Executive Summary

The Foundation for American Healthcare Leadership (FAHCL) is an affiliate of Wye River Group on Healthcare, a non-partisan 501c3 catalyst organization that advances leadership and collaboration to promote positive health system change. We thank the many individuals and organizations that provided financial and intellectual resources to launch the Foundation in 2004.

FAHCL was created in response to an expressed need for a communications loop that could link health and business leaders at the community level with policymakers at the national level. The Foundation’s mission is to inform and shape national public policy by drawing on ideas that enjoy broad support among community leaders from across the spectrum of health care sectors and viewpoints. These community leaders offer valuable insight and experience in “making health care work” at the local level. Their unique value to policymakers is their ability to reflect on healthcare issues and critique proposals from a practical operations viewpoint.

There is no issue more practical or pressing than the question of whether Americans are receiving adequate value in return for our nation’s extraordinary investment in health care. It is a complex issue to address and one that has received little systematic analysis to date. But increasingly employers, consumers and taxpayers are looking for – even demanding – answers. The Foundation designed its inaugural meeting in June 2004 to examine how we might begin to determine the economic value of health and healthcare in this country.

It is widely known that health care spending represents nearly 14% of our Gross Domestic Product. But what does our country – and in particular, what do health care purchasers – receive in return for that spending? Until the health care industry can systematically measure, report and analyze the value it provides, its impact on Americans’ quality life and longevity and its contribution to the economy will not be fully appreciated.

This new reality is becoming apparent to all of the healthcare sectors. Hospitals, physicians, pharmaceutical companies, health plans and others recognize the need to demonstrate value to purchasers, employers and consumers if they are to compete and thrive in the 21st century healthcare environment. Each must demonstrate in measurable, transparent ways that they are accountable for their contribution to society and the economy. This new approach to the business of healthcare represents a major change in organization, financing and delivery. It also requires a transformation in the culture of organizations and individuals.

For the Foundation’s inaugural meeting, we requested the assembled health care leaders to consider current health care investments in terms of their socioeconomic benefits. We asked them to reflect on their roles in optimizing the health of the population through the investments that are made in health care. We also asked them to consider the roles of government and industry in maximizing the potential for individuals to adequately meet their needs and receive value from their health care encounters. In other words, we framed a "conversation for action" that focused on the responsibility of the "system" to create the foundation or framework for economic value in health care.

The overall focus of the meeting was to address this question: What is the economic value of health and health care? In a nation that spends more than $1.7 trillion on health care each year – far more per capita than any other country on earth – it is vital that we think about this. Do we spend too much? Do we spend too little? How do we determine the value we receive from our investment? To drill down on this subject, we looked at several specific questions regarding the economic value of health and health care. These questions, and the discussion they received, are summarized below.

Are we getting the greatest return on our extraordinary investment in R&D for medical technology and pharmaceuticals?

Health care purchasers and employers have grown increasingly concerned about the expense of new medical technologies and pharmaceuticals. The introduction of new products usually causes an immediate spike in utilization, which increases costs for payers. Yet there is relatively little information available to determine the value of these new technologies and pharmaceuticals. As a result, many people say we need to move toward a more transparent value proposition with regard to new products.

Some health care sectors, such as the pharmaceutical industry, are already devoting increased resources to demonstrating value, mostly in response to pressure from payers, providers and consumers. But some doubt whether this type of evaluation should be left to the private sector. A new structure – one that involves the federal government – may be needed to evaluate new products and provide information to payers and consumers. Potentials models for this new structure are the National Institute for Clinical Effectiveness (NICE) in the United Kingdom and the former Office of Technology Assessment in the U.S.

A significant number of health plans and employers appear interested in the idea of implementing a cost-effectiveness hurdle for FDA approval of new products. Those who support this view say the value assessment needs to occur much earlier in the development process than it does currently. Including a comparative effectiveness analysis in the initial approval process would be less expensive and more helpful than doing one later on, after FDA approval.

But others are opposed to the idea. They note that the information available on cost-effectiveness prior to FDA approval is very limited. Therefore, any cost-effectiveness threshold that the FDA applied would be entirely arbitrary and could not reflect the varied preferences of all patients. They say it is either the payer or the patient-doctor locus that should be making decisions based upon cost and value, not the FDA.

