Lowering Health Care Costs: The Answer

The elephant in the room of the health care reform debate is how to add 30 million people to the health insurance roles while also decreasing health care costs.  The best way to start this discussion is to state the obvious which is that health care costs are a product of the unit price of a service or product (such as an office visit, a surgery, a medication or a splint for an injury) multiplied by the number of services.  We already know that with an additional 30 million people joining the health insurance roles, that the volume of services will have to increase.  We also know that the current proposals on the table do not address unit costs.  While proposals have been put on the table to change the government formulas for calculating provider payments, they have not been included in the current versions of health reform now being proposed.  In testimony to Congress on September 15, 2009, Dr. J. James Rohack, President of the AMA stated, “We are pleased that the new target growth rates proposed in the House legislation are not limited to GDP growth”  In other words unit price will not, by these proposed statues, be controlled.  So if we can’t or won’t limit volume of services and we can’t or won’t limit the unit costs, what can we do to lower total costs?  The esteemed journal Health Affairs recently took this on with their Sept/October issue entitled “Bending the Cost Curve”.  The articles in the issue, and also the academic discussions usually revolve around three foci of cost control strategies. 

It’s the Price Stupid! 

One particular article, written by Jonathan  Oberlander and Joseph White in the Health Affairs issue make the strong case that our unit costs are just too high.  They use data comparing the volume of services in other countries that have much lower costs and find little difference with the volume of services in the United States.  They go on to show that our costly payments to physician specialists and for high tech and invasive procedures are the main contributors to high health care costs.  In a separate article in the same issue, Bruce Vladeck and Thomas Rice state that these high unit costs are due to a “lack of power on the purchasing side” meaning that insurance companies and government are virtually helpless to negotiate with physicians and hospitals as the providers of care have a monopoly of sorts and there is no cost sensitivity to their services.  They suggest that only a monopsony which is a situation in which there is a single purchaser of a particular service in a market (great SAT word for my fifteen year old) can solve this and the best monopsony to fight their monopoly is a single payer system.  Of course I do question why this tough negotiating cannot go on now as Medicare and Medicaid pay one third of all health care in the United States. 

Lower the Volume!

While the articles I have just cited minimize the effects of efforts to lower the utilization of services in favor lowering unit costs, other articles do acknowledge that lowering the “waste” in the system can lower costs while potentially improving quality. In an article by Arnold Milstein and Elizabeth Gilbertson, they cite studies by the Institute of Medicine and the Congressional Budget Office that show, “30–40 percent of US health spending is waste which primarily encompass services of no discernable value (the CBO’s focus) and the inefficient production of valuable services (the IOM’s focus)”.  In their article and in other articles in that issue, specific programs that have successfully lowered the volume of services (and by so doing lowered costs) by focusing on eliminating services with little to no value, are highlighted. 

Blame the Patients!

The third focus targets consumer or patient issues that are largely driven by culture in America.  Although that is addressed only peripherally in Health Affairs, other authors have written extensively on social and cultural influencers having major impact on costs including direct to consumer advertising for prescription medications and celebrity activities and endorsements.  It is often said that Al Roker’s obesity surgery led to a plethora of such obesity surgeries, many of which were unnecessary and inappropriate.    A classic book on this topic, Medicine and Culture written by Lynn Payer remains an excellent review of this topic.  Ms. Payer goes into great detail on the American culture being one that values technology and aggressive interventions and our health systems and payment systems reflect that cultural bias.

My Answer

In many ways my answer is the obvious one.  There is no easy answer.  There are important bits of wisdom in all of these articles yet none of them give us a simple roadmap of how to save money while maintaining or even improving the quality of care.  We will need to change the culture to some extent.  We will need to develop new payment systems to lower unit prices and we need to encourage programs such as the ones in Health Affairs that are shown to work to eliminate utilization of services that provide no value in final outcome to patients.  Only by a combined approach are we likely to have success.  Unfortunately, I do not see any reform bill that thoughtfully does all this.