APRIL 2014 Improving Health While Reducing Cost Growth : What is Possible ?

The Brookings Institution is a private, non-profit organization. Its mission is to conduct high-quality, independent research on important public policy issues. The conclusions and recommendations of any Brookings publication are solely those of its author(s), and do not reflect the views of the institution, its trustees, management, or other scholars. Support for " Sustainable Reductions in Health Care Spending: What is Possible While Improving Health? " was generously provided by the Irene Diamond Fund. The authors would like to acknowledge and thank the Engelberg Center project team for their tireless efforts and many contributions to this project. Specifically, we want to recognize Abstract This paper addresses two questions: What policies could reduce the projected growth of health spending while enhancing population health and the quality of health care? How much difference might these policies make if successfully executed? We find that depending on the costs of new treatments, biomedical innovation may place upward pressure on health spending, while increasing the length of healthy lives. We examine three complementary strategies for avoiding wasteful spending linked to inefficiencies in health care delivery, lack of market competition, and poor population health. One is reforming provider payment systems by moving away from rewarding volume of service toward rewarding measurable value. Another is enhancing competition to increase consumer incentives to choose cost-effective treatments and providers and also to choose health plans that have more efficient payment and benefit design. A third is enhancing a culture of health by providing incentives for healthy behaviors and shifting the emphasis of providers and communities toward prevention and enabling healthy living. We identify successful examples of each and, based on preliminary and incomplete evidence, provide illustrative simulations of possible changes in health spending associated with successful implementation of a range of policies. We conclude that, while several approaches are promising, a major sustained effort is needed to identify, evaluate, and implement reinforcing policies that will restrain the growth in spending while improving population health.