Observations on Managing Health Care Costs (Part 2 of 2)

This is a two part post.  Click here for part one of this post.

Observation Nine: We often promote competition that does not generate new value for patients, and reject competition that could create such new value.
Michael Porter (Redefining Health Care) has argued convincingly that we are encouraging competition and choice where it’s not meaningful, such as comparing quality scores for health plans, while we are not encouraging competition where it is more meaningful – such as quality scores for provider organizations.  Clay Christensen (The Innovator’s Prescription) points out that we need disruptive innovation to get to a $98 MRI like they have in Japan – but we have a series of rule that discourage innovations that are inferior but have a huge cost advantage.

Observation Ten: We medicalize conditions, driving up costs
From chronic insomnia to erectile dysfunction to attention deficit disorder, we have expanded the reach of medical diagnoses. In so doing, we have created huge additional health care costs.

Observation Eleven: While many see a primary care shortage, there is also a specialist glut
If we simply increase the supply of primary care physicians, but the supply of specialists remains high, it’s likely that our costs will increase.  That’s what happened in Seattle when Group Health created a “medical home” at one of its clinics

Observation Twelve: We are reluctant to regulate prices (and when we do, we design such regulation poorly)
Most countries regulate health care prices.  In the US, one state has continued to regulate hospital prices – and reports less cost inflation than other states  Many states gave up on price regulation when they found themselves unable to keep up with medical progressPrice regulation is messy, and there are some bad consequences. For instance, while I have already mentioned the $98 Japanese MRI, countries like Japan which regulate prices often standardize prices too low – so office visits there are reimbursed at under $25 – and physicians often see 100 patients a day.  Uwe Reinhardt describes hospital prices as "chaos under a veil of secrecy."  It's not clear we could make prices sensible by regulating them - and it's pretty clear that prices are not sensible now. 

Observation Thirteen: Providers must consolidate to allow for more integrated payment; however, provider consolidation increases the cost per unit
Tom Lee and Jim Mongan of Partners and others have made a convincing case that we need more integration of the health care delivery system.  Unfortunately, higher levels of integration often lead to higher unit costs – exacerbating our cost per unit problem.  The Boston Globe had a series demonstrating the high prices paid to Partners in Boston, and the Wall Street Journal did a great article on the increase in cost of health care in Roanoke Virginia after the two major nonprofits there merged.

Observation Fourteen: We often mistakenly think that we can measure the
cost of health care by medical claims alone
The health care system was not designed to “save money.” It was designed to make lives better (and longer.)  So – when an intervention costs real dollars, but gives a patient the gift of better health – that’s not bad.  We should measure the value of health care by what we’re getting out of it, not by the resources we're putting in.  If we can increase our productive lives, that’s of enormous value to us as patients, our families, our employers, and society as a whole.   It would be a terrible bargain if we spent 30% less on health care but didn’t benefit from minimally invasive surgery, or drugs that make AIDS a chronic disease, or drugs that actually decrease coronary artery disease.  

Observation Fifteen: Every health care dollar is someone’s income
Hospitals are the major employer in almost every community that has a hospital, and pharmaceutical companies, medical device companies, insurers and physician practices all are engines of employment and are dependent on revenue from heath care services. If we decreased the cost of health care by 30% tomorrow, we would see layoffs of hundreds of thousands – creating Detroits in virtually every community in the country.  We shouldn’t waste money in health care – but we shouldn’t expect to wean ourselves off of excess expenditures quickly (especially not in the current economic environment.)

Observation Sixteen: There are no magic bullets
Beware of the pundit who has an answer.   We’ll need to try multiple approaches to get more value out of health care.  This will require changes in health care delivery, changes in health care finance, and changes in public health efforts and investments.  Managing health care costs is not easy – note that virtually every industrialized country has seen health care inflation exceed general inflation over the past decade.  Managing health care costs won’t happen quickly.  There is likely to be reason to write this blog for a long time to come.