Economist: States can take the lead in cutting healthcare costs

Healthcare reform, combined with the health information technology provisions of last year's recovery act, offers states the tools they need to keep medical spending under control, Harvard economist David Cutler argues in a new report for the liberal Center for American Progress.

State and local governments spend about $300 billion on healthcare every year, with the federal/state Medicaid program for the low-income making up a significant chunk of that.

States "will have access to information on healthcare cost and quality, and can change payment information to reward low-cost, high-quality care more favorably," Cutler writes. "Applying these tools could lower the growth rate of medical spending by 1.5 percentage points per year, saving state governments $35 billion annually by the end of this decade and $140 billion annually by the end of the next decade."

In the report, Cutler outlines four steps to promote healthcare savings:

_ Tackle administrative costs: Lead an effort with insurers, providers and state government to reduce administrative costs by 50 percent over five years;

_ Push the information revolution: Set up all-payer databases to measure quality and demand quality improvements; encourage providers to invest in IT for federal stimulus money;

_ Lead payment reform: Work with Medicaid/SCHIP, private insurers and Medicare to design payment systems that bundle care and reward good performance;

_ Be open to new organizational forms: Remove barriers to coordination and entry into healthcare.