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More focus on quality and getting more value out of the health care dollar, not cost reduction per se, is the key to improving the U.S. health care system.

Interview with David Cutler, professor of economics, Harvard's Department of Economics; Dean of Social Sciences for the Faculty of Arts and Sciences

  While policymakers bemoan the high and rising cost of health care, Harvard economist David Cutler begs to differ. Cutler, whose stint with the Clinton Administration's health reform team taught him a few important lessons about policymaking, has been making the case that the government can't contain costs and expand access. Nor, he says, should we worry so much about the size of the U.S. medical budget. Instead of focusing on controlling health care spending, Cutler says policymakers should be working on approaches to improve quality, leverage value out of the health care dollar, and spend more to expand coverage to those who lack it. Cutler firmly believes that spending more to live longer and survive preventable diseases is worth it. Cutler's unique views are gaining attention as private

and public payers, including Medicare, look for ways to change health care provider incentives to yield improvements in quality and patient outcomes. The Harvard University economist and ERIU-funded researcher, shares his views on squeezing more value out of the health care dollar, expanding coverage to the uninsured, and rising health costs.

You've said that health reform has not succeeded because past efforts have been misguided. What do you mean?

CUTLER: It's very common when people talk about reforming the health system to say 'We ought to save money and cover everyone.' They want to give more access and spend less. Those are nice and wonderful goals but when you insure everyone, you will spend more. If people want to save money and give uninsured people more care, then usually those with health coverage wind up getting less care.

In what ways are we not getting value for our health care spending?

CUTLER: The Institute of Medicine estimates that nearly 50,000 to 100,000 people die every year because of preventable medical errors. This is an enormous failure. Another inefficiency is that about 10 percent of people who get bypass surgery don't really need it. This is a big deal. There is a lot of overuse of services in this country. The third problem is underuse of care. About half of the people who are put on a cholesterol-lowering drug to prevent strokes or heart attacks stop taking it within two years because they forget or they feel better. There is no widespread system in place to make sure these patients continue to take this important medication that can save lives and stave off other serious illnesses.

So, one solution would be to pay on the basis of how well care is provided?

CUTLER: Many of the failures of the system today are a result of the way the money flows. Let's take cholesterol drugs. Suppose that doctors and insurers were paid more when people actually took drugs. Right now, doctors have no ability to track patient behavior. Instead, they are paid for seeing patients as quickly as they can. If you paid them to set up computer systems enabling them to get notices about patient medications, we know from experience that would immediately improve medical practice. Why don't we pay a little bit more to make sure people don't get colon cancer rather than just paying for their surgery and treatment? Paying for outcomes is a much better approach. If you tell physicians, 'We will increase your fees by 20 percent if you improve outcomes,' they can then use that money to invest in computer systems or link with others who have made that investment. We should be paying for more valuable care and less wasteful care.

Will this make much of a difference to patients?

CUTLER: In Medicare, for example, the bulk of people don't get their blood pressure successfully treated because it's left to the patient. My grandmother used to question whether she should take the blue pill today because she was feeling better. Of course, it was the blue pill that was making her feel better but she didn't fully appreciate this. Suppose her primary care doctor was being paid or rewarded to better manage her care? Someone would look and be able to manage which pills she should be taking or would notice that my grandmother is not taking her pills as prescribed or not refilling the prescription.

Does this require a major adjustment to the traditional American health care system?

CUTLER: It would require a fundamental change. But it's a mistake to envision a grand new system. Let's not tear everything down to start over. We can take simple steps. For example, Medicare is already 40 percent of a hospital's business and 30 percent of a doctor's business. If Medicare modifies its payments to reward quality and spend less on volume of services, that would start to move the system in that direction. Payments don't need to be increased across the board the way the government typically approaches reimbursement. This kind of system involves seeking out patients and figuring out how to get them to lead healthier lives. Right now, none of that is being done very well.

But the private sector is already pursuing a variety of pay-for-performance approaches. Isn't Medicare behind the eight ball on this?

