Few people understand the high costs of medical services in the United States better than David Chan, a practicing physician and Stanford economist specializing in health care. But even Chan isn’t immune from sticker shock at the doctor’s office.

On a recent visit to his doctor, Chan underwent a routine test for seasonal allergies. He figured it would cost about $500. The actual charge was closer to $5,000.

“I should be one of health care’s most informed customers,” says Chan, who is a faculty member at Stanford Health Policy. “But like most people, I didn’t think to ask the price for the test and my doctor probably didn’t know it, anyway.”

To Chan, a faculty fellow at the Stanford Institute for Economic Policy Research and assistant professor at the Stanford School of Medicine, the experience illustrates what’s hobbling U.S. health care.

Although much research into health economics has focused on issues related to insurance, the delivery of patient care — specifically, how to lower costs and manage quality at the ground level — “is really where health care becomes a black box,” says Chan. Economics haven’t figured out why costs and patient outcomes vary widely, even from one hospital to the next in the same city.

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The U.S. Preventive Services Task Force now recommends adults ages 40 to 75 with no history of heart disease — but who nevertheless have at least one risk factor and an elevated risk of cardiovascular disease — take a low- to moderate-dose statin.

Health policy expert Bob Kocher likes to show a slide of the signature page of the Affordable Care Act, which he helped draft when he worked in the White House.

The mottled page shows an official time stamp of March 23, 2010, and the choppy signature of President Obama, who had to use the 22 pens he would later gift each member of Congress who helped him pass the landmark health-care law.

“We thought it would be pretty simple,” Kocher recalled with a grin. “We had 60 Democrats in the Senate and a huge majority in the House, a popular president. But then you saw what happened.”

Kocher was the keynote speaker at Health Policy through 2020: The ACA, Payment Reform and Global Challenges, a half-day symposium of speakers and panels covering some of the greatest challenges facing health care and policy here at home and abroad.

“Everything that you could imagine that would throw a monkey wrench into it, did,” said Kocher, a physician and partner at the Silicon Valley venture capital firm, Venrock, which invests in health-care and technology startups.

Six years after its rocky start — and ongoing threats to repeal the law by Republicans — Kocher still believes the ACA has had a tremendously important impact on the nation.

“Despite the single worst launch of a website in the history of the internet,” he said, 20 million more Americans now have access to health care; 13 million more are privately insured by their companies; and 7 million more are enrolled in Medicaid.

“I believe the ACA is working better than expected by virtue of the fact that there’s nobody in the ecosystem who is not behaving differently,” Kocher said.

Large employers have been forced to engage with their employees about the costs and quality of their health plans, and hospitals are adopting new technology by “liberating their data” with electronic medical records and embracing telemedicine, Kocher said.

“And for the first time, you see patients beginning to engage with new technologies and their doctors willing to entertain new models.”

Kocher, who specializes in investing in healthcare IT and services, said technology would eventually strip away some of the cost of patient care.

“One of the fun parts of my job as a venture capitalist is that I get to see a lot of these embryonic ideas and many of them have powerful ways to pull down costs without hurting quality,” he said. “We’ll have the technology and coordinated care, and data that helps guide the care, so I’m more hopeful than ever about being a patient.”

Kocher, a consulting professor at Stanford Medicine, was one of 15 speakers at the symposium to launch Stanford Health Policy, a community of faculty, physicians, scholars and students across the campus who are focused on improving health care and policy here at home and around the world.

Precision Health

Stanford School of Medicine Dean Lloyd B. Minor shared what he called “some surprising statistics” with the 200 people at the symposium on Oct. 14.

When looking at a pie chart representing the determinants of health, Minor said, only 5 percent are genetically based, 20 percent are based on health care and another 20 percent are due to behavioral factors.

But a full 55 percent of the determinants of health are socially and environmentally determined, Minor said, and that presents challenges for academic medical centers.

