11/09/2010 09:14 am ET Updated May 25, 2011

The Deficit Commission's Best Chance at Containing Rising Health-Care Costs

If President Obama's deficit commission wants to move America in the right budgetary direction, it needs to take a hard and careful look at the nation's ever-rising medical costs. But when it does this, what's officially called the "National Commission on Fiscal Responsibility and Reform" must also focus on how the U.S. can run its medical system more intelligently and efficiently. Based on my experience as a long-time advocate for smart cost containment, I'm convinced that the Commission can save money, save lives, and improve the economy by continuing to support policies that advance the necessary research and innovation to treat chronic conditions that drive medical spending.

The facts are stark: in 2011, America's federal government will spend about $3.8 trillion (the largest in history) and have a budget deficit of nearly $1.25 trillion (the second largest in history). Alone, the three big federally-funded health care programs, Medicare (which provides care for older and disabled Americans), Medicaid (which serves the poor), and SCHIP (which provides coverage for lower income children) comprise 21 percent of the federal budget. Other medically related items--research at the National Institutes of Health; the Department of Veterans Affairs hospital system-- mean that 1 out of 4 federal dollars goes to medicine. For almost all federal programs, furthermore, chronic diseases like diabetes, asthma, and HIV/AIDS comprise a lion's share of expenses. For Medicare and Medicaid, treatments for conditions like these--which can be managed but only rarely cured--represent 99 percent of all spending.

Thus, even modest progress in managing these diseases can produce enormous savings. Take chronic heart disease as an example: Between the late 1980s and late 1990s, it threatened to swamp Medicare and, alone, accounted for nearly 15 percent of the program's budget growth. Investments in research at the National Institutes of Health, university medical centers and drug companies, however, brought a wealth of new techniques, medicines, and devices to market. As a result, even as overall medical costs soared, the costs for treating heart disease fell in inflation-adjusted terms. And other innovations now on the drawing board promise to do the same with other conditions. For example, a breakthrough that delayed the average onset of Alzheimer's Disease by just five years--something several current courses of research have the potential to produce--could save nearly a half trillion dollars for Medicare and Medicaid in a single decade.

Even more importantly, better management of chronic conditions can save lives. Between 1996 and 2006, over three quarters of a million Americans who would have otherwise died remained living thanks to breakthroughs in cancer treatment. Quick advances in the development of HIV/AIDS medications, likewise, transformed a disease that once represented a death sentence into a serious but manageable condition, and saved as many as a million lives globally.

And saved lives amount to greater productivity, tax revenue, and wealth for the nation--things that shrink budget deficits. Progress against HIV/AIDS, economists believe, has already saved the world economy $1.4 trillion. Each one percent reduction in cancer mortality produces about $500 billion in increased GDP for the economy over a decade. A ten percent reduction in diabetes-related hospital costs could save just about $100 billion for Medicare in over a decade.

If the Obama administration wants to control overall spending, improve the economy, and save lives, it should continue work to do a better job keeping Americans healthy and productive. To do this, however, we must continue to support a medical innovation infrastructure--government centers, research hospitals, private labs and overall patient awareness and wellness. Innovation brings benefits, including fiscal benefits, far in excess of its costs. As the Commission looks to reduce the budget deficit, it should recognize that medical innovation is one of the only tools at our nation's disposal to effectively contain them.