Bending the Cost Curve

As we continue to move slowly toward health reform legislation, it is important to remember what it is and what it isn’t. It will create a pathway to move toward a plan for universal access. It will pay for this with some combination of direct taxes or indirect requirements that cause people to buy insurance. It may provide some much needed reforms in the insurance market including the guarantee issue and non-cancellation for illness. It will not reduce health care costs, at least not initially.

The September-October issue of the policy journal Health Affairs takes up the issue of bending the cost curve of health care expense to the growth rate of the rest of the US economy. This should be required reading for anyone with any leadership responsibility in any part of health care. In the first seven articles the case is abundantly made that the way we have controlled cost (however unsuccessful that effort has been) in the US to date is by limiting access. The article by Bruce Vladeck is particularly telling as he graphically points to the fact that while US citizen pay the most per capita for their health care, they see physicians less often and spend fewer days in the hospital. The only conclusion one can draw from this explication is that the unit cost of a bed day, hospital visit, prescription, or anything we consume in the health care market is more expensive than the same service or product in other countries. When we do the math, these costs look to be about thirty to forty percent higher, and account for why we pay more and consume less.

At this point in the debate many take up the cudgel and begin to beat the insurance firms around the head and neck, calling for their demise. This may be justified, but my sense is that while these firms cost a premium and many do make a profit on health care, they really are just the collection agents for a system of care that is itself sloppy, overbuilt, and inefficient.

So, if we are really going to make some headway on bending costs and keeping the delivery system we have, there are only two choices. The first is working to reduce either the prices charged by hospitals, physicians, drug companies, and durable medical equipment manufacturers (The Scooter Store) of the various inputs that make up our system of care; or we can reduce the rate at which we consume these inputs. Much of the cost reduction over the past two decades has been focused on one or the other of these means of cost reduction.

The first is done through contracting not only between insurance companies and providers, but also the various providers through sub-contracts with other providers. The purpose of all of this is to push the reduction in costs to some other part of the system or disadvantage them in some way. This is done privately as insurance companies negotiate contracts with providers and publically as Medicare and Medicaid programs reduce payments to providers.

The reduction in use - or utilization management as it has been labeled - limits our access to the great resources that have been built up within health care in this country. This is a little bit like having an energy and transportation policy that involves everyone owning a Hummer, but no one being able to afford fuel. These limitations of course are part of the source of the public’s anger over health care and drive much of the resistance to change and it strikes of more bureaucrats - public or private - getting between individuals and the care they need. There is little linking the use issue with the other public hot button: the cost of care. This failure plays a lot of the mischief in the current debate.

This debate pinches consumers and providers in ways that have made it difficult and unlikely that real steps will ever be taken to hold cost. The dynamic of neither consumer nor provider making a contribution to holding use or price is the essential driver behind the forty year legacy of health care cost increases that are double the rest of the economy. It has brought us to the point where we are today that our level of expenditures on health care is simply unsustainable.

I can think of four scenarios for bending the cost curve as we go forward.

First we can hope that consumers and providers come to their senses and self-regulate demand and price. This course of strategy will have to drink deeply of Dr. Johnson’s aphorism about second marriages, that they are the “triumph of hope over experience.”

In a second option we might just wait for the car to crash into the wall and then pick up the pieces. That is what we have experienced the past year and a half with the banking, financial and automotive crisis. There are a few reasons why this is not a good choice. I don’t know anyone that wants to go through similar turmoil now that we are just beginning to reach the end. Also, in a health care meltdown people will die, not just see their net worth drop or American car production move overseas. And finally, the public resources that were available for the financial and manufacturing bailouts are simply no longer available. We are broke and over our heads in debt.

A related scenario, but one less dramatic than a head on collision is one in which the system will continue to become so expensive, cumbersome and unsafe, that individuals and companies will begin to leave it quietly. As they do they will begin to knit together a set of care services and financial protection as a replacement for traditional health insurance. The package might look like a high deductable insurance plan to protect wealth, primary care through a community clinic, bio-equivalent drugs at a Big Box store, the one that also provides emergent care, hip replacement in Costa Rica, on-line management of personal health information, an exercise support group and more general healthy behavior. I like to think of this as the Mercutio option, “a plague on both your houses”, but as the health consumer here plays the role of Mercutio with the Capulets acted by the providers and the Montagues performed by the insurance companies, it is really important to remember that the line is given three times in Mercutio’s death oration.

A fourth option is that we will come to see that the problem we have is that we have the wrong care system for what ails us. Across the continuum of care services, we need to remake the practice models from the beginning to the end of life, this includes primary care, oral health, in-patient, prevention, literally everything we do or need to do. We don’t need death panels to limit care, but we do need to be informed of what works to save money, provide better care and keep us safe. The really good news is that much of this is already known and some of it is already in the beginning stages of demonstration across the nation in a rich variety of settings. The bad news is that these changes in the practice model will call for interdisciplinary leadership, changes in professional expectations, new demands from consumers, optimal use of technology, and reallocation of resources from what we have done to what really works.

These changes will not be easy and they will take at least a decade. They will require real leadership across settings and professions coupled with creativity and innovation that characterizes the best of the American society. But of the other three options, isn’t this really our best choice?