McClellan examines opportunities for improving health care

Dr. Mark McClellan, director of the Engelberg Center for Health Care Reform at the Brookings Institution, presented a lecture on Wednesday titled "Bending the Health Care Cost Curve: Pathway to Real Reform,” in which he illustrated opportunities for improvement on the issue based on his experiences.

McClellan was introduced by Christina Paxson, dean of the Wilson School, who described him as “one of those rare breeds who have both a Ph.D. and M.D.,” and envied McClellan’s combination of his public service career with his academics. With a Ph.D. in economics from MIT and an M.D. from the Harvard-MIT Division of Health Sciences and Technology, McClellan is also senior fellow of economic studies and the Leonard D. Schaeffer chair in health policy studies at the Brookings Institution.

McClellan began the lecture by briefly summarizing the cost of health care in the past, showing graphs of federal spending as percentage of GDP. He explained that, while 40 years ago, Medicare and Medicaid costs consisted of 1 percent of GDP, they are now to total 8 percent.

“Dealing with rising health care costs,” McClellan said, “will be a central issue in future forums relating to deficit reduction.”

McClellan pointed to the Affordable Care Act in implementing unprecedented methods to keep costs down. Policymakers are now trying to achieve a lower rate of spending than ever achieved in the history of the program. While the excess rate of spending growth has continually decreased since 1975, McClellan noted that such a goal would not be easy.

“Many think this won’t end up being sustainable,” he explained. “We are facing challenges from a fiscal and venture standpoint.”

At the same time, McClellan pointed out, research done over the last few decades shows a high average value of rising health care costs. For example, estimated benefits of heart attack treatments are seven times greater than the related rise in costs.

Addressing the concern about sustainability on the one hand and low public support towards less valuable health care on the other led McClellan to the focus of the talk — policy reforms that, instead of only expanding insurance coverage and lowering prices, would support delivery reforms resulting in better quality care at lower costs.

“We enter an era of more personalized care,” McClellan noted. “The long term problem is to get to a more sustainable rate of growth. This doesn’t necessarily mean radical changes right away.” Even reducing costs by one or two percentage points per capita each year, he said, would be promising.

According to McClellan, the four pathways to real health care reform are better measurements and evidence, a new method of provider payment, a changed benefit design and a focus on insurance choice.

He explained that while more data is electronic today, the move to more sophisticated measurements is neither fully successful yet nor standardized, describing the state today as “more a foundation of data used to coordinate and derive improvements in care.” For better evidence, McClellan said, “what you need ... are summary results, to measure and support better performance.”

It is this increased performance through better measurements that McClellan believes can be used toward changing the way provider payments work. Speaking about his time as administrator for the Centers for Medicare and Medicaid Services from 2004 to 2006, during which he implemented the Medicare Part D program, McClellan explained, “a measurement of quality and cost provides a foundation for payments based on value and leads to accountable care.” Since then, McClellan has seen a great increase in accountable care organizations and administration of policies that focus more on efficiency and care. He notes that more and more payments for drugs are based on performance, a policy that is growing even in the private sector.

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Regarding benefit design, McClellan advocated a program that parallels the Part D “exchange experience,” where there is competition based on quality and cost.

He explained, “People have overwhelmingly chosen a structure where generic drugs are almost free ... prices for drugs in lower classes are about $30 a month ... others are usually covered.”

This tiered benefit structure offers a much stronger incentive than traditional insurance design, he said. In addition, such a program was much less expensive than the original projection, and 90-plus percent of participants were satisfied.

“The point of all this,” McClellan said, “[is that] while attention is paid to provider payment changes, what really drove changes in drug costs and ways of using prescriptions in Part D ... were choices in benefit designs by seniors.” This is important to the pathway of insurance choice, he explained, in giving health plans flexibility to compete. Promoting such competition in insurance choice drives innovative care.

These four pathways, though not easy, are gaining momentum, with many states already implementing changes. In the future, McClellan said, pressures for reducing cost will still increase, but by focusing on value, starting with measurements and tying it into payments, benefits and choice systems, potential is high for more valuable innovation in health care.

The lecture was followed by a Q-and-A session, in which McClellan responded to questions by a variety of audience members, including a Wilson School alumnus and a Princeton resident with multiple sclerosis. A reception was held afterward in the Schulz dining room.

The public talk, held Wednesday afternoon in Dodds Auditorium in Robertson Hall and attended by approximately 100 students, faculty and community members, was part of the Wilson School’s Leadership and Governance Program.