There is compelling evidence of significant waste in the nation’s bloated health care spending. Similarly, there is widespread evidence that the country fails to adequately address the social and environmental determinants of health, thus missing opportunities to invest upstream to influence population health and well-being. Overlayed and arising in part from this imbalanced scheme are brutal inequities and disparities that a more just health and health care system would help eliminate.
How, then, to address these twin challenges—that we spend excessively on medical care and inadequately on social services and the environment? Opinions diverge. One camp, which we call the Reallocationists, approaches this situation as an opportunity to efficiently kill two birds with one stone, that is, reduce wasteful (and at times harmful) medical care spending and reallocate it to needed upstream investments in social determinants of health.
The other camp, which we call the Direct Allocationists, while accepting the logic of the Reallocationists, is frustrated with seemingly endless efforts to reduce waste and produce the value and efficiency touted by many other wealthy peer countries. They argue that the time is now to fund upstream investments and tackle disparities, without waiting for the transition to a less costly and more efficient health care delivery system—should that ever come.
We elucidate the two camps (artificial as the nexus may be) beginning with two mini-case studies, offer suggestions for further research, and discuss a possible third approach to resolving the debate.
The Reallocationists’ Example: The Massachusetts Investment Program
The Massachusetts Health Policy Commission has an investment program, Moving Massachusetts Upstream (MassUP), to fund partnerships between health care providers and community organizations to address social determinants of health. Would this program exist had Massachusetts not slowed its rate of health care growth via rigorous target-setting and background analytics? And will other states that are setting health care cost growth targets to improve affordability invest resulting gains upstream? Although there is a continuing debate over the costs and net benefits of investments in social determinants, this does not appear to have slowed the multiple efforts underway to reduce unnecessary medical care and reallocate savings, by public, nonprofit, and private-sector stakeholders.
The Direct Allocationists’ Example: The American Rescue Plan Act
In an astonishing development, provisions in the American Rescue Plan Act (ARPA) may do more to counter child poverty and thereby improve health than any policy since the Great Society. Indeed, the first round of increased child tax credit payments to families began on July 15, 2021. Given the ARPA’s stated goal of countering COVID-19, how was this included in the bill? Clearly, there was a solid, 30-year, fact-laden research base (elucidating the toxic impact of poverty on children—including devastating stress, poor school performance, and so forth), with many policy coalitions actively working toward a “one-shot” opportunity. COVID-19, deep economic pain, a crisis that obviously could not be blamed on the victims, Democratic leadership in all three branches, and decades of insufficient investments in human capital all converged to propel forward this massive direct upstream allocation of government funds—perhaps a classic Kingdon process (problem, politics, and policy). Yet, as an unlikely and idiosyncratic occurrence, waiting for such policy “moments” is a doubtful strategy on which to rely for future needs. And how permanent is the policy given that its extension beyond a single year is at the center of the current congressional debate about human infrastructure investments?
A Closer Look At Both Camps
We know from voluminous literature how difficult it is to reduce wasteful health care spending. What new strategies and mechanisms will the Reallocationists employ that will succeed where prior efforts failed? People interpret the value of medical care services through their cultural, emotional, and narrative experiences. This can stymie Reallocationist tactics. However, there are promising programs and policies that reallocate dollars from traditional medical services to non-medical services, and partnerships that project a positive return on investment. For example, to reduce wasteful readmissions, Medicare beneficiaries designated as high risk received specialized free meals in addition to a community-based transition care program. In a time-series study, the return on investment of the added meal component was $3.87 for every $1.00 spent. These incremental activities take enormous effort to enact, evaluate, implement, and sustain. This argues for more fundamental rather than incremental change. There are other large health care transformation programs linked with funding investment in social determinants, including the New York Delivery System Reform Incentive Payment initiative and the Geographic Direct Contracting Model (in various stages of implementation).
Why is reducing medical care waste so vital? Aggregate estimates of waste vary from $600 billion to more than $1.9 trillion per year, or roughly $1,800 to $5,700 per person per year. Waste means that less money is available for investments in other determinants of health, such as education, job development, housing, environmental programs, and public health infrastructure—all factors that contribute to increased life expectancy. In economic terms, we lack a health care budget constraint, and suffer accordingly. Our economic competitiveness is injured as is our ability to thrive as a nation. Public recognition of, and dismay with, these human and economic costs of medical waste has the potential to catalyze health system transformation.
However, reallocation of wasteful spending is not the only way to achieve that result. For example, Direct Allocationists can point to a history of little progress on increasing coverage for the uninsured, as policy makers argued, especially in the 1990s, that we needed to prioritize affordable health care spending first. But then the dam broke, even without massive re-allocation, with the Affordable Care Act, including Medicaid expansion.
