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DGA Policy Series
March 26, 2012
Capitalizing on Opportunitiesto Improve Patient Outcomesand Lower Healthcare Costs
 www.DemocraticGovernors.org
 
 
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Governors are Key to Capitalizing on Opportunities to ImprovePatient Outcomes and Lower Healthcare Costs
 
“The critical flaw in our healthcare system is that it was never designed for the kind of patients whoincur the highest costs. Medicine’s primary mechanism of service is the doctor visit and the E.R. visit.For a 30-year-old with a fever, a 20-minute visit to the doctor’s office may be just the thing. For apedestrian hit by a minivan, there’s nowhere better than an emergency room. But these institutions arevastly inadequate for people with complex problems: the 40-year-old with drug and alcohol addiction;the 84-year-old with advanced Alzheimer’s disease and pneumonia; the 60-year-old with heart failure,obesity, gout, a bad memory for his 11 medications and a half a dozen specialists recommending different tests and procedures. It’s like arriving at a construction site with nothing but a screwdriver and a crane.” 
Atul Gawande, “The Hot Spotters,” The New Yorker, January 24, 2011
Preface
Governors are Key to Capitalizing on Opportunities to Improve Patient Outcomes and Lower HealthcareCosts,
is a white paper prepared by the Democratic Governors Association with help from MyCampaign Group and research and guidance provided by Pharmaceutical Research andManufacturers of America and the Partnership to Fight Chronic Disease. The documentsummarizes the ever-increasing financial burden placed on states to maintain healthcare servicesthrough Medicaid with attention focused on the leading cost driver of healthcare expenditures – chronic disease. The paper proposes a number of reforms for Democratic governors toconsider implementing to improve the health of citizens and control healthcare costs based onproven chronic disease management and prevention programs already in practice.Democratic governors have a record of supporting policies that provide quality, affordablehealthcare to citizens in their states. Several governors are enacting new healthcare expansionlaws and seeking federal waivers to implement innovative healthcare delivery systems that gobeyond the Affordable Care Act to achieve reforms that make sense for their individual states.To aid states in these efforts, the federal government is making funds available to stateschoosing to engage in reforms focused on primary cost drivers, including chronic disease. Statesshould take full advantage of these opportunities. Although the Affordable Care Act is a solidfirst step toward addressing the challenges of our nation’s healthcare system, it’s clear thatfunding changes are necessary to ease the pressure rising healthcare costs have on states’budgets if we are to create a sustainable healthcare system for generations today and those tocome.
 
 
 
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Introduction
In the U.S., healthcare expenditures have increased over the past decades from $256 billion in1980 to $2.6 trillion in 2010.
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Chronic diseases, which often result in illness, hospitalization andlong-term disability of people diagnosed, are a primary contributor to the rise in healthcarecosts nationally. Treating people with chronic disease consumes about 83 percent of Medicaidresources and causes seven out of every 10 deaths in America each year.
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Despite these grimstatistics, a significant portion of these treatment costs and a number of deaths are avoidablewith greater investment in successful chronic disease management and prevention programs.Unless and until states change the way healthcare services are delivered to people with chronicdisease and adopt new methods of payment for providers, healthcare costs will likely continueto increase even as reforms are made to other areas of the healthcare system.
Overview
This year is the make-or-break year for Affordable Care Act implementation at the state level.Much of the preparation for both the healthcare exchanges and Medicaid expansion dependsupon state action this year. Early indications are that states will have a great deal of flexibility intailoring efforts to meet state needs, but with that flexibility comes many questions left forgovernors and policymakers to answer. Among them will be whether to accept a new Medicaidform of payment to establish “medical homes” and “accountable care organizations,” both of which are designed to expand access, improve the coordination of care among doctors andmedical systems, and make healthcare providers responsible for managing the overall costs of care they deliver.Along with these policy challenges, many states face significant budget shortfalls, putting evengreater pressure on the need to find workable solutions for the efficient use of public funds.For Medicaid alone, states are projected to face a combined deficit of $125 billion in FY2012and are expected to spend $195 billion on Medicaid – a staggering 48 percent increase over2010 budgets.
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Medicaid spending growth is projected to average 7.9 percent for each year of the 10-year period that started in 2009 and ends 2019 unless reforms can be made to containrising costs.
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With healthcare issues at the top of policy agendas, governors can meet the
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 Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group,
National Health Care Expenditures Data
, January 2012.
 
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Partnership for Solutions, Chronic Conditions: Making the Case for Ongoing Care. September 2004 Update.http://www.partnershipforsolutions.org/DMS/files/chronicbook2004.pdf  andChronic Diseases and Health Promotion,http://www.cdc.gov/chronicdisease/overview/index.htm.
 
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L Winerman and V Dennis, “Exclusive: States Facing Massive Medicaid Budget Crunch,” PBS Newshour, Feb. 17,2011. Available online at:http://www.pbs.org/newshour/rundown/2011/02/by-the-numbers-states-face-massive-medicaid-budget-crunch.html 
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Centers for Medicare & Medicaid Services, National Health Expenditure Projections 2009-2019,https://www.cms.gov/NationalHealthExpendData/25_NHE_Fact_Sheet.asp
 
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