WASHINGTON (Reuters) - President Barack Obama’s budget proposal relies on the evidence when it comes to healthcare reform, using research done by government and other groups on the best ways to change the system and save money.

It pulls heavily from reports by the Commonwealth Fund, Institute of Medicine and others that show extending health insurance coverage to more people will save money by preventing illness or catching diseases early, before they become expensive. About 46 million Americans have no health insurance.

The nonprofit Commonwealth Fund has also published studies showing that moving from paper medical records and prescribing to electronic technology can save money. Health information technology is a cornerstone of the Obama healthcare reform plan.

Studies show the reduction of errors caused by poor communication and scribbled prescription mistakes can save billions of dollars and tens of thousands of lives every year, and Obama is gambling those savings will help the federal Medicare and Medicaid health insurance programs.

The budget also includes a controversial $1.1 billion measure for the federal government to get into the business of comparing medical treatments head to head.

Government-supported studies have shown that older diabetes drugs such as sulfonylureas and cheap diuretics for heart failure work as well as, if not better, for many patients than new and pricey brand-name drugs.

“I think that the whole process of competitive effectiveness research ... offers enormous promise for making sure that people get the most effective and cost-effective care,” Ron Pollack of the healthcare advocacy group Families USA said in a telephone interview.

UNNECESSARY TESTS

Studies have also shown that so long as doctors are paid to treat illness and not prevent it, they will tend to order unnecessary diagnostic tests and scans and prescribe unneeded medicine and surgeries.

“We seem to have as much as $700 billion a year in healthcare tests and services that are not necessary ... and just add to costs ... without making anyone healthier,” White House budget director Peter Orszag told reporters.

On Wednesday, Dr. Elliott Fisher of the Dartmouth Institute for Health Policy in New Hampshire published a commentary in the New England Journal of Medicine showing huge variation in medical costs across the United States.

The differences, he said, had little to do with actual health and more to do with whether doctors referred patients to pricey treatments. Obama’s budget stresses finding ways to encourage doctors to adopt low-cost approaches that have been shown to work.

How fighting cancer can save costs may be less obvious, but Obama would allocate $6 billion for cancer research at the National Institutes of Health.

The U.S. Agency for Healthcare Research and Quality estimates the average hospital cost for a lung cancer patient in 2006 was $14,200 or about $1,900 a day. The total cost for all U.S. lung cancer patients was $2.1 billion in 2007 -- much of it paid for by Medicare and Medicaid. Medicare covers about 44 million elderly and disabled Americans. Medicaid serves low-income people.

The Commonwealth Fund, Families USA and the independent Institute of Medicine have all reported that streamlining Medicare can save money.

The budget says that using more competitive bids for the Medicare Advantage plan that allows outside insurers to supplement patients’ coverage will alone save more than $175 billion over 10 years.