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Gore Someone Else’s Ox, Please

By Kim Bellard, March 24, 2011

News flash: health care spending is out of control. 

Sadly, this is nothing new.  It’s been “out of control” for decades.  If we are serious about controlling health care spending -- and I’m not sure we are yet -- we may need to think not just about on what services the money is spent but also about to whom it is paid.

The facts are fairly well known.  U.S. national health expenditures were estimated to be $2.5 trillion in 2009, which consumed 17.6% of Gross Domestic Product (GDP).  Another decade and health spending may account for one-fifth of the national economy.  The spending is a source of concern in itself, but it is especially so when compared to other industrialized nations.  We spend over double per capita of the average of the other OECD countries, and the country with the next highest percentage of its economy devoted to health care is France, which looks miserly by comparison at 11%.

The truly scary thing is that, despite our runaway health spending, there is ample data that we are often not getting all the services we should, and that the tens of millions of uninsured do not get as much health care as insured persons do.  Just think how much worse the spending problem might be if those problems were solved.

Last year’s federal health care reform vowed to slow the increase in spending, although the specific mechanisms for this remain murky.  Several states are taking the lead in trying to attack the problem.  For example, the state of Washington is using a Health Technology Assessment Program (HTA) to determine which services the state will cover in its program for state employees, as well as for Medicaid and worker’s compensation.  HTA tries to use effectiveness research to determine which services are cost-effective, and it is the “cost” portion of that which has raised some controversy.   Meanwhile, Arizona has eliminated coverage for several types of transplants as one of its efforts to control Medicaid spending; two patients are reported to have died as a result.   Of course, many other states are following the more typical pattern of simply slashing Medicaid reimbursement rates further.

The problem is a hard one, and it is not at all obvious what the solution might be.  In 2007 the Congressional Research Service did an in-depth study of our health care spending relative to other countries, and the report had some counter-intuitive results.  It’s not that we have too many hospital beds, nor spend too many days in the hospital.  It’s not even that we have too many doctors nor visit them too often.  On all those measures, we rank fairly low compared to other OECD countries, despite spending much more per capita on hospital and physician services.  About the only area where the U.S. seemed to clearly use more services than other OECD countries was in imaging, specifically for CT scanners and MRI…but even then we are lower than Japan, which still manages to spend much less than we do. 

CRS concluded much as Gerry Anderson and his colleagues did a few years earlier in their well known Health Affairs article: “It’s the Prices, Stupid.”  Simply put, we pay much more per unit of service, and health care professionals – at least physicians – earn much more in the U.S. than almost anywhere else. 

Many pundits point to fixing our costly malpractice system, reducing administrative overhead, and generally cutting out “waste” as the way forward.  Indeed, PwC estimated that $1.2 trillion of the $2.4 trillion in spending was wasteful.  As evidenced above in Washington and Arizona, though, “waste” is not so easy to identify.  Reformers are forgetting one key truth: one person’s waste is another person’s income.

Let’s think about spending.  The money spent on health care goes somewhere, to someone.  It doesn’t disappear down a black hole and vanish.  It ends up as revenue for a variety of entities in the complex health system ecosystem, such as doctors, hospitals, pharmacies, nursing homes, home health agencies, labs, imaging centers, and health insurers/administrators.  Controlling health care spending means some of those entities will collect less revenue than they would have collected otherwise, and that’s the rub. 

Maybe we don’t need as many specialists, or maybe don’t need to pay them as much.  Maybe more generic drugs could be used, or maybe we could pay less for brand drugs.  Maybe insurers’ medical loss ratios should be higher, or maybe we could curtail their premium increases.  Maybe spending on diabetes and bariatric surgery would go down if we identified people at risk earlier.  Maybe.  But none of the entities currently receiving the money for any of these examples will be keen to have their revenue go down.

To be sure, reduced revenue does not necessarily mean reduced income/profit.  There certainly are huge inefficiencies in our health care system, and pressure on revenues should, in a capitalism system, result in more efficient competitors.  But those pressures in that capitalism system should also result in some of the affected entities not surviving, and when it comes to health care, we don’t seem too keen on that. 

Competition should spur innovation and better value for consumers, but those are hard to accomplish.  It’s easier for at-risk organizations to fight for the status quo, at least for oneself.  It seems that every type of health care entity has its own trade association which vociferously advocates for its interests, including payment rates and eligibility of its services.  And the threat of reducing services usually alarms current recipients of those services, who are sure they not only need them but are entitled to them.  No one wants to have the dreaded R-word invoked, and yet no health care provider wants to take a pay cut.  It’s the irresistible force of health care demand against the immoveable limit of health care budgets. 

The hard fact is that whenever health care spending finally gets under control, as it inevitably must, there will either be fewer health care providers or those providers will be getting less money – or both.  The danger we face is that the reductions will be arbitrary and/or across the board.  We should be able to do better than that.  There’s nothing inherently wrong with specific health care providers making a lot of money.  One would want health care providers who deliver high quality, effective care to their patients to do well financially.  On the other hand, though, it is ludicrous to be paying the same to providers who are not doing well for their patients, whether that is not delivering appropriate treatment, making medical errors, or simply not getting good results.  It’s even silly to be paying “average” providers the same as high performing ones, yet we do this millions of times every day.  Right now, of course, it’s virtually impossible to tell which providers are which.  Where’s the data, where is the proof, and why don’t they – or we – seem to care?

Reform should mean making sure competition is based on delivering demonstrably better care and services, not on factors like geographic dominance, better lobbyists, or the simple inertia of not wanting to harm “my” doctor/hospital/pharmacy/etc.  Face it: there is going to have to be some goring, so we better make sure it is done to the right metaphorical oxen.

Reader Comments (1)

Kim, I don't believe I've read such a comprehensive view on our healthcare challenges here in the US.

Hard decisions lay ahead for sure... your last paragraph says it all!

So everyone... what can we do? ENGAGE with the discussion on every political and local level possible ! Let our voices be heard!

March 25, 2011 | Unregistered CommenterBob Nik

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