However, that being said, the FDA can and should take an active role in helping to create the information that informs decisions on value in the post-marketing environment. Indeed, the FDA has been working to ensure that as the health care system moves to adopt electronic medical records, it will be able to take advantage of this opportunity to gain more information about how the products it regulates function in the real world.

Regardless of who gathers the data, the consensus is that value-based purchasing is likely to become even more prevalent. Therefore, there will need to be better value measures and more transparency of measures. But measuring the value of new products, and disseminating that information to payers and to the public, is complex and will require a sophisticated response. At this time, there isn’t a clear constituency that will push for more systematic evaluation of health care products and services. Until there is such a constituency – either in the academic medical community or elsewhere – it will remain difficult to convince the federal government to increase its support for evidence-based evaluation of medical practice.

How do preventive services, chronic care management, and broad access to basic health and health care services get evaluated within the economic value rubric?

Chronic diseases now account for more than 75% of all U.S. health care expenditures. But most of that spending is on treatment, with very little on prevention. Our nation invests only about $1.25 per person per year on prevention for chronic diseases that are the leading causes of death, including cancer, heart disease and diabetes. Across the spectrum of health care stakeholders, there is a growing consensus that this needs to change.

If opportunities to prevent and control chronic diseases such as cancer were fully seized and realized, millions of lives could be saved. But currently there is little incentive for health care providers to offer the range of preventive services and care management that could be truly useful to patients. Providers have virtually no financial incentive to follow prevention protocols or to collaborate with other providers, even when they are serving the same patient, at the same time, for related conditions.

Similarly, purchasers experience the worst return on their investment in care for patients with multiple chronic conditions, particularly those who are frail and have multiple, complex care needs. There is growing support for developing new quality measures and financial incentives that reward prevention and collaboration among providers in the interest of total health improvement. Given that Medicare and Medicaid are the principle payers for chronic illness care, the federal government needs to provide leadership by establishing new financial incentives that will change the rules of the game.

Prevention needs to become a national policy objective. To create real change, policymakers have to put financial incentives behind a new vision of care – one that elevates the importance of prevention and chronic care management. Providers would behave very differently if Congress would establish national goals for reducing incidence rates for specific chronic illnesses and related disabilities and use this as a foundation for making budget decisions, and if all of health care was accountable for reducing the incidence and prevalence of chronic disease and disability rather than simply reducing the cost of their specific segment of operation.

What is the rationale for investing in information technology, and who should make the investment?

There is shared recognition that broader application of IT offers tremendous potential in increasing the value of health care. The full application of IT is expected to be a major contributor to increased longevity and quality of life during the next fifty years. Employers are very interested in seeing health care explore what IT can do to raise quality and reduce cost. But the need for substantial capital investment represents a significant challenge to many in the health care industry, particularly small providers.

Among IT’s anticipated benefits is its ability to reduce medication errors, which are now responsible for approximately 7,000 deaths each year, according to estimates by the Institute of Medicine. IT’s ability to eliminate a sub-sample of those deaths through error alerts and other means would provide an economic value estimated at $200 million to $400 million each year.

Similarly, IT has the potential to increase the likelihood that chronic disease will be appropriately diagnosed and treated. A recent Pacificare report finds significant implications for Medicare in terms of chronic care and the leveraging of IT. According to the report, IT-driven chronic care improvements could reduce hospitalizations by about 50 percent. As the VA health system has found, implementing an electronic health record across the world-wide military health system has provided real value to its patients.

While there is widespread agreement on the need to implement information technology across health care settings, there is uncertainty about who should pay the cost. One viewpoint is that the federal government should take a leadership role in IT investment. There is precedent for this. The federal government invested in health care infrastructure in the past, when local communities in rural and urban areas could not come up with funding on their own to build needed health care facilities such as hospitals. From a policy standpoint, a potential trade-off is for the federal government to invest in IT in return for increased transparency of reporting.

