Comparative Effectiveness: The Rest of the Story

However, because of “the rest of the (health reform) story,” private payers and provider organizations cannot afford to ignore the cost dimensions of CER. Cost-effectiveness, the least expensive way to produce a specific outcome, will become a key to their economic survival for several reasons. Long-term Medicare and Medicaid payments will be cut dramatically in all areas except primary care, while a significant share of responsibility for payment is being shifted to patients-at a time when consumer disposable income is stagnant and strained to the limits. Other health reform programs, including accountable care organizations (ACOs) and bundled payment projects, will also limit expenditures.

Consequently, providers and payers can no longer expect healthcare to be a growing business in the future. For the first time since Medicare and Medicaid were created in 1965, historical growth in medical spending in real dollars is coming to a halt. The American economy will not support continual increases in health spending as a share of gross domestic product (GDP). Healthcare businesses are starting to face a budget constraint. The old business model won't work anymore.

A budget constraint may be new to healthcare's leaders, but it is well-known to economists. Fixed revenue means that waste must be cut out of the production process because its costs cannot be passed on to consumers and their third-party intermediaries. Finding the least-expensive way to operate across the board is a key to financial survival when pass-through is no longer possible. Providers and their business partners must take production expenses into account, going beyond comparative-effectiveness to cost-effectiveness.

HIT AS A CRITICAL SUCCESS FACTOR

Experiences in other industries show convincingly that information technology is a critical success factor (CSF) when competition or other uncontrollable events force producers to become efficient. Today's leading healthcare organizations show that pervasive IT is the key to top performance in an industry that has been spared economic pain, until now. They have implemented translational research and performance improvement programs and developed their own cost-effectiveness methodologies in the process.

Becoming a “meaningful user” might be a step in the right direction, but it doesn't ensure that consistently good healthcare is produced as inexpensively as possible throughout the enterprise. HITECH's short-term financial incentives-assuming they occur and exceed the costs of qualifying-won't come close to overcoming the long-term revenue threats of PPACA, economic stagnation, and consumer empowerment.

Meaningful use may be the big story right now, but it isn't the whole story in an unforgiving marketplace. Payers and providers need to get very serious, very fast, about making the necessary HIT investments to support robust comparative-effectiveness and cost-effectiveness studies within their organizations. Few can afford to wait for government to lead the way.

Jeffrey C. Bauer, Ph.D., an internationally recognized medical economist with 40-plus years of health industry experience, forecasts the future of healthcare and develops practical strategic approaches for improving efficiency and effectiveness of the delivery system. He can be reached at (773) 477-9339 or jeffbauer@mindspring.com. His website is www.jeffbauerphd.com. Healthcare Informatics 2011 June;28(6):73-75