“I’m really excited in that I believe that we are beginning to come up with some ways we can address that need, as a leading academic medical center, to chart the future for how we can improve the delivery of health care in our country and then ultimately around the world,” Minor said. “For us, that vision for how we fulfill that need begins with what we describe as precision health.”

Minor said precision medicine, now embraced by the Obama administration, is about using genomics, big data science and personalization in order to individualize the treatment of acute diseases such as cancer, heart and neurological diseases.

“It’s about understanding the determinants and predisposing factors of disease in being able to more effectively intervene earlier,” he said. “And of course there’s no better place to do that than at Stanford because our academic medical center is such an integral part of this great research university.”

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The ACA Moving Forward

Kocher, who often lectures in health economics and policy courses at Stanford, conceded there are serious problems with Obamacare and offered some solutions moving forward.

But the climbing cost of health care and prescription drugs in the United States — which continue to outpace the economy and job growth — is his first concern.

Health insurance on average costs a family of four is $18,000 a year.

“That’s the price of a Corolla,” he said, referring to Toyota’s compact car. “The idea that you’re effectively buying a new car every year doesn’t feel like we’re getting the right amount of cost pressure on the system that we need. So I think that’s going to be the most fundamental problem going forward.”

Despite the gnashing of teeth over what would become of the ACA under a Trump or Clinton administration, Kocher predicted few changes.

“If Hillary Clinton wins, her priorities are actually going to be totally separate from ACA tweaks,” he said, adding that she likely would first focus on K-through-12 education, work on infrastructure spending and then international affairs.

“The odds that she wants to relive 1993 seems implausible to me,” he said.

As first lady, she pushed President Bill Clinton’s universal health-care plan with a mandate for all employers to provide health insurance coverage to all employees. The Health Security Act was widely condemned by conservatives and the health insurance industry and after a rancorous year of debate and counter-proposals, it died.

And what happens to the ACA if Donald Trump is elected president on Nov. 8?

“I can’t bring myself to comment,” Kocher said, lowering his head and chuckling.

He quickly moved on to some suggestions to make health care work better and faster.

“The first thing we need is to make these adolescent exchanges grow into adults and be stable and work better,” Kocher said of the health insurance marketplaces, which have foundered in some states and thrived in others.

He said the Covered California exchange, which insures some 1.7 million Californians, is the only exchange working really well because it has large bidding regions, doesn’t let all insurance providers into the system and does great outreach to young, healthy people.

Secondly, he said, the market power of hospitals has become too strong.

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“I realize there are some hospital leaders in the room and I salute you — you’ve done many things right, including getting market power,” Kocher said, addressing David Entwistle and Chris Dawes, the CEOs of Stanford Health Care and Lucile Packard Children’s Hospital, respectively, who also spoke at the symposium.

“But we need to figure out how to make the demand side of the equation more balanced with the supply side.”

He called health care today “massively inefficient” and “insanely unaffordable,” and said the average hospital stay is now $6,000 in the United States.

Kocher said he recently took his daughter to an emergency room and was charged $52 for a Tylenol. He told them he was a doctor and offered a Tylenol from his backpack.

“But I was told I couldn’t because of the safety of the hospital,” he said, shaking his head.

Kocher said hospitals must be accountable for their quality of the care and fined for failure to achieve promised quality indicators. As hospitals continue to bundle services and acquire private practices and physicians, costs have not gone down as expected.

Instead, hospital prices nationally have risen 6 to 9 percent in the last five years, faster than the rate of inflation. Perhaps, he suggested, some procedures and services should be tied to Medicare rates above a certain percentage of market share. And federally subsidized drug prices should be tied to patient income, not the facilities they use.

Kocher said there continues to be great debate over how high the penalty should be for those who decline to join a health exchange if they are uninsured by an employer.

The annual fee for not having insurance in 2016 is $695 per adult and $347.50 per child.

A higher mandate, he said, would get a lot more people into the system.

“But there’s no chance Congress is going to think about that.”

