About $3 in every $4 spent on health care in the U.S. goes to treat chronic conditions like diabetes, heart disease and asthma. That was about $1.7 trillion of the $2.2 trillion spent on health care in 2007. Since bending the health cost curve is a key objective of health reform, it stands to reason that targeting chronic conditions should be a basis for changing how health care is paid for in the U.S.

Covering more Americans who are uninsured without payment reform will be a wasteful pursuit both in fiscal and clinical terms. Fiscally, about 30 percent of health spending is clinically wasteful taking the forms of overuse, underuse, misuse and medical errors. The New England Healthcare Institute, a nonprofit that focuses on issues like quality improvement and cost containment, estimates that $800 billion in care is wasted each year.  According to NEHI, that money could be cut out of health spending and at the same time would improve quality for those who receive care.  

Put in context, about the same amount of money (plus or minus $100 billion) was spent on the banking bailout in 2008 as was wasted in health care. Furthermore, as the chart above illustrates, nearly $600 billion was spent by the federal government’s Medicare and Medicaid programs on care for chronic conditions.

To get to universal coverage in a fiscally sound way, we need to come up with a "chronic care bailout" plan. The way to do this is through health payment reform.

One of the traditional approaches to reforming payment isn’t really a reform at all: it’s freezing the level of payments to providers. Typically, providers work in a fee-for-service payment environment; that is, providers get paid on the basis of patient visits, each of which gets a specific code depending on the service provided (for physician visits, a “CPT” code).

All freezing payments to providers does is to compel providers (physicians and hospitals) to increase utilization to make up the difference in total compensation.

Health economic history has shown, time after time, freezing payments to providers drives use of services up. Increased utilization builds on clinically wasteful processes that lead to higher morbidity and mortality and, ultimately, to a lower level of quality. That means poorer patient outcomes.

The sage Dartmouth Atlas of Health Care has demonstrated for over two decades that more care is not better care. Better care is better care.

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