A National Bureau of Economic Research working paper found that higher-priced hospitals in competitive markets were associated with lower patient mortality—flying in the face of the common policy narrative that higher-priced care is not higher quality. However, in more concentrated, less-competitive healthcare markets (in which over two-thirds of the nation’s hospitals are located), the study found no correlation between price and quality. Authors of the study analyzed patient outcomes from more than 200K admissions among commercially insured patients, transported by ambulance to about 1,800 hospitals between 2007 and 2014.
The Gist: As hospitals have consolidated, prices have risen by about 30 percent between 2015 to 2019, leading policy experts and regulators to search for ways to rein in price inflation.
While there continues to be widespread consensus that industry consolidation has resulted in unsustainable cost growth, the new study’s findings bring a bit of welcome nuance around impact on quality and outcomes to an otherwise one-sided, price-centric policy narrative.
I happened to stumble across the above chart online the other day. It’s not new data, and was actually quoted in this major publication. I can write articles and parse the challenges we face till the cows come home, but nothing can really sum up what’s wrong with American healthcare more than this chart. It says everything and is quite obnoxious. What’s worse, it’s from 2009—and the curve has probably considerably diverged since then.
So that’s it, my blog post for the week. Just stare at this chart and take it all in. Feel free to comment below. I was going to write a long article on what these curves mean for healthcare. Then I thought to myself: absolutely nothing I write can possibly say more than the chart itself. It speaks not just a thousand words, but a million…..
Fixing U.S. Healthcare blog’s two-year anniversary is a good time to take stock of what has changed in our approach to fixing U.S. healthcare. And a good time to review highlights of the last year.
Elevator Pitch for Fixing U.S. Healthcare
Let’s start with an “elevator pitch” summary:
The U.S. healthcare system has outgrown itself, now comprising almost 20% of the gross domestic product and still rising. It delivers ever more treatments that have diminishing “marginal benefit.” It does so at a cost far beyond the treatments’ true value to either individuals or to society, in all too many cases. And at prices double those in other developed countries. Now these costs are biting into the average family’s wallets. In 1994, the Oregon Health Plan took control of healthcare and managed its costs for 8 years by combining cost-benefit analysis with well-cultivated public engagement. This would be a good starting place for fixing U.S. healthcare. But 25 years later, this approach alone would not be sufficient. Powerful interests have now rigged the healthcare system for profits, not health. I conclude that only a grassroots movement to harness the full political, social, legal, economic and ethical weight of the federal government can encircle these entrenched interests and rein them in. There are several models for U.S. healthcare reform that could fall squarely within American tradition and pragmatism.
Changes in this Blog’s Approach
Let’s look at how this blog’s messages have evolved this year.
- Original message: Relentless increases in U.S. healthcare spending puts a drag on economic growth and household spending.
Updated message: Relentless increases in U.S. spending on healthcare do indeed reduce individual households’ disposable income, especially as households pay ever more of the share of healthcare costs. Healthcare costs also do eat into corporate profits, and blunt international competitiveness. However, healthcare spending is not necessarily a drag on the economy. Rather, it is now a major component of our national economy, accounting for 18.3% of total gross domestic product. This is because the U.S. has evolved into a post-industrial services-oriented economy. There is nothing inherently problematic about healthcare services in this kind of economy. The problem, however, is that excessive healthcare spending is diverting human and financial resources away from other priorities, such as education, research, infrastructure, housing. Furthermore, the marginal benefit of more healthcare spending is dwindling, while the unrealized value of deferred investment in these other priorities is growing – mounting opportunity costs.
- Original message: Relentless increases in U.S. healthcare spending will seriously weaken the nation over time.
Updated message: Economist Larry Summers dismisses the idea of an impending fiscal calamity. He explains that the “real” interest rate (nominal minus inflation) has been at historic low levels for the last two decades, resulting in no increase on the actual proportionate amount paid to service the debt. Nevertheless, he cautions federal budgeters not to deepen the debt any further, but rather pay as we go for any new programs. Thus, the reasons to fix U.S. healthcare are not to avoid national disaster, but rather to improve worker productivity, rebalance fiscal priorities, and promote societal cohesion and business climate.
- Original message: Excessive healthcare spending is principally driven by low-marginal-benefit services and inefficient, overly complex administration.
Updated message: Excessive healthcare spending is indeed driven by administrative complexity (estimated at $265.6 billion annually) and to a lesser degree by low-marginal-benefit treatments (estimated at $75.7 billion to $101.2 billion) (2012-2019 data). Other elements of non-costworthy, wasted spending are:
- Failures of Care Delivery: $102.4 billion to $165.7 billion
- Failures of Care Coordination: $27.2 billion to $78.2 billion
- Fraud and abuse: $58.5 billion to $83.9 billion
But the other big driver of over-spending is pricing failure in imperfect markets, amounting to $230.7 billion to $240.5 billion.
- Original message: Excessive healthcare spending was caused by health professionals who, in good faith, overvalued healthcare services and lost their perspective on their value relative to other societal priorities.
Updated message: Given the prominence of market and pricing failures, this blog concludes that healthcare business interests, and their professional and political allies, have knowingly and willfully coopted healthcare for the purpose of profits. These interests have superseded the health of the public, often undermine patient-centered care, and, at times, result in actual harm.
- Original message: Healthcare can be fixed by a common-sense, practical approach informed by cost-benefit analysis.
Updated message: Since the system is rigged by powerful, well-financed interests, it can be fixed only by the full faith and clout of the federal government responding to an informed grassroots movement. The most likely format for healthcare reform would be gradual but deliberate transition to a single-payer system. This would then be followed by systematic remedies to the 6 categories of unjustified “wasteful” spending, including technology assessment using cost-benefit analysis.