CBO: Health IT and preventive care won’t save a lot of money
22 April
It looks like my post from yesterday agrees with CBO’s December paper. Maybe I should have read it earlier.
Yesterday I wrote,
Information must be combined with the incentive to purchase high-value medical care – a decision that involves both the medical benefit of the treatment and the financial cost. …
The Administration’s proposals on health information technology, electronic medical records, and medical outcomes research may improve health, but they will have little effect on slowing the growth of health care spending for those with low-deductible, low-copayment private health insurance. …
The Administration is giving an incomplete answer. They need to explain not just how much they will spend on health information technology, electronic medical records, and medical outcomes research, but how that information will be used to reduce cost growth, and by whom.
In December the Congressional Budget Office wrote,
Other approaches—such as the wider adoption of health information technology or greater use of preventive medical care—could improve people’s health but would probably generate either modest reductions in the overall costs of health care or increases in such spending within a 10-year budgetary time frame.
In many cases, the current health care system does not give doctors, hospitals, and other providers of health care incentives to control costs. Significantly reducing the level or slowing the growth of health care spending would require substantial changes in those incentives.
I am glad that I am in the same place as CBO on this point. Please consider this an ex-post footnote to yesterday’s post.
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Keith,
I started to write a response to your post from yesterday, on the topic of looking beyond just the financial incentives health care consumers face to include other drivers such as the transactional cost of going to a provider and receiving the health care in addition to the risks inherent in many health care procedures such as surgery and pharmaceuticals. However, after reading this post I believe asking a larger question would be more informative.
The question I pose to you is: What should the U.S. government’s goal be towards health care?
I believe answering this question will illuminate why the topic has become so hyper-polarized, as one of your readers said, and help us to understand how health care cost-containment should be approached.
As I see it there are two factors that need to be addressed: care and cost. Within each factor there are two measurement scales: macro and micro.
Looking first at care there is a debate whether health care should be measured against overall health of U.S. citizens measured by a series of indicators: life expectancy, morbidity rates, specific disease rates, etc or should be measured by the basket of services that are insured: aka., what types of medical procedures and pharmaceuticals are available.
When cost is examined there is the macro question of overall cost, aka. how much a year is being spent on Medicare / Medicaid, and there is the micro question of cost per health outcome, aka. how much does it cost to treat pneumonia across hospitals.
Personally I think the conundrum around health care is caused by people inappropriately moving across scales. For example, many fiscal conservatives believe that care should be examined at the micro level, aka. what services are covered and at what level of subsidy, while cost should be examined at the macro level, aka. how much are we spending on Medicare / Medicaid.
Similarly, the many health care liberals believe that care should be measured broadly to look at overall health of the nation and that cost measured narrowly, focusing on cost efficiency and standardization of health outcomes.
Personally, I think that you need to stay at either the macro or micro level. If care is to be measured at the macro level so should cost, so that the overall financial burden of health care consumption can be understood.
I look forward to hearing what you think.
I believe answering this question will illuminate why the topic has become so hyper-polarized
Medical tourism will/does control costs. The high quality of care available overseas at Bumrungrad, Parkway, CIMA and Anadolou will cut medical trends in a big way. IT and wellness programs are good but mainly generate incremental savings.
There are some facts or aspects to healthcare that are universal that need to be addressed:
Healthcare is a physician prescribed good. You can’t shop for an appendectomy. Even other elective surgeries tend to be almost impossible to shop for. Competency is more important. Besides the majority of the surgical costs are buried in the labyrinthine hospital chargemaster which I defy anyone to analyze one without their head exploding. Because of the nature of the consumption of the good the consumer has little connection with the price of the good. The physician consumes hospital services at a near costless rate to the physician and the patient is viewed on some level as “goods in process” and is not viewed as a direct consumer of hospital services. The hospital is more concerned about retaining physician services because it is physicians who refer patients. I think these facts make consumer directed healthcare almost impossible.
The hospital chargemaster (the line item list of all hospital charges) does not reflect accurate costs. As a result prices do not communicate true market information. So attempts to control healthcare expenditures in the hospital space are swallowed up by the chargemaster blackhole. Since the prices in any given chargemaster are largely arbitrary a reduction across the board by payers for a particular procedure will creep back in under charges for other items.
Hospitals practice price discrimination among payers to maximize revenues. Public payers pay the lowest along with some self-insured poor and middle income patients. And insurance payers all negotiate seperate contracts with each hospital or hospital group and prices vary widely here. Some public buyers are near monopsomists like some public payers and pay lower prices.
Public payment systems cost shift onto private payers.
Hospitals compete for physician services by increasing capital investment. This investment drives up fixed costs and in some instances variable costs.
If an individual hospital is able to innovate to trim costs in one area of patient care that savings is not captured by the payer largely because the chargemaster system is broken.
Since the drivers of healthcare cost inflation are not addressed in any of the president’s proposals they only have the possible unintended consequences of increasing costs.
Preventative care is an investment good. As such it has the potential to reduce future consumption of healthcare. But it is unclear whether a person who practiced preventive care would not consume less healthcare in the last year of their life as a control group that lived a risky life. Genetics might trump prevention. A drug such as a statin is an investment good. It blocks the biosynthesis of cholesterol by the liver and might have anti-inflammatory side effects that are not well understood. It seems to have reduced death rates from stroke but the jury is still out on its long term effect on cardiovascular disease. Because statins interupt cholesterol biosynthesis patients must supplement with COQ10 because that chain is below the point where the statin works. So there is an additional cost to the patient for this supplement.
Trying to make health insurance affordable without addressing first the true drivers of health care cost inflation will only be met with a stone wall of resistence by providers. If insurers can’t re-negotiate contracts lower then they will cut benefits or reduce lifetime caps or increase deductibles. Costs will be passed on one way or another onto consumers. If providers are jawboned into submission then queueing will increase and quality will decrease. There will be fewer medical school applicants and we will import healthcare professionals willing to accept lower rates of compensation.
Whenever I go to a doctor I am reminded of the Jack Benny joke, a thief has held up Benny and demands “your money or your life” a long pause ensues and the impatient thief yells “what’s it gonna be?” and Benny replies, “I’m thinking, I’m thinking”.
That should be “Some private buyers” in the third paragraph.