Healthcare costs

September 11, 2008

The main problem

Robert Samuelson (Washington Post, 9/9/08) (http://www.washingtonpost.com/wp-dyn/content/article/2008/09/09/AR2008090902520_pf.html) hit it on the head when he wrote: “The central health-care problem is not improving coverage. It's controlling costs.” However, he devotes the rest of his article to talking about health insurance costs, not healthcare costs. He fails to look beyond the cost of health insurance and assumes that healthcare services are fixed cost items, not amenable to competition or efficiency efforts. This, of course, is not true. Healthcare is a service (with occasional products), and greater efficiency is possible, if there is demand for it. But like most things in life, it won’t happen by accident.

Samuelson quotes Gary Burtless of the Brookings Institution who “ recently discovered this astonishing data: on average, annual health spending per person -- from all private and government sources -- is equal for the poorest and the richest Americans. In 2003, it was $4,477 for the poorest fifth and $4,451 for the richest.” This suggests that covering the currently uninsured won’t change the cost equation much, if at all. An interesting thought. The uninsured are not always destitute and do, in fact, pay some of their healthcare expenses. The insurance “hidden tax” finances some of this care, and many communities have funds to compensate hospitals for care of the uninsured.

Discussions of cost savings in healthcare generally posit a reduction in “unnecessary care” as the primary cost-saving mechanism. While this may be effective, that is by no means certain, and any gains would require several years to materialize. On the other hand, if providers were forced to compete for patients on the basis of price, the cost of individual healthcare services would fall. Providers would learn to become more efficient in order to offer the same service at a lower price. If, for example, Medicare were to take bids for total hip replacement surgery and allow only one institution every 50 miles, that procedure would suddenly become less expensive. Patients would not have to fly to Bangkok or Singapore to obtain affordable orthopedic surgery.

A recent Health Affairs blog (http://healthaffairs.org/blog/2008/09/10/medical-homes-and-medical-home-runs/) by Arnold Milstein talks about “Medical Homes” as the mechanism to reduce total per capita health spending, primarily by reducing the utilization of healthcare services. He expresses concern that Medical Homes will cost more but fail to produce savings to offset their cost. He studied four primary care practices that did function as “hospitalization prevention organizations” because they tried. It’s not clear that the patients involved were better off, but their insurers certainly were. This is a complex subject, and lots of details would be required for any judgment. Generally speaking, patients are better off staying out of hospitals. However, this should not be done merely to save money.

Interesting times.
Posted by Dr. Robert Burney at 09:18 PM