The Patient Protection and Affordable Care Act (ACA) is the flashpoint.  It is at the center of the budget crisis, and government is debating: is this truly affordable or will taxpayers be stuck with the bill again?

To me, the answer is simple.  If we only pay for what works, the ACA will pay for itself.  I am not the only person to reach this conclusion.  Let’s remember how the ACA started.  Its driving force was Peter Orszag — President Obama’s first budget director.   With budget concerns foremost in his mind, Orszag’s objective was to put our fiscal house in order by cutting waste in our health care system.   When Orszag searched for a politically viable way to do this, he discovered the work of Dr. Jack Wennberg.

{mosads}Orszag found Wennberg in an article that compared effective with less effective health care in the U.S.  In that study, authors Elliott Fisher and Jack’s son David Wennberg of Health Dialog Analytics delivered a stunning message: by eliminating unnecessary medicine, Medicare could save 20 percent to 30 percent of expenditures — at no change in outcomes.

This data was so compelling that the core of the Obama budget became rooted in “Orszag’s belief (in) a government empowered with research on the most effective medical treatments…” as The New Yorker wrote in 2010, and furthermore, it became Obama’s economic justification for pushing the Affordable Care Act through Congress and into law.

Meanwhile, although it was the impetus for the Act, during the vitriolic debate, Wennberg’s work faced withering criticism and so it faded from the picture.  But now an independent study from the Institute of Medicine (IOM) called “Variation in Health Care Spending” vindicates the Wennberg findings — and the implications for savings — on an even broader level.

The IOM conducted an exhaustive review of (1.) public records (Medicare and Medicaid), (2.) databases from private insurance and (3.) statistics on the uninsured population.  The study paints a riveting picture of “real and persistent” treatment variation (code for ‘waste’) throughout the health care system.  The IOM concludes its research with findings quite similar to what fascinated Orszag: flattening the peaks and valleys of acute care and post-acute care would lower Medicare spending variation by 89 percent.

Abuse is costly.

One example highlighted in the “Variation” report is that hospital referral regions in the highest decile spend 42 percent more per patient than the lowest.  And higher admissions are dangerous: an independent 2011 Health Affairs study published the clear danger of medical errors and adverse events occurring in one-third of hospital admissions.  

Surgeons perform over one million stent treatments per year at a cost of $30,000 to $50,000 each.  Yet doctors at Stony Brook University Medical Center say that stenting to treat stable coronary artery disease is no better than standard medical care.  Or consider that the U.S. Preventive Services Task Force, a non-profit organization of evidence-based experts, recommends against the routine use of the Prostate Specific Antigen (PSA) test.

Each case highlights inefficiency in our system.  Combined with the new IOM report, they certainly bolster the case for evidence-based medicine.

To learn how the ACA might use such findings, the IOM Committee reviewed thousands of ongoing experiments.   We must reward value rather than volume, through incentive plans such as bundled payments, value-based purchasing and programs that share savings with providers.  These can shift our ‘fee-for-service’ system (a major cause of unnecessary services) to one focused on better care at lower cost. 

Other reforms seek to drive effective delivery.  One approach is simply integrating and coordinating whole-patient care.  For example, the National Committee for Quality Assurance (NCQA) now recognizes more than 1,500 ‘patient-centered medical homes’ that transform primary care into “what patients want it to be.”  The NCQA calls them “one of modern health care’s most important innovations.”

From personal experience, I saw another way evidence-based medicine can be delivered when I helped some friends grow a company called Health Dialog.  Using Wennberg’s insights, this Company puts the patient at the center of their health care decisions.  The New England Journal of Medicine published our data in the largest ever randomized controlled trial of care management – 174,120 patients.  Cost of the patient program: $2.  Savings: $6 (both per patient per month).  This is evidence-based care at scale.  (Full disclosure, Health Dialog has paid royalties of approximately $30 million to support Jack Wennberg’s non-profit Foundation.)

Can the ACA use findings like this to bring down health care costs at the national level?  That remains to be seen.  But the IOM report and many other independent findings, show that the potential is there.  Given time, we may be pleasantly surprised to find that these savings will actually pay for universal insurance.  In the meantime, the ACA has the moral high ground – about 30 million uninsured people can look forward to health care coverage for the first time. 

Though the intersection of cost savings with the cost incurred is still at a distance, we have more now than a dream.  We have evidence.  Let’s use it to make our health care system work better – on a budget we can afford. 

Kimberlin is the chairman of Spencer Trask, an advanced technology
venture firm.  As a director, he backed Health Dialog from its infancy
until its sale for $800 million.