Managing Healthcare Costs: Unit costs

Today’s Managing Health Care Costs Indicator is 3.8%

I’m still making my way through the September Health Affairs, and Roehrig and Rousseau have used National Health Expenditure data to demonstrate what portion of the increase in the cost of health care is due to increasing prevalence of disease, and what portion is due to increased prices.

You can tell from the graphic and the title – prices trump again. Over the 260 conditions the authors reviewed, the overall cost increase in the decade from 1996-2006 was 3.8%. Roughly three quarters of this difference was due to increasing costs, and only a quarter was due to increased prevalence. Shockingly, as our population becomes more obese and we worry about our sedentary kids, the increased prevalence of disease wasn’t even more disease – it was rather a higher penetration of treatment of existing disease. For instance, while there was more hypertension, hyperlipidemia and diabetes – but this was offset by lower prevalence of cigarette-related lung disease and strokes.

Not all unit cost increases are bad. New drugs that make various cancers and HIV into treatable chronic diseases represent important advances that we want and need. (Of course, over time these will also raise true clinical prevalence of disease. See, for instance, the increase in prevalence of Chronic Myelogenous Leukemia). However, our payment system rewards increased use of technology and increased use of new procedures, and we preferentially disseminate innovation that continues to ratchet up the cost of care.

This article provides further evidence that we won’t be able to solve our health care cost crisis by focusing all of our attention on improving American lifestyles. We’ll also have to address our high and rising unit costs.

Below are graphics for the decomposition of increase in costs for a few other conditions:

Note that the large decrease in prevalence of chronic obstructive pulmonary disease still couldn't overcome the increased cost per case - so overall per capital spending growth was still positive.

Today’s Managing Health Care Costs Indicator is $442,450

In 1993, Anderson and Reinhardt wrote a seminal article in Health Affairs, titled “It’s the Prices Stupid.” They described differences between the US health care system and those of other developed countries. Contrary to the beliefs of many, our problem is not one of utilization, but rather of high cost per unit of services delivered. We use fewer office visits, fewer hospitalizations, shorter lengths of stay, and fewer prescriptions than other similar countries.

In 2009, George Halverson touted data from the International Federation of Health Plans

showing use price disparities across countries. US costs – just about off the charts.

This month’s Health Affairs is entitled “The New Urgency to Lower Costs,” and Columbia professors Miriam Laugesen and Sherry Glied (now an assistant secretary of HHS) revisit the topic of unit prices– and find similar results . They show that orthopedists make $442,450 on average in the US – a third higher than the next highest country. Primary care physicians on average make $186,582 in the US, 15% higher than in the UK, and double the income of primary care physicians in Australia. All of these costs are net of expenses.

The authors have also tried to account for the high cost of medical education in the US, which is often cited as a cause of high physician income in the US. They calculate that amortized over 30 years of practice this would be $21,300 (primary care) or $24,400 (orthopedics) – and higher salaries far exceed this differential. (I think the emotional impact of tuition loans is higher than the emotional impact of foregone earnings during training, so I think the authors are undercounting this differential).

The authors also compare costs for total hip replacement, an elective procedure that doesn’t differ from market to market. In all countries there is much higher cost for private payers than for public payers – but again, the cost in the

is far higher than the costs elsewhere.

As I’ve mentioned before, there is not a single ‘silver bullet’ to address the high cost of health care in the US. We often focus on unhealthy lifestyle behaviors and overutilization. Both are very comfortable for providers, since they are not responsible for lifestyle and it’s generally other providers who are overutilizers. We won’t get closer to the costs of European and other developed countries, though, until we address unit cost issues. AND – we won’t fully address unit cost issues without having a negative impact on physician income.