You can watch all the videos from the event here: 

Health Policy through 2020 by Stanford Health Policy on Exposure

As health-care costs climb ever upward, controlling expenses without sacrificing high-quality care becomes increasingly important. Payment systems based on the value of care are emerging as a way to combat rising costs.

Many researchers like Jason Wang, an associate professor of pediatrics and a Stanford Health Policy core faculty member, have found that bundled payment systems may help health-care institutions achieve better value of care.

In a new study in the Journal of the American Medical Association Oncology, Wang and his co-authors show that a value-based bundled payment system is associated with cost containment and improvement in care, even improving chances for survival.

The study examined Taiwan’s bundled pay-for-performance (PFP) system for breast cancer. Instead of the traditional fee-for-service (FFS) system that is typical in the United States — in which every test, surgery and exam is billed individually — this system includes all aspects of treatment in a single established cost, or bundled payment.

Based on guidelines set by Taiwan’s National Health Insurance Administration (NHIA), the pilot program reimbursed health-care institutions’ costs for breast cancer treatment based on the patient’s cancer stage, 0 to IV. Institutions that exceeded the NHIA’s standards received a financial bonus as an incentive for better performance.

The study followed 4,215 patients in the bundled-care system over a five-year period, comparing the quality of their care, the cost of their treatment and the outcomes of their treatment to 12,506 similar patients in the traditional FFS system.

The authors found that patients in the bundled-payment system received better care throughout treatment, were more likely to survive, and contained medical costs over time, compared to their peers in the FFS system.

Costs for patients in the bundled payment system remained about the same throughout the study. However, the cost of treatment for those in the FFS system steadily increased throughout the study period. By the end, even health-care institutions receiving the maximum bonus incentive would incur lower costs than those in the FFS system.

Yet even though their treatment was cheaper, patients in the bundled system experienced better results. Patients using the bundled system had significantly higher survival rates for cancer stages 0 to III, and they were more likely to receive higher quality care based on quality indicators.

This is largely due to the better coordination of care made necessary by the bundled system, according to Wang.

“When you play in an orchestra, the whole group needs to play together, so it plays the right tune,” said Wang. “Focusing on value for the patient and the health-care system forces people to play the same tune.”

Wang believes the lessons learned from Taiwan’s program could be applied in other parts of the world, including the United States, which is currently moving toward bundled cancer care.

Though the U.S. already bundles care for conditions like appendicitis and chemotherapy — in which costs are fairly predictable — many hospital administrators fear that broadening the use of bundled payments for more complex conditions is too risky, financially.

Wang does not share their misgivings.

“People say, ‘We can’t do this for a very complex disease.’ It’s not true,” he said. “When we went outside of the U.S., we started to find systems that work.”

Wang found that when institutions can coordinate care for patients — that is, when a single institution manages all aspects of a patient’s care — the patient is more likely to have better outcomes.

“If institutions take the leadership of providing the infrastructure to coordinate care, they can really deliver better care with the same or lower costs.”

There are benefits for the institutions, too. Right now, because health insurance providers may accept or reject particular costs in an unpredictable way, care institutions never know how much they’re going to get paid for a service. But in a bundled payment system, costs are much more stable and revenue easier to predict.

Considering the benefits, Wang hopes the Taiwan breast cancer study will show institutions in the United States and around the world that bundled payments for cancer can be done on a broad scale.

The value, he said, is worth the risk.

Watch Live: Health Policy through 2020: The ACA, Payment Reform and Global Challenges.

The event begins at 1 p.m. PST and will end at approximately 5:45 p.m. PST. For details about the speakers and agenda, please see this page.

The stream will be turned on about 30 minutes before the event begins. Be sure Adobe Flash is turned on and updated.

Many people dread dealing with health insurance. Choosing the right plan, navigating benefits and understanding premiums, copays and deductibles can leave you frustrated and confused. Even in economic research, health insurance markets pose some of the most challenging questions.

But Maria Polyakova, a faculty fellow at the Stanford Institute of Economic Policy Research and core faculty member at Stanford Health Policy, is motivated to find the answers.

