Over the last thirty years, health spending in the United States has increased from $1,000 per capita to over $8,000, a pace unmatched by other countries. Does increased use of technology in itself
Download Audio as MP3 cause more rapid growth in US health care expenditures as a share of the economy, compared to other countries? Harvard economist Amitabh Chandra finds that the real cause is our reimbursement system for health care (particularly Medicare), which encourages the widespread use of treatments with unproven value and makes cost-saving innovations scarce. Chandra suggests that using comparative-effectiveness research and targeted payment incentives could address the enormous variation in treatment cost-effectiveness. AEI visiting scholar Tomas Philipson will discuss the limits of current cost-effectiveness analysis and highlight its potential spending and health implications. Sheila Smith of the Centers for Medicare and Medicaid Services will examine the relative contribution of medical technology, insurance, and income to health spending growth. AEI's Thomas P. Miller will moderate.
AMITABH CHANDRA, Harvard University
TOMAS PHILIPSON, University of Chicago and AEI
SHEILA SMITH, Centers for Medicare and Medicaid Services
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WASHINGTON, SEPTEMBER 9, 2011—Prominent health economists gathered at the American Enterprise Institute (AEI) Friday to discuss the degree to which technological advancements influence health care spending and how public and private insurance should approach reimbursement of medical technology. Harvard economist Amitabh Chandra argued the United States has never seriously considered whom and what treatments public insurance should cover. As a result, spending on treatments of potentially limited benefit is unchecked. Public and private insurance cost sharing, Chandra said, should align more with the marginal effectiveness of each treatment. Tomas Philipson, professor at the University of Chicago and a visiting scholar at AEI, was more skeptical of the value of comparative effectiveness research and questioned how markets would respond to an infusion of that information. Nonetheless, he called for more such research in areas that private markets have failed to examine, such as usefulness of various medical procedures. Sheila Smith, an economist at the Centers for Medicare and Medicaid Services, presented research showing that technology is not the only important driver in the growth of health spending over time. Income change is a key driver of spending growth, and medical price inflation, insurance coverage changes and demographic changes are also influential factors.
Tomas J. Philipson is a visiting scholar at AEI and the Daniel Levin Chair in the Irving B. Harris Graduate School of Public Policy, as well as an associate member of the department of economics at the University of Chicago. He was a senior health care adviser to the 2008 presidential campaign of John McCain; senior economic adviser to the commissioner of the Food and Drug Administration during the Bush administration from 2003 to 2004; and senior economic adviser to the administrator of the Centers for Medicare and Medicaid Services from 2004 to 2005. Mr. Philipson is an editor of Forum for Health Economics & Policy and is on the editorial board of Health Economics and the European Journal of Health Economics. He has twice received the highest honor of his field, the Kenneth Arrow Award from the International Health Economics Association, in 2000 and 2006. Mr. Philipson is the cofounder of Precision Health Economics, an adviser to the Gerson Lehrman Group, and a consultant for Compass-Lexecon and Analysis Group.
Sheila Smith is an economist for the Centers for Medicare and Medicaid Services (CMS) within the Office of the Actuary, where she holds primary responsibility for model development for the CMS ten-year projections model of the National Health Expenditures (NHE). Within the context of the NHE model, she is responsible for generating the projected outlook for growth in aggregate private health spending and private health insurance enrollment over the coming decade used in CMS's annual release of ten-year projections of NHE. Ms. Smith's research interests focus on the analysis of factors contributing to growth in NHE over a long-term (seventy-five-year) forecast horizon, with application to the evaluation of methodology for the actuarial projection of Medicare spending. Her recent work includes estimating the magnitude of the contribution of changing medical technology to historical health spending growth and the interaction effects among income, insurance, and medical technology (with Joseph Newhouse and Mark Freeland). Ongoing work addresses the evolution of the contribution of income and technology to health spending growth over a seventy-five-year projection. Before joining CMS in 1998, Ms. Smith was the principal health economist for the cost information service of Standard and Poor's DRI unit.