Exploring Human Potential

Health Care Costs: “Slain or Sleeping”? Avoiding Brick & Mortar.

Posted on | January 2, 2014 | No Comments

Mike Magee

The Affordable Care Act has officially arrived. Obstructionism persists, but appears increasingly desperate and politically ill conceived. What remains in the policy backwaters is the legitimate debate over whether Accountable Care Organizations, and a host of other structural changes, are to be credited with the slowing of health cost inflation, and with maintaining these gains if that continues to occur.

This was the featured debate in a New England Journal of Medicine article last week with the familiar names of David Blumenthal and David Cutler tied to it. The title, “Health Care Spending – A Giant Slain or Sleeping?”, nicely crystallizes the 64,000 dollar question.(1)

This special NEJM Health Policy Report tracks the annual growth in real National Health Expenditures per capita over the past 50 years, explaining along the way what made it go down (mostly recessions or the threat of restrictive regulation), or go up (mostly gains in the GDP or the absence of restrictions or regulation).

The two major causes outlined by the authors are technology (“Estimates suggest that about half of the annual increase in U.S. health care spending has resulted from new technology.”) and free market pricing (“Outside of Medicare and Medicaid, the U.S. government does not set or negotiate prices with providers. This contrasts with most other industrialized nations.”)

They tag the financial impact of American’s behaviorally induced poor health status as “modest”, and leave open the question whether, in benefits, we are getting our money’s worth compared to other nations.

Although currently paused, will health care spending re-escalate in the near future?

Unclear. They note that, although new pharmacological advances have slowed, some are predicting an explosion of new costly biologic agents in the near future. As for diagnostics, the big issue isn’t what’s brand new, but rather the spread of what already exists. Advanced diagnostic imaging was growing at a 6% clip from 1995 to 2005, but is currently flat. Cardiac procedures are down, including bypass surgery which declined 20% from 1995 to 2005. Then there is the issue of reduced utilization. High deductibles may be causing some consumers to approach health care more cautiously. And on the provider side, various penalties for errors and readmissions seem to have had some effect.

As for current spending, in the first 3 quarters of 2013, prices grew by only 1%. The 2011 and 2012 levels were a point higher than that, while inflation throughout the 1st decade of 2000 was at 3% to 4%. But will this last, or is it another historic dip (paralleling our deep recession), with problems just around the corner?

Were inflation to return to earlier levels, the authors say that the country could expect a bill of $5 trillion dollars for health services in 2022, with $1.8 billion in federal expenditures, that is 25% of the entire federal budget. Further, the demographics mean that 70 million Americans will be eligible for Medicare in 2023. That’s a 20 million bump from today. Those numbers cause the authors to editorialize, “Ultimately, the well-being of society depends on more than health care. A poor economy is one of the surest paths to national decline.”

The point is health care costs remain an issue, and two divergent paths are rapidly converging – rationing services versus reengineering services.  According to these experts, 30% of health care expenditures are wasteful and at least some of this waste could be halted by reengineering. And they say “a broad bipartisan array of expert groups have targeted reengineering as the preferred approach to managing the cost-related challenges of our health care system”.(1)

So what are these reengineering ideas?

1. Eliminate fee-for-service payment systems.

2. Expand availability and usefulness of information systems.

3. Increase care coordination.

4. Expanded primary care services.

5. Standardize marketing and billing practices, and lower administrative insurance costs.

For an article so heavily referenced (69 references to be exact) and so clearly bannered (Health Policy Report), it was to my reading exceedingly carefully drawn and constructed to not overly offend any party with a significant financial stake in the future game. That would be the “broad bipartisan array of expert groups (who) have targeted reengineering”.

For example, here are three things that were not said:

1. We will never get costs under control until we move more deliberately toward a single payor system. Let’s begin by allowing 50 to 65 year old’s to buy into Medicare.

2. We will never get costs down until we rewrite all job descriptions in health care, including those of the physician, pharmacist and the voluntary informal family caregiver who must be fully integrated into the health care team (with financial incentives and rewards for a job well done).

3. We will never get costs under control until we allow the dollars to follow the patient. This is not to say that we don’t need ready access to and  assistance from doctors and our health care teams (unencumbered) to keep small problems from become large and costly ones. We do. But many problems could be resolved with reengineered mobile workforces and technology-assisted support close to home. (And that is “home”, not to be confused with “workplace”) Mobile, convenient, and no brick and mortar. This is especially true of the very young (think strep throat and ear aches) and the very old (think walkers, CHF, and dementia). Once you take them out of the home and force them to go “brick and mortar” (whether health care office or hospital) the costs multiply and multiply.

The authors are correct that we are approaching serious decision points when it comes to wise use of limited resources to maintain health and wellness.  But we need to be cautious in reflexly turning to the deeply intertwined policy elite from industry, think tanks, and academia who together have defined our past and current reality  and now wish to declare what is “doable” and achievable”. Too often I find, they have convinced each other that we are incapable of challenging the status-quo in a meaningful way.  What has occurred in the past should not be confused with what might be possible in the future.

The authors here title the discussion: “Health Care Spending – A Giant Slain or Sleeping?” There analysis is very helpful in defining how we have arrived at our current predicament. But the article does not slay any of the old mythology that supports the wasteful “Insurer-Hospital-Provider” triad, and remains relatively silent and sleepy when it comes to shifting resources, efficiency and power toward consumers, community and home settings.

For Health Commentary, I’m Mike Magee


1. David Blumenthal, M.D., M.P.P., Kristof Stremikis, M.P.P., M.P.H., and David Cutler, Ph.D. Health Care Spending — A Giant Slain or Sleeping? N Engl J Med 2013; 369:2551-2557; December 26, 2013


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