Austin Frakt, Assistant Professor of Health Policy and Management
Boston University’s School of Public Health
Provided by Kaiser Health News
Let’s be honest. We really don’t know what’s going to control health care costs, long term. Today’s politically winning idea could be tomorrow’s platter of humble pie.
There are lots of different thoughts about how best to do it. But which of them deserve political and legislative support? On the private side, one big idea centers on high-deductible plans, sometimes coupled with health savings accounts. The theory is that individuals, acting as prudent purchasers and spending their own money, will make more efficient health care decisions. This approach, the consumer-directed health plan concept, puts more of the cost risk on individuals.
On the public side there are accountable care organizations. Under this model, an integrated delivery system would be responsible for providing all the health care required by a defined population. Higher quality and lower cost would be rewarded through a new type of administrative payment system, yet to be developed and tested. This could put more of the cost risk on providers.
But will either consumer-directed plans or accountable care organizations really help solve the health care cost problem? Before we answer with confidence, keep in mind that our past track record with potentially cost-saving innovations is not good.
One such innovation began in California and was replicated elsewhere in the 1980s when laws were passed across the nation to permit insurers to selectively contract with hospitals. The network-based HMO was born and, by the 1990s, it looked like managed care would finally crush health care cost inflation. And it did, for a few years. Perhaps some politicians and health policy wonks had predicted just that. Perhaps some thought the battle had been won. They were wrong.
HMO market share grew and the plans kept ratcheting up constraints on providers and consumers, trying to maintain profitability. Then they went too far. The backlash was fierce. The kinder, gentler PPO replaced the HMO, politicians supported benefits mandates and patients’ bill of rights laws and high health care cost inflation returned. As hopeful as some might have been about managed care, and as promising as the concept seemed, HMOs ultimately proved to be a failed model.
And what about Medicare prospective payment systems, Congress’s best attempt yet at controlling Medicare costs? They were implemented first for hospitals in the early 1980s and, later, for physicians and post-acute and long-term care facilities. They too had some years of success, keeping Medicare prices in check. But with no direct control over volume, they ultimately could not tame costs. Their original objective and flawed design makes a mockery of the notion of public health care cost control as, each year, Congress overrides scheduled cuts to physician payments.
The story of comprehensive, private Medicare health plans is no different. Once touted as cost savers, and paid at rates guaranteeing just that, the payment system under which they operate has spun out of control. Political meddling in response to special interests pushed payments to Medicare Advantage plans well above the cost of traditional Medicare. Congress has resisted a more efficient, competitive bidding payment system that would be immune from this problem.
We could not have known in 1995 what we know today about how each of these ideas would suffer a market or political failure. Perhaps some experts and policymakers were not duped, but enough were that these innovations were accepted by legislators, supported by businesses, and generally regarded as reasonable steps forward on health care cost control.
Is the same outcome the destiny of consumer-directed health plans and accountable care organizations or any other model we envision today? Even if they work here and there or with low market share, will they serve us well over the long term and as dominant models for the financing and provision of health care? Or will they suffer the same fate as managed care, prospective payment and private Medicare plans — becoming victims of their own success, their own limitations, or political meddling? We can’t know. But that doesn’t mean we shouldn’t try or that some of those ideas can’t work if tweaked in certain ways. It just means that we should be humble, prepared to fail and keep thinking of new ideas to replace the ones that don’t work out.
The history of health care cost control suggests that the chances of long-term success of any particular idea are low. This concept or that may be a political winner today, but that doesn’t make it a fiscal winner of tomorrow. Do you think you know how to control health care costs? Don’t bet on it.
Austin Frakt is a health economist and an Assistant Professor of Health Policy and Management at Boston University’s School of Public Health. He blogs at The Incidental Economist.
This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.
You’re right, it’s really hard to run an economy using central planning. Now what does this suggest?
Yeah, a Boston Uni professor talking about cost control, when his school ranks #1 in most expensive (and overrated) medical school in the WORLD.
MOST EXPENSIVE MED SCHOOL IN THE WORLD!
The way to lower costs is to get the gov’t the hell out of healthcare. Shut down medicare, slowly, shut down medicaid, slowly, open up the free market, and don’t listen to anymore “Bahstahn Boys” like the late Teddy Kennedy on healthcare.
