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Quality, Quantity & Cost

Watching the news these days is positively nerve wracking. From what I gather, the U.S is about to default on its debt, Social Security is falling apart and gas prices are skyrocketing. Oh, and Medicare and Medicaid are going bankrupt as well.

The fact is that medical costs are growing rapidly, both in Medicare and even more so in the private insurance market. Right now we have the most expensive health care system in the world, hands down. As of 2008 (the last year with a full set of data for the OECD countries) we paid over $7500 per person per year on health care while the next costliest country, Norway, paid $5000, or about a third less. More troubling is that the rate of growth in our health care costs is consistently higher than the growth of our economy, which means that we will be spending even more per person in the coming years.

So what are we getting for our money? Well, the quality of our care is excellent but that only applies to those who can get care. One of the main concerns people expressed during the debates over the Affordable Care Act (ACA) was whether they would be able to continue to receive the care they were already getting. Since numerous studies show that a lack of health insurance leads to barriers to care and worse health outcomes, folks were right to be worried. Reassuringly to most Americans, the ACA does nothing to disrupt the health care structure for those who have insurance and are satisfied.

Part and parcel with this is the high quantity of services provided to those with insurance. The impetus to do something instead of the oftentimes more appropriate watchful waiting leads to greater utilization of services. Our fee-for-service model exacerbates this bias by incentivizing hospitals, nursing homes, doctors and others to do more since they get paid whenever they do something, whether or not the intervention is truly useful.

So we have high cost, a high quality of care and high quantity of services.  The problem is that we can’t do it all. Mark Pauly, a professor of health care management at Wharton, writes in this month’s Health Affairs that it’s time for us to consider a system where in return for a little less quality and quantity we pay significantly less for our care. The problem is that most people are not willing to make this tradeoff as we saw so clearly in the 1990’s when HMOs were savaged for enacting this solution.

So how do we get people to accept this tradeoff? His solution is to utilize market forces to allow people to choose the plans that provide the most value for the cost they are willing to bear. This is a great idea in theory but unworkable in reality because most people have no way of knowing how to measure value.  Being aggressive and always doing more is considered good value so patients usually do more but this means that health care costs will continue to go up. Additionally, most people have no way of deciphering all the nuances of health insurance plans before they select one because there’s no way for them to know what will happen to them in the future. Will you need the generous prescription drug plan or is it more important that you have good rehab care? Who knows but to be safe you should probably get both.

The problem is clear, we are going to have to compromise in the near future on either the cost of care, the quality of our care, or the quantity of care we get. I agree that the most likely solution will be tiers of care that offer different prices for different levels of care. But, the market is not going to come up with the solution to this problem. It’s had over half a century to do so and hasn’t gotten there. There are plans that offer fewer services for a lower price but when illness strikes many people are left with inadequate coverage for what they need. What’s the point of insurance that fails you when you need it the most?

What we’re really going to need is a government body that determines what interventions are truly useful and makes judgments about their cost benefit tradeoff. In my next post I’ll go into greater detail about what such a body would look like, what we have here in the U.S. and how other countries are tackling this problem.

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