CUTLER: The private sector activity on Pay-for-Performance has been mixed. Right now, there is a cacophony of things happening but it is not a good symphony yet. One idea is to create a sort of quality improvement fund that would reward doctors when they do the right thing, such as recommending that diabetic patients have their eyes examined for retinal damages. We already collect data on what doctors do; we know clinical guidelines are out there for the profession; we know how to measure a good outcome. We should just see how well the doctor follows these processes. Doctors could be assigned points for every time there is a good patient outcome.

You obviously are a big proponent of giving doctors and hospitals strong incentives to change behavior and improve outcomes. How do we really measure quality?

CUTLER: We can try and measure quality in several ways, such as whether doctors are following the right standards of care. Are they prescribing the right drugs for patients? Are health outcomes good? Some of my friends don't think you can measure quality well enough because patients are too heterogeneous a group and it's too hard to grade doctors for quality. I tend to be an optimist on this. I believe there are enough test scores you can grade doctors on, but the truth is we have never done it on a big scale basis and we don't know for sure how to do this. We need to try some experiments, particularly with Medicare, because of its size and influence over the health system.

So it's not so much what we're spending, but how we're spending it?

CUTLER: By not paying for health care services in which there is little value, we'd save money because there would be less wasteful care. By paying doctors to make sure patients get preventive care, it would increase spending, certainly in the short-term. In the end, maybe we'd spend more, maybe we'd spend less but at least wed be spending money on valuable services.

The national health bill is nearing $2 trillion, nearly double what it was a decade ago; we now spend about 16 percent of our GDP on health care, and that is slated to steadily rise. Can we afford this pace of growth?

CUTLER: You need to look over time to see what we've gotten for the dollars we've spent. Half a century ago, when medical spending was one-tenth of what it is today, life expectancy was shorter and the last few years of life were not high quality, people got pretty sick. Between 1950 and now, per person medical spending increased tremendously but life expectancy increased seven years. Today, people live to older ages and are a lot healthier. The idea you need to retire earlier because of health problems is blissfully smaller. People have gotten to enjoy a remarkable era of health.

What would a better health system look like to you?

CUTLER: It would be one focused on value and quality, it would have everyone insured and we would probably spend more. We will have developed new and better ways of treating people and we won't waste money.

How optimistic are you that we will get there in the current political, policy environment?

CUTLER: I liken it to the debate over tax rates. In 1961, the top marginal tax rate on income was 92 percent and every economist in the world thought that was too high. Today it is about 30 percent. After 40 years, we have come to a point where most economists think it is roughly where it ought to be. We stumbled our way there.

So, what approach would it take to get everyone insured?

CUTLER: It's easy if you have money. There are four or five ways to do this. Give all people, even those with coverage now, vouchers. Give people a refundable credit that would be redeemable as a voucher. Employers could still offer coverage but I would detach access to coverage from employment. I would rescind President Bush's tax cut to help pay for this and eliminate the tax exclusion of employer-sponsored benefits. The government will spend additional money but there would be a large transfer of money to the government, from the elimination of the tax cuts.

Should the American public just accept that health care and all that it offers is going to always account for a large and ever-growing part of the national budget? Like what an able parent is willing to pay for child care, it just comes with the territory?

CUTLER: Undoubtedly, the push to contain spending will always come up against the promise that technology offers. The debate is over what do we want to spend? If you asked, two thirds of people would say they want to live longer and healthier and have a higher quality life. And, there is every sense we will be able to do that. If we develop some promising genetic treatment for cancer, why wouldn't we want to spend more to deliver that cure? The question people have to ask is 'are we getting value, and how do we get more value for the dollar?' Changing payment incentives to focus on prevention and effective care could be one very important step to achieving that objective.

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Funded by The Robert Wood Johnson Foundation, ERIU is a five-year program shedding new light on the causes and consequences of lack of coverage, and the crucial role that health insurance plays in shaping the U.S. labor market.