In response to this proposal, it was noted that due to increasing federal budget deficits, it is doubtful that the federal government has the ability to invest in this level of transformation. On the other hand, the United Kingdom, which has a fiscal situation that is not any rosier than that of the U.S., has nevertheless made a substantial investment in IT in recent years. European countries are also looking to make strides in this area.

There is a note of optimism in Washington, where elected officials of both parties are advocating for improving IT infrastructure in health care. The White House has recently appointed a health information technology czar and there are bipartisan proposals in Congress to invest in IT. This year, the Agency for Healthcare Research and Quality is providing $50 million in grants for implementing IT and is doing some statewide demonstrations in interoperability.

As for the private sector’s role, there is concern that providers feel pressured to pay the cost of implementing IT, without receiving any clear financial return. Although many hospitals may have enough capital to invest in IT, most small physicians’ offices do not. Payers are also unsure whether investment in IT would reap savings. The disconnect between who does the investing in IT and who is likely to get the return is an issue that must be addressed in order to move forward with an agenda for improved IT infrastructure.

On the other hand, there are examples of health care stakeholders and employers investing together in joint IT projects. One project underway in Albuquerque, New Mexico, is the implementation of a new community-wide data warehouse that tracks claims data for patients with chronic diseases such as diabetes and depression. The local employer community provided significant support for the project, which they hope will improve care for workers with chronic diseases and thereby boost their productivity in the workplace.

How de we evaluate the contribution of a healthy citizenry to productivity and economic development at the community level?

There are a number of suggestions for how to evaluate the contribution of health and health care to our society and economy, but first we need to recognize that there is, in fact, a contribution. Currently, health care is thought of only in terms of its cost – to employers, to consumers and to taxpayers. But in fact, there is a substantial return on this investment, not only in terms of individual quality of life and longevity but also worker productivity and local economic development. We need to start changing the mindset in our society to think about the full range of benefits that are provided by a flourishing healthcare industry.

One way to start getting people to recognize the benefits of health and health care is to measure those benefits. One suggestion is to quantify what it means for the economy and for employers to have a healthy workforce. The U.S. military, for example, measures the effectiveness of health care by looking at how quickly soldiers can return to duty. A similar measure could be used by the employer community. What they are likely to find is that because of investments in health care, workers are able to return to their jobs healthier and earlier than they used to, which presumably has a significant benefit in terms of productivity.

Another suggestion for evaluating the contribution of health care is to look at the impact of health care expenditures on economic development. Health care is one of the main economic engines in most communities – particularly in rural areas, but also in major cities. Hospitals alone employ around 5 million people, making them the second-largest private employer in the United States. They are a consistent source of job growth – even in times of recession – and their purchases provide a significant ripple effect throughout the local economy.

At the national level, health care is one of the most vibrant areas of economic growth. There is evidence to suggest that additional expenditures on health care add value to the economy. This is certainly true of developing counties, as has been documented by the World Health Organization.

However, a concern is that once health care spending reaches a certain point, it stops adding value to the economy and instead becomes an impediment to economic growth. It appears that the U.S. may have reached that point now that health care costs are taking an increasing toll on the competitiveness of U.S. businesses in the global marketplace. This is a critical time for employment-based health care coverage. Given the cost pressures they face, employers need to see value in return for their spending on health care if they are to continue providing coverage for their workers. This puts responsibility on the health care industry, now more than ever, to be able to make the case.

Two sides to the “value equation”

In summary, the Foundation’s inaugural meeting focused on how the health care system can create a framework so that individuals will receive “value” from their health care encounters. There is a lot to be done – from implementing cutting-edge information technology to ensuring access to appropriate preventive care. But there is another side to the “value equation” – what Americans can do for themselves to maintain their health and well-being. A growing body of literature suggests that the greatest opportunities to improve health outcomes in the U.S. are in the area of behavioral choices and patterns. It is this other side of the value equation that the Foundation will explore at its meeting in December 2004.

Recommendations for Next Steps

This summary is a distillation of potential actionable next steps for the Foundation and its allies. It is not anticipated that all of these proposals will be undertaken. Rather, we will prioritize activities based on feedback received from the Foundation’s Advisory Board.