Intrigued by the shifting dynamics of the industry and inspired partly by her own experience of finding health care coverage during graduate school, Polyakova has joined a small group of health economists who are at the forefront of examining the increasing complexities surrounding the provision of medical insurance.

Changes under the Affordable Care Act have deepened the connection between public and private players, Polyakova says. There’s a rise in health care plans that are publicly funded but privately run. And many people using public plans, like Medicare, are supplementing their coverage with private add-on insurance.

The intertwined relationship raises a host of policy challenges, which Polyakova outlines in this detailed policy brief.

“We're moving toward this world where we think competition in health insurance is good because that somehow increases efficiencies and provides consumers with choices that they like,” Polyakova says. “But on the other hand, there has been a lot of debate on whether health insurance is the right place to have choice.”

Polyakova, an assistant professor of health research and policy at the School of Medicine, joined Stanford in 2014. Her ongoing economic research looks at the impact of government policies in social insurance  on consumer behavior, insurer behavior and market outcomes, including risk protection and redistribution.

By investigating the design of health insurance systems, Polyakova’s work could inform policymakers on the extent the government should facilitate competition among insurers that are providing social insurance benefits, or the steps public and private insurers can take to reduce risks and costs for consumers. Her early forays have gained recognition.

For her doctoral thesis on Medicare Part D — the prescription drug component of the federal health insurance program — Polyakova won the 2015 Ernst-Meyer Prize, which recognizes original research about risk and health insurance economics. She also received the John Heinz Dissertation Award from the National Academy of Social Insurance in 2015.

Her findings included evidence of substantial inertia among enrollees, despite significant changes in about 40 plans under Medicare Part D.

“If no one actually ever reacts to changes in products,” Polyakova says, “it could defeat the purpose of having competition.”

Polyakova continues to drill into details where answers may lie. Her empirical research in progress ranges from examining new ways of calculating risk to the effects of word choice in insurance plan descriptions.

“Policies are labeled silver, gold, platinum — theoretically to simplify the plans. But in reality, those simplifications may lead people to choose plans that are not the best for them,” she says. “Assessing the implications of their choices for the overall efficiency of the health insurance system is tricky”

The health care system appeared much more straightforward in Germany, where she worked for a year after graduating in 2008 from Yale with a bachelor’s degree in economics and mathematics.

Then while attending graduate school at the Massachusetts Institute of Technology, Polyakova went through the hassles of figuring out the health insurance system and how insurers reimburse medical providers. She recalls thinking, “Why is this so complicated?”

Polyakova turned her focus to health economics after taking some courses with MIT Professor Amy Finkelstein, a pioneer in the field who became Polyakova’s primary advisor.

“It was very contagious,” Polyakova says.

Ponte a prueba. Put yourself to the test.

As he explained during the recent Rosenkranz Prize Symposium, Stefano M. Bertozzi used this slogan to promote health reform in the Mexico City prison system. By encouraging inmates to step up and get themselves tested for HIV and other chronic illnesses, Bertozzi, dean and professor of health policy and management at the UC Berkeley School of Public Health, was able to decrease the spread of illnesses in Mexican prisons and the surrounding communities.

The Rosenkranz Prize Symposium celebrated research projects that—like Bertozzi’s—address the health care needs of the world’s most vulnerable populations. With support from the Rosenkranz Prize for Health Care Research in Developing Countries, Stanford scholars have stepped up to tackle health issues in regions in need.

Since 2010, the award has funded six young Stanford researchers who aim to improve health in developing countries. The symposium celebrated their achievements.

The award honors the work of Dr. George Rosenkranz who spent his career reducing health disparities around the globe. Rosenkranz, who was the first to synthesize cortisone and the active ingredient in the first oral contraceptive, also celebrated his 100^th birthday at the symposium.

Producing research that will increase care for vulnerable populations globally is the ultimate goal of the Rosenkranz Prize.

