When will we deal with the cost of health care, really? (Part 2)

In my last blog post, I explained just how out of control our health care spending is and five of the main culprits: prices, utilization, intermediaries, overall administrative costs, and fragmentation and inefficiency in care. 

The other five factors for why the U.S. spends more than anyone else for health care are actually concepts that should push costs down, but don’t.  Here’s why these ideals aren’t working in our uniquely American system.

1.  Competition:  It’s an American ideal that prices go down and quality goes up when we have competition; think smart phones, cars, appliances.  In U.S. health care, this force only applies where the product is a well-standardized commodity and where the patient has flexibility and time and a financial incentive to make a cost-conscious decision.  But for the things that are important and expensive, we don’t have a mechanism that allows consumers or even sophisticated purchasers to compare the expected quality and cost.

2.  Transparency:  If we do want to rely on competition to limit prices and stimulate improved quality, we need a method to evaluate who is doing a good job at managing costs and quality. But we have very limited information on cost and quality in health care. Compare the information you can get about how well your hospital performs cancer surgery or treats heart attacks to what the U.S. Securities and Exchange Commission requires from publicly-traded companies about their financial performance or what the U.S. Department of Transportation requires for car safety.  In England, Sweden and Australia, they mandate reporting of meaningful information about patient outcomes.

3.  Regulation:  Most countries have recognized that health care is too complex and sensitive to be structured as a competitive market and, instead, have decided to regulate what’s offered and what it costs.  Many European countries have set up public commissions to evaluate the effectiveness of new treatments and set prices.  In the absence of such oversight, U.S. providers and suppliers can pretty much charge whatever they want – and they do.

4.  Tough purchasers:  For a market to work, the buyers have to be serious – including being willing and able to “walk away.” You can walk away from your Honda dealer and go over to the Toyota lot — but are you going to walk away from one hospital or surgeon and go negotiate with another?  Is a large company likely to tell its major insurance plan that they’re too expensive and they will switch to another? Unfortunately, U.S. employers and most public agencies do not feel able to drive tough bargains with their suppliers. For many, it’s more important to maintain continuity of providers and plans, to offer “rich benefits” to their workers, and to make sure the highly-regarded hospitals in the community are available than to put significant economic pressure on providers to improve efficiency and quality.

5.  Price sensitivity:  This one may be changing, but for most of the last fifty years, many patients (and employers) didn’t ask or know about the price and certainly didn’t change their health care arrangements because of it. Instead, suppliers and providers offered ever more elaborate marketing pitches to attract us to their products and services, knowing that the costs would be borne by a third party —typically a health plan, government agency, or employer.

When someone wants to blame the pharmaceutical or insurance industries for the high cost of U.S. health care, there’s probably some truth there. But you will also find culprits in every nook and cranny of the U.S. health care system. Our broadly distributed culpability makes it hard to find easy solutions to the cost problem. In the next post, I’ll talk about the fixes that seem to make sense.

[Photo Credit: Wellness GM via Flickr]

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When will we deal with the cost of health care, really? (Part 1)

When will we deal with the cost of health care, really? (Part 3)