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Dr. Joshua Worthy is chief of neurology at a large staff model health maintenance organization (HMO) and serves as the physician representative to the HMO’s executive committee. The federal government has just taken the unprecedented step of imposing mandatory cost controls. The HMO’s budget for the coming year will be frozen at the current year’s level. In past years, the annual growth in the HMO’s budget has averaged 8%.

The health plan CEO begins the committee meeting by groaning, “These cuts are draconian! To meet these new budget limits we’ll have to cut staff and ration life-saving technologies. Patients will suffer.” A consumer member responds, “We all know there’s fat in the system. Why, in the newspaper just the other day there was an article about how rates of back surgery in our city are twice the national average. And if we’re going to talk about cuts, maybe we should start by looking at your salary and the number of administrators working here. I’m not so sure patients have to suffer just because we’re adopting the kind of reasonable spending limits that they have in most countries.”

Dr. Worthy remains silent for much of the meeting. He wonders to himself, “Is the CEO right? Is cost containment inevitably a painful process that will deprive our patients of valuable health services? Or, could we be doing a better job with the resources we’re already spending? Is there a way that our HMO could implement these cost controls in a relatively painless fashion as far as our patients’ health is concerned?” Interpreting Dr. Worthy’s silence as an indication of great wisdom and judgment, the committee assigns him to chair the HMO’s task force charged with developing a cost-control strategy to meet the new budgetary realities.

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INTRODUCTION

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Concerns about the rise of health care costs dominate the health policy agenda in the United States. The lack of adequate insurance and access to care for tens of millions of people—which spawned the Affordable Care Act—is in part attributable to the problem of rising costs. Health care inflation made health insurance and health services unaffordable to many families and employers.

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Private and public payers in the United States have taken aim at health care cost increases and discharged volleys of innovative strategies attempting to curb expenditure growth, such as creating new approaches to utilization review, encouraging HMO and Accountable Care Organization (ACO) enrollment, making patients pay more out-of-pocket for care, and a multitude of other measures. Yet national health expenditures per capita increased over sevenfold between 1980 and 2013, rising from $1,110 to $9,255 per capita (Fig. 8-1). Viewed as a percentage of gross domestic product (GDP), US health expenditures increased from 9.2% in 1980 to 17.4% in 2013 (Fig. 8-2). While growth slowed from 2009 to 2013 due to the economic recession, growth is expected to accelerate starting in 2015. Health expenditures as a percentage of GDP are ...

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