Direct Allocationists might also question why we have moved away from relying on general taxation to fund needed investments. With the American Rescue Plan Act passed, and a major push underway to pass the American Jobs Plan, has the environment now shifted to increase the prospects of funding expansive initiatives with new taxation? This distinctly favors the Direct Allocationists.
In addition, it seems clear that resource constraints are the main reason why significantly greater upstream spending has not occurred. However, perhaps there is now less concern over US fiscal debt and deficits than in the past, bolstered by emerging modern monetary theory—although some experts argue that concern is still warranted.
Finally, many Direct Allocationists would question why the health sector (especially providers) is singled-out as the piggy bank for funding investments in social determinants. Might it not be appropriate for another overfunded sector to share this burden?
Any change, whether by Reallocationists or Direct Allocationists, is complex and difficult. However, similar transitions are under way in other sectors, including efforts to scale back destructive spending on mass incarceration and non-renewable energy. Many businesses are beginning to compete not on short-term profit for shareholders but on their ability to generate sustained value for all stakeholders, including workers. Investors are paying attention to “environmental, social, and governance” or “ESG” investing. Health care organizations would do well to embrace such forward-facing stances.
Research Themes
The research community can play a vital role in helping to illuminate the Reallocationist/Direct Allocationist conundrum. Research in the following areas should be prioritized:
- Development of health investment benchmarks to complement health determinant goals so we know how much in total we need to raise for both Reallocationist and Direct Allocationist approaches.
- Research to define the benefits and risks of alternative strategies for balancing investments in health (overall burden) and equity (gaps).
- Further exploration of learnings from states setting targets on health care spending growth, for example, Massachusetts and the Peterson-Milbank Program for Sustainable Health Care Costs.
- Renewed focus on public health economics to identify reallocation of resources that benefit health, for example, which public health programs are most cost-effective, including a range of prevention interventions.
- Development of data system(s) at state and national levels to quantify waste, including measures of overtreatment (for example, a second generation of low-value care metrics that includes ensuing care), undertreatment, prices, administrative spending, and other relevant measures. Such systems should gather and report data on a regular basis that is actionable.
- Development of communication messages that are most effective in garnering support for spending targets and addressing waste to galvanize political will.
The Third Way
Whether from a Direct Allocationist or Reallocationist perspective, a crisis is a terrible thing to waste. The peri-pandemic period should be used to redesign systems for the outcomes we seek. COVID-19 has unfrozen the health care system—new ideas are being embraced at rapid speed (for example, tele-visits). In tandem, calls for social and racial justice appear to herald much-needed change.
But which path toward change is most feasible—Reallocationist or Direct Allocationist? The answer is “both.” We need not and should not wait for health care spending efficiency to fund upstream investments in the social determinants of health. Reallocationist and Direct Allocationist are in fact complementary approaches to making the health and health care systems more efficient at meeting the needs of society, including those most vulnerable. From the immense COVID-19 suffering, we have rediscovered that the US can marshal its extraordinary resources to address critical problems. This realization must translate to a new resolve to address staggering income and wealth inequality, by tackling structural racism and by fully funding programs for populations that lack adequate housing, food security, health insurance, and transportation. These activities are as important to a population’s health as is medical care. Instead of delaying progress on these goals, the Reallocationist movement should continue to advocate for decreasing wasteful medical costs and putting them to better use.
Since the Reallocationist paradigm of getting the money from the wrong pocket (waste in medical care) into the right pocket (social and environmental determinants) is challenging, we believe there is a strong case that Direct Allocationist efforts should move in parallel, with policy makers facilitating transfers but not in a “rob Peter to pay Paul” way. It is fundamentally difficult to take an explicit “let’s take from here to add more there” approach, in that it inherently triggers opposition. Although the ultimate effect of the Direct Allocationists’ advocacy is the same, its effectiveness stems in part from papering over the notion of a finite pot from which the funds are drawn—although this is not possible at the state level with balanced budget requirements.
Perhaps the most honest conclusion concerning reallocating for efficiency versus taking direct action to address deep and longstanding social problems emphasizes transparency. A robust research base shows that we can identify enormous waste and empirically contrast it with programs representing more valued spending. However, we should be under no illusion of the difficulty of efficiently re-directing spending because of the truism that all waste is someone’s income. We are an unparalleled rich nation with the possibility of a bright post-pandemic future. We must be transparent (and direct!) about meeting society’s needs, especially for our most disadvantaged populations.
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The Reallocationists Versus The Direct Allocationists - Health Affairs
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