I guess health care cost control isn’t so hard or humbling after all!
A sure way to decrease healthcare costs is to fire Austin Frakt plus the army of like-minded wonks who don’t contribute anything useful.
So let’s see…
Everything that failed had one thing in common: random bureaucrats trying to tell people how to spend their money.
What if there was no healthcare insurance or legal/bureaucratic meddling? Change your paradigm. Think outside the “government must fix everything” box.
I find it humorous that people are criticizing his idea that no single idea will work by providing ideas and citing the expense of something he has NO control over.
I’ve heard several people cite the “free market” as the way to fix it. Really? How? You never provide evidence or even a logical progression as to how that will reduce costs.
Healthcare doesn’t and shouldn’t obey standard economic principles. People will always need help maintaining their health. They don’t always need a new TV. How often is there true competition between hospital systems to warrant price reduction across the board? Even if there were, what about when one hospital comes out on top and buys up the capital of the other hospital? You effectively have NO competition in that region. There is no incentive for the hospital to price control. Where will the patients go? They aren’t going to drive 2 hours to another system for the vast majority of their personal healthcare.
If you look at purely private hospitals and physician owned facilities, they tend to be the most expensive and inefficiently run of all. There is incentive for the owners to run those extra tests and net more profit. It is easy to do under the guise of helping someone, regardless of the fact that the patient really doesn’t get THAT much benefit out of the extra procedures or diagnostics.
Stop being blinded by the one idea fixing it all, especially the belief that the “Free market” is the answer to everything. Think of the barriers to entry, economies of scale and pricing trends that would happen with these hospitals in the long term if that were the case. We already have hospitals advertising how their hospital is “fast(ER)” or has more private rooms than another. Do we really need that? Do physicians truly want to feel like they are just an employee (which would happen with free market and not just government ownership). Do physicians really want to be at the whim and demands of the customer, rather than pursuing the best treatment avenue for the patient? Do you truly want to have to face the decision of what hospital to rush your child to in an emergency based on pricing schema/ payment plans and not the best care?
Controlling costs could start with the liability associated with medicine. I highly doubt someone could charge 5000 dollars for a ortho screw if the liability for millions for defective screw was taken away. Stuff cost a lot because people think they must makeup for the “other” costs. The same stuff is probably 20% of the prices here in some other countries.
Just a thought, but Cut the cost to dental and medical school by more government funding of them and less waste inside of them. Use money from increased taxes to do this. This will allow doctors and dentists to graduate with less debt and their prices will go down for the consumers, plus with lower costs to schools a larger and better applicant pool will result. This will not only lower healthcare costs but it will improve healthcare with more prepared and qualified applicants.
For example, as a current dental student I will be 1 million in debt by the time I graduate and buy a practice. It will take me more than 20 years of paying more than half my net income toward debt and retirement before I enjoy the full fruits of my earnings. Think hard about going into medicine or dentistry before you do it. It is a great career but far less financially rewarding than you think, at least for the first 20 years.
If only there was a place in the world where health care was better than in the US. We could use that magical place as an example of how to deliver quality, affordable care–A place with people living 10 years longer, with lower incidence of disease, quantifiable happiness, and a fraction of the costs.
…Australia, Canada, Costa Rica…
American’s look at our own 200+ year history and think that it covers everything relevant today. Why are we trying to re-invent the wheel? Why not adopt a system already proven elsewhere in the world?
As a non-physician, I think I should be in the drivers seat when it comes to making medical decisions. Why not leave it to individuals to make their own decisions regarding what’s best for themselves working with a doctor as a guide to mapping out a treatment plan that will work best for the individual.
Obviously there are situations where the doctor and patient will not be able to work together in this way, such as when you’ve suffered a cardiac-arrest are unconscious and the physician is without access to any pre-determined orders from the patient.
If you are dealing with an illness or other non-emergency situation there is time for an informed rational decision by the consumer working with a physician. An analogy would be taking your car to a mechanic when the transmission goes out and consulting with the mechanic as to treatment options for your vehicle. Could you imagine taking your car to a mechanic and then letting him/her decide what treatment the car should be given?
Oh,I know comparing physicians to mechanics must grate on the nerves of those of you who have a God complex, but from my point of view
physicians should act as guides only.