At the Washington Post’s Wonkblog, Ezra Klein has put up two posts about healthcare costs that are well worth reading. The first is about Oregon’s Medicaid program, which has been the basis for some exciting recent research on how Medicaid coverage affects recipients’ lives and is now trying to reduce the growth in healthcare costs by improving community health. The second is an interview with Bill Gates, whose Gates Foundation is trying to reduce global deaths of children under age five. Both pieces address one of today’s key healthcare questions: How can we best use finite resources to improve health?

Here’s Klein with an anecdote that captures Oregon’s drive to invest in preventing health problems, rather than just continuing to treat costly disease episodes:

Oregon Gov. John Kitzhaber (D) loves to tell the air-conditioner story. He loves to tell it so much, in fact, that it has become something of a running joke in Oregon health-policy circles. At this point, even Kitzhaber is in on it. Before he repeats it to me, he says, “I probably shouldn’t bore you with my air conditioner story.”

Here’s the air conditioner story: There’s a 90-year-old woman with well-managed congestive heart failure who lives in an apartment without air conditioning. That’s actually the whole story.

Kitzhaber, a former emergency room physician, sees this as the perfect example of what’s wrong with our health-care system. “A hot day could send the temperature in her apartment high enough that it strains her cardiovascular system and kicks her into full-blown congestive heart failure,” he said. “Under the current system, Medicare will pay for the ambulance and $50,000 to stabilize her. It will not pay for a $200 window air conditioner, which is all she needs to stay in her home and out of the hospital. The difference to the health-care system is $49,800. And we could save that $49,800 without reducing her benefits or her quality of life.”

…“The fundamental problem with our health-care system is the growing discrepancy between the cost of care, the resources available to pay for it and the tenuous connection between that expenditure and actual health,” Kitzhaber said. “What we’re doing is instead of putting our budget into the ER and paying for congestive heart failure after congestive heart failure, we’re putting it into care coordination and community health workers. We’re investing in health. It’s just a paradigm shift.”

Oregon is getting $1.9 billion from the federal government to overhaul its Medicaid program, in exchange for a commitment by the state to keep its Medicaid cost growth below the rate in the rest of the country, saving a total of $11 billion over the next decade. (Sarah Kliff has more details on Oregon’s plan.) The state may find that giving free air conditioners — and, I’d hope, vouchers to help with related electric bills — to residents with congestive heart failure reduces medical costs.

Oregon’s 15 coordinated care organizations (CCOs) will likely come up with many such prevention projects, and see which ones are worthy of continued investment. In addition to interventions that deliver an immediate benefit, like air conditioners, the state and individual CCOs could invest in programs and infrastructure that increase physical activity and improve access to healthy food, which can reduce disease occurrence and severity years into the future. In fact, these are the kinds of interventions that the Prevention and Public Health Fund — one of the less-noticed pieces of the Affordable Care Act — was designed to support. Congress and the Obama Administration have repeatedly diverted money from this fund, however, so it can’t do all that Congress envisioned when it first included the Fund in the ACA.

Oregon is betting that investing in prevention will save money over the long run. It’s important to note, though, that prevention investments are worthwhile if they improve people’s quality of life, whether or not there are savings. But governments have limited amounts of money to spend, and they have to prioritize. Here’s Bill Gates giving Ezra Klein an example of a problematic spending tradeoff:

My deep interest in this came somewhat because it’s fascinating but also because our big cause in the U.S. is education, and if you look at state budgets, they are moving money from education to health. They have to because the health costs are just exploding. So very quickly say to yourself, gosh, if there’s going to be any money left for university education and adequate money for K-12, even to stay flat, you have to figure out health-care costs.

Unfortunately, in rich-world health, innovation is both your friend and your enemy. Innovation is inventing organ replacement, joint replacement. We’re inventing ways of doing new things that cost $300,000 and take people in their 70s and, on average, give them an extra, say, two or three years of life. And then you have to say, given finite resources, should we fire two or three teachers to do this operation? And with chemotherapies, we’ve got things where we’ll spend our dollars on treatments where you’re valuing a life here at over $10 to $20 million. Really big, big numbers, which if you were infinitely rich, of course that would be fine.

So most innovations, unfortunately, actually increase the net costs of the healthcare system. There’s a few, particularly having to do with chronic diseases, that are an exception. If you could cure Alzheimer’s, if you could avoid diabetes — those are gigantic in terms of saving money. But the incentive regime doesn’t favor them.

The reason we’re worried about the rate of healthcare-cost increase (which has generally outpaced GDP growth over the past decades) is that ever-growing healthcare spending will crowd out spending in other areas, like education. Given that better-educated populations tend to have better health, reducing education spending to pour ever-greater shares of federal and state budgets into Medicare and Medicaid could itself contribute to higher healthcare costs in the future. Governments will need to prioritize spending on the most worthwhile interventions. We should be paying close attention to Oregon’s experiment to see what they learn about getting the most bang for their healthcare bucks.

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