The Cost of Care

The rising cost of health care has become the elephant in the room in which all health care discussions take place. While the health care establishment worries about the quality and safety of care, the numbers of professionals to provide service, the availability of faculty, dwindling research dollars, and compensation for professionals, those who consume and purchase care struggle to figure out how to pay for the costly system that we have built. Health care in the U.S. constitutes sixteen percent of the Gross Domestic Product, which is three times what we spend on education. It is more expensive than health care in any other nation; twice as much as some nations whose citizens somehow live just as long as us. Health care is also growing two to three times faster than the rest of the economy. Traditional purchasers of health benefits, mainly businesses, are reacting by shirking the responsibility in order to remain competitive in an increasingly global market, one in which competitors pay a fraction of our health care costs.

This is not the worst of it. The costs are already out of hand and we have yet to see the how the demands of an aging population and the growing costs associated with chronic diseases will affect the system. Many of these chronic diseases come about because we fail to use proven programs and policies to prevent their onset, preferring instead to wait and treat individuals in acute care settings, the most expensive health care setting, and limit access to such treatments when the care cannot be afforded.

This standard of acute care has become oppressive. On the one hand, it is a health care model which offers access to the most exotic and sophisticated array of subspecialty medicine in the world, a system which performs miracles on a daily basis. On the other, these miracles come at a price, including sucking up all available resources and precluding other approaches to health, such as prevention, primary care, and alternative medicine. The cost to sustain such an acute care system cannot be justified by the standard clinical, economic, or ethical arguments.

Like many others, I believe that universal access to care and unified system of payers would be important first steps towards bringing economic rationality to an out of control system. However, the various interests associated with health care have too much to lose in such change and the sheer enormity of the undertaking makes it politically unfeasible. Perhaps the entire system collapsing would encourage change. How much closer to such an end do we need to be before such transformation is made? We are still engaging in practices and policies that add more cost to a tottering system. Instead of suggesting an all or nothing approach, here are four interrelated steps that are already being suggested or demonstrated.

Encourage integration across hospital, physician, and plan - The transaction costs associated with our health system are a big part of the problem. Yes, there are costs with integration, but once the working parts are aligned they can work in ways that shift the focus of care to the most productive and least costly approach. Most of these current integrated systems are either public, like the VA, or not-for-profit, such as Kaiser Permanente. With the changes in the regulatory and legal structure there is nothing keeping the private side from demonstrating approaches to integrate care. We need these regulatory changes because we need the innovation.

Align payment and financing - The return of categorical financing restricts the ability and incentive to move to integrated strategies. The barriers to such reform lie in the fact that it is precisely these policies which continue to funnel financing to the very acute care system that so desperately needs to change. Since the incumbents in this system cannot see an alternative to health except what they do, their first priority is the status quo. There is no switching strategy to return to a population basis for financing.

Encourage innovations - As the American consumer falls off the honey wagon of defined insurance benefits, mostly paid for by their employer, they roll towards experimenting with Canadian drugs, Mexican surgeries, and primary care at Costco. We should not be shocked by the increases in utilization of these alternatives. They may in fact produce a type of low cost system with a reasonable level of quality that is widely accessible to those with varied kinds of employment, and actively engages the consumer in the quest for both cost and quality considerations. These innovations will not look or feel like what's happened in the past. However, before these new ways of organizing care service are dismissed out of hand, they should be judged on the evidence of real costs, outcomes, and consumer satisfaction, not just on the prejudices of the incumbents in the current system.

Pay for performance - Perhaps the best way to encourage such innovations is by paying for the changes we desire when they meet the expectations we set. The early experiences of this straightforward approach are encouraging. It will get better with more use and experience, but it may in fact be the elusive switching mechanism that is needed to get the incumbents to see the advantages of advancing the innovations.

This past month we saw General Motors obliterate health benefits for retirees in order to remain competitive. We also saw the state of Florida rewrite the contract with Medicaid recipients, moving them from a defined health benefit plan to a contribution plan, and even those seemingly well-insured employed families are finding themselves at the precipice of financial disaster because of health costs. In the last month, we witnessed the often demonized Wal-Mart Corporation announcing an expansion of a very modest health benefit plan, only to follow with an uncovered strategy to keep tight control over the expansion. The health policy experts were quick to question Wal-Mart's integrity in all of this, but is Wal-Mart really to blame for protecting itself from a supplier whose costs are out of control? Isn't that what GM, Florida, and the others who are exiting the system doing? The real question is, when and where will analysts object to the real culprit, a system of care in which costs are out of control and no one inside seems willing to take the aggressive leadership stance to address it?