Information

Information about the Value of Products and Services:

• Challenge: Payers and consumers currently lack information about the relative effectiveness of new pharmaceuticals and technologies, which makes it difficult to judge their value.
  • FAHCL proposal: To convene a meeting of public and private stakeholders, including FDA officials, to discuss whether the FDA or another agency should replace the former Office of Technology Assessment with a new entity to evaluate the comparative effectiveness of new products (possibly modeled on the United Kingdom’s National Institute for Clinical Effectiveness, or NICE).
• Challenge: Payers, providers and consumers lack outcomes that would help them evaluate common medical practices and make informed decisions. There is a need for more federal support for outcomes research and a systematic policy for evaluating medical practice. More engagement by Academic Medical Centers in this type of research would be useful.
  • FAHCL proposal: To convene a discussion among interested stakeholders and policymakers about developing a strategy to increase support for outcomes research from the federal government and among the medical community, and to consider designing a programmatic response along the lines of the former Patient Outcomes Research Team (PORT) projects, which were under the auspices of the Agency for Health Care Policy and Research (AHCPR).
• Challenge: Currently, there is not a venue that can provide a swift and balanced resolution to the many difficult social questions raised by rapid advances in medical science, technology and genomics.
  • FACHL Proposal: To work with appropriate parties in the public and private sectors to define and advance the idea of a "science court” that would be responsible for weighing the merits of various medical and administrative technologies and their applications. As a relatively apolitical venue, a “science court” could be an effective way to strike a balance between the public interest and the interests of the industry.

Information about Prevention and Health Promotion:

• Challenge: An economic case for increasing the emphasis on prevention and health promotion in order to reduce chronic disease has not yet been made, either to policymakers or the public.
  • FAHCL proposal: To work with economists and others to develop and publish “best thinking” and “economic modeling” to further this case. We should evaluate the work of Oxford Vision 2020 where it is relevant.
• Challenge: There is potential for the federal government to work with private entities on a social marketing campaign on prevention education, but this potential has not yet been fully explored.
  • FAHCL proposal: To work with the National Quality Forum, the Centers for Disease Control & Prevention and marketing and communications experts to develop a campaign. We should explore ways to build on private sector interests modeling profitable business opportunities.

Infrastructure

Information Technology:

• Challenge: A major barrier to increased IT infrastructure is the need for investment. Many providers, particularly small ones, don’t have the resources to invest in IT.
  • FAHCL proposal: To convene industry leaders and others to outline recommendations for financing, particularly for small providers, through loan programs, tax credits, private/public/community co-ops, etc.
• Challenge: The technology now exists to successfully implement Community Health Information Networks (CHIN), which have the ability to spread access to electronic medical records among a variety of institutions.
  • FAHCL proposal: To research models for implementing CHINs and explore the potential for building on common elements in current efforts by trade associations such as AMGA and professional societies.

Delivery Models:

• Challenge: Rationalizing treatment delivery will help us get the most out of our health care delivery system.
  • FAHCL proposal: To identify and report on best practice models with regard to deployment of personnel, community outreach, disease management, “virtual networks,” etc., looking at both the public and private sectors.
  • FAHCL proposal: To investigate and report on the VA health system’s experience in providing better quality health care than fee-for-service Medicare, and at less cost, and to encourage policymakers to examine that experience and its possible implications through demonstrations.
  • FAHCL proposal: To research the applicable elements of the hospice model and develop recommendations for regional demonstrations that would move the model "up-stream" for chronic care management.

Community Planning

• Challenge: Some good ideas from the past that were not implemented or were abandoned may have just come at the wrong time and should be reconsidered.
  • FAHCL proposal: To research the successes and failures of the community health planning movement and explore its potential application to today’s environment.

Incentives

• Challenge: Currently, financial and other incentives for providers, plans and patients are not well aligned to encourage use of evidence-based medicine. Pilot projects are underway to reduce unwarranted practice variation and to increase pay for performance, but much more can be done.
  • FAHCL proposal: To convene a group of stakeholders and economists to explore and report on possible reimbursement models that better align incentives for evidence-based medicine.

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