Managing Healthcare Costs: Russia

David Herszenhorn has an interesting article in today's New York Times suggesting that it's not possible to get health care cost inflation below the general rate of inflation. He interviews and quotes economist William Baumol, who wrote an article in 1966 pointing out that while many tasks got less expensive over time, others required similar labor input - and thus the cost did not decrease.

Baumol's academic studies were around performing arts. A Mozart quintet took 5 musicians in the 1700s, and still takes 5 musicians today. A flat screen TV is manufactured with far fewer inputs today than it was a few years ago -hence the cost comes way down.

Although Herszenhorn doesn't mention it, this relates directly to the CMS Actuary's contention that it requires flawed logic to assume we can lower Medicare fee increases to account for future 'productivity increases.'

I acknowledge that it's more difficult to reengineer health care delivery than to optimize a manufacturing process. It's not easy to get doctors to rethink their approach, and demands of patients facing loss of life or health are different than demands of consumers in Best Buy. However, unlike the string quintet, there are elements of health care where input costs can be dramatically decreased. Efforts at implementing Toyota production techniques at hospitals have dramatically decreased the number of steps required. Most of us who have visited a physician office recently in the US and seen how many staff are required to do administrative (nonclinical) tasks know that there are substantial productivity gains possible in health.

Further, countries with robust growth tend to have large increases in health care costs, while countries undergoing economic contractions (think Russia after the fall of the Soviet Union, or Argentina after the currency failure) tend to have health care costs that go down. Countries like Russia with declining health care costs, though, also often have far worse outcomes. This would suggest that overall, health care costs are sensitive to the overall economy - lowering health care costs (or health care inflation) is difficult in good economic times, and easier in tough times.

I don't think Baumol's Law unequivocally tells us we can't manage health care costs. It does provide insight into why it's so difficult.

More news about patients foregoing care due to the national economic malaise. USA Today has a heart-wrenching article yesterday citing many anecdotes of patients opting to delay needed therapy. The headline is from a Gallup poll commissioned by the disease management company Healthways showing that surveys of over 350,000 Americans over the last year show that 21% are “scramble[ing] to pay for medical [and]drug bills.” The survey also showed that 1/3 of people skipped all dental care last year.

Contrary to what many say, skipping preventive or curative therapy now will not increase overall health care costs over the population, since most medical care we provide is cost-effective rather than cost-saving. What we will lose is the individual, family, and societal value of the health care that is being skipped. We are likely to see more preventable morbidity, disability, and even mortality. See a previous blog on this from last fall before there was general agreement that health care is not recession-proof, and a Washington Post article pointing out how a terrible recession caused huge health care losses in Russia.

This is further evidence that managing health care costs is not important just as a matter of national economic. Managing health care costs is also critical to maintaining and improving the quality of health care.