Andrés Moreno-Estrada, the 2012 winner, has used the award to study genetics in Latin American and Caribbean populations, aiming to increase knowledge of potential genetic illnesses. He said, “The Rosenkranz Prize is a clear, important step forward to demonstrate that we can do cutting edge science in developing countries that is of international relevance.”

Other winners include Eran Bendavid, Sanjay Basu, Marcella Alsan, Jason Andrews and Ami Bhatt. Their projects range from the effect of AIDS relief efforts on health care delivery to the treatment of diabetes in India to low-cost diagnostic tools for regions lacking infrastructure.

“I can’t think of a better way to celebrate (my father’s) birthday than listening to the bright future of science,” said Ricardo T. Rosenkranz, son of Dr. George Rosenkranz and a prize donor. “We can’t wait to hear what the next Rosenkranz Prize winners tell us.”

Click below for event photo gallery:

An independent panel of medical experts has updated 20-year-old guidelines for evaluating cost-effectiveness in health and medicine, in an effort to help everyone from policymakers to patients make more informed decisions about tests and treatments.

Released in a special communication in the Journal of the American Medical Association, the panelists spent more than three years building on the work of the 1996 Panel on Cost-Effectiveness in Health and Medicine, originally convened by the U.S. Public Health Service. They developed recommendations by consensus.

The new recommendations are intended to guide decision-makers in using new methods for analyzing evidence, reporting standardized results, incorporating both health-care system and societal perspectives, as well as weighing ethical issues in the use of cost-effectiveness analysis (CEA).

“Some people question the use of economic analyses in health care, but cost-effective analysis is a way to ensure that we are proving high-value care,” said Stanford Health Policy’s Douglas K. Owens, a professor of medicine and senior investigator of the VA Palo Alto Heath Care System, who sat on the panel.

“If we do interventions without understanding their value, we may well spend money on something that may not really be worth it,” said Owens. “Cost effectiveness analysis is one approach to understanding how we can help control health-care costs and provide high-value health care.”

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The panel was led by co-chairs Gillian D. Sanders, Professor in the Department of Medicine and a member of both the Duke Clinical Research Institute and the Duke-Margolis Center for Health Policy, and Peter J. Neumann, Director, Center for the Evaluation of Value and Risk in Health at the Institute for Clinical Research and Health Policy Studies at Tufts Medical Center and Professor of Medicine at Tufts University.

Sanders said CEA could help inform decisions about how to apply new or existing medical tests, therapies, and prevention techniques so that decision-makers use health-care resources wisely.

“As health-care costs continue to rise at unsustainable rates, these recommendations provide a framework for comparing the relative value of different health-care interventions, and help decision-makers across the spectrum from policymakers to patients sort through alternatives and decide what tests and treatments make sense,” she said.

Neumann noted that in the 20 years since the original panel’s report, the field of cost-effectiveness analysis has advanced, as has the need to deliver health-care efficiently.

“Updating the guidelines provides an opportunity to reflect on the evolution of cost-effectiveness analysis and to provide guidance for the next generation of practitioners and consumers,” he said.

Primarily funded by grants from the Robert Wood Johnson Foundation and the Bill & Melinda Gates Foundation, the panel recommends several key changes to the guidelines, while confirming other principles from the first panel, including:

1. Broadening the scope and number of reference cases in a cost analysis, which describe standard methodology that should be followed to ensure quality analysis by creating comparable measurements. The panel is recommending that all CEAs should not report two reference cases: one based on a health-care sector perspective and another based on a societal perspective.
2. Using an “impact inventory” that lists the health and non-health effects of a health-care intervention to ensure that all consequences are considered, including those to patients, caregivers, social services and others outside the health-care sector. This tool also allows analysts to look at categories of impacts that may be most important to stakeholders.
3. Measuring health effects in terms of quality adjusted life years, a common measure used by health researchers that includes both the quality and quantity of life lived.
4. Including both costs reimbursed by third-party payers and those paid for out-of-pocket by patients in health-care sector analyses.
5. Including a reporting checklist and guidelines for transparency that includes assumptions in any analysis and the disclosure of potential conflicts of interest.

