 10-YEAR SAVINGS “Comparative effectiveness” (Center for Medical Effectiveness) Align payment incentives Improved health insurance markets Limit health insurance tax exclusion $368 billion* $457 billion ???? *Lewin Associates calculations, in Bending the Curve, Commonwealth Fund Commission on a High Performance Health System, Dec. 2007

37. From Bending the Curve, Commonwealth Fund Commission on a High Performance Health System, Dec. 2007

39. Cost control efforts must cut growth rate to have lasting effects The key to sustained savings: better incentives based on better information

43. Medical interventions will need to be judged by the value they provide

44. COX-2 Inhibitors vs NSAIDS Change in costs Gain in health benefit (QALYs) Comparator: Naproxen 00.100.05 $12k $6k $0 Source: Spiegel et al., The Cost-Effectiveness of Cyclooxygenase-2 Selective Inhibitors in the Management of Chronic Arthritis, Ann Intern Med. 2003;138:795-806. $100k per QALY

45. COX-2 Inhibitors vs NSAIDS Change in costs Gain in health benefit (QALYs) Comparator: Naproxen Assumption: Excludes effects on heart Change in cost: $11,600 Change in benefit: 0.04 QALYs Incremental CER: $290,000/QALY 00.100.05 $12k $6k $0 Source: Spiegel et al., The Cost-Effectiveness of Cyclooxygenase-2 Selective Inhibitors in the Management of Chronic Arthritis, Ann Intern Med. 2003;138:795-806. $100k per QALY Basecase

46. COX-2 Inhibitors vs NSAIDS Change in costs Gain in health benefit (QALYs) Comparator: Naproxen Assumption: INCLUDES effects on heart Change in cost: $11,600 Change in benefit: 0.03 QALYs Incremental CER: $395,000/QALY 00.100.05 $12k $6k $0 Source: Spiegel et al., The Cost-Effectiveness of Cyclooxygenase-2 Selective Inhibitors in the Management of Chronic Arthritis, Ann Intern Med. 2003;138:795-806. $100k per QALY Basecasew/ heart

47. COX-2 Inhibitors vs NSAIDS Change in costs Gain in health benefit (QALYs) Comparator: Naproxen Assumption: High-risk patients Change in cost: $4,720 Change in benefit: 0.08 QALYs Incremental CER: $56,000/QALY 00.100.05 $12k $6k $0 Source: Spiegel et al., The Cost-Effectiveness of Cyclooxygenase-2 Selective Inhibitors in the Management of Chronic Arthritis, Ann Intern Med. 2003;138:795-806. $100k per QALY Basecasew/ heart High risk

48. Moving to a cost-effectiveness criterion shifts both expenditures and outcomes

51. Reducing expenditure growth in 2 steps

52. 1. Better financing and payment Payment incentives for more effective and efficient care -will almost certainly require major IT investments -remove barriers to more effective payment mechanisms

53. 2. Better information Produce comparative effectiveness and cost- effectiveness information

54. 3. Better financing Modify tax exclusion for health insurance and health care More efficient markets for health insurance Better information about health plans

55. Value-enhancing innovation will be rewarded