Can we control health care spending? Part one

Congressional attention has finally turned to long term budget issues. Central to this discussion is the cost of health care in the coming decades. The Congressional Budget Office issued a Long Term Budget Outlook Report in September