The complete report of the so-called Second Panel will be published in October.

The panelists noted that the field of CEA has emerged dramatically since the last guidelines 20 years ago. For example, the Advisory Committee for Immunization Practices, which establishes national immunization policy recommendations on behalf of the Centers for Disease Control and Prevention, now uses CEA in its calculations.

“The need to deliver health-care efficiently and the importance of using analytic techniques to understand clinical and economic consequences of strategies to improve health, have only increased,” the Second Panel authors wrote in the JAMA paper.

Health-care spending in the United States comprised 13 percent of GDP in 1995; today it approaches 18 percent. And the total national health expenditures have tripled during that period, jumping to more than $3 trillion in 2014, according to the Kaiser Family Foundation.

“The goal of the Second Panel is to promote the continued evolution of CEA and its use to support judicious, efficient, and fair decisions regarding the use of health-care resources,” the experts wrote in the JAMA article.

Imagine there’s a new pill on the market. It promises you a one in 200 chance of avoiding a heart attack, stroke, heart failure or death over the next year — if you take it religiously.

It also promises a one in 60 chance of landing you in the hospital for some serious complication: Maybe you passed out. Maybe the pill affected your kidney function. Maybe you developed a severe electrolyte imbalance.

Would you take it? How would you decide?

This question is confronting some patients with hypertension as well as their health-care providers who, like me, help manage their blood pressure. The “pill” is not a pill per se, but a treatment strategy.

In November of 2015, researchers published results of a large NIH-sponsored trial known as SPRINT, which compared two systolic blood pressure treatment targets for hypertensive adults: a higher, conventional target of 140 mm mercury compared to a more stringent target of 120.  Participants in the trial were older, did not have diabetes, and were generally at high risk of developing cardiovascular disease. They were prescribed commonly used blood pressure medications, which were carefully adjusted by investigators to achieve target blood pressures.

The trial demonstrated a large relative benefit: Those in the lower target group had about a 25 percent reduction in the rate of cardiovascular disease or death. The absolute benefit, though, was small, with only about one in 200 patients avoiding cardiovascular disease or death as a result of treatment. The trial also showed that complications in the lower target group were relatively common.

As a physician, I’d love to be able to tell the patient in my exam room whether she will be the lucky one out of 200 who will benefit. That dream is still a few years off. I can, though, answer a related question. If I treat a large group of patients, on the whole, will my patients benefit? Or will the harms of treatment outweigh the benefits? And if the treatment is overall beneficial, what investment will we need to achieve this gain in health?

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To answer this question, I teamed up with a group of researchers at Stanford. Our team included experts in cost-effectiveness analysis as well as students developing clinical and analytic expertise in this area. We used data from SPRINT along with other published sources to project the expected benefits, harms and costs from targeting a lower or higher blood pressure over the course of a lifetime.

Results of our study were published this week in JAMA Cardiology. We found that targeting a lower blood pressure results in a substantial net benefit, even after accounting for harms from common, serious adverse events. This net benefit, though, doesn’t come free: An investment of about $23,777 is required for every year of life gained from this strategy.

Is $23,777 “worth it?” It’s a hard question to answer and it depends, in part, on who is paying. But in the spectrum of medical interventions that we routinely use here in the United States, this would be considered a good deal, a bargain even.

So should we go all in? Should we push stringent blood pressure targets for everyone?

No. There are a number of other considerations. SPRINT answered a specific question about hypertension treatment in a specific group of patients. Whether other groups of patients, like those at lower risk of cardiovascular disease, would benefit is unclear. There were also methodological quirks that have left the trial open to criticism.

But if we believe that the findings from SPRINT are generally correct, a lower blood pressure target seems to provide significant health gains for a reasonable cost in patients who are at high risk of developing cardiovascular disease.

Ilana B. Richman, MD, is a VA Health Services Research and Development Fellow at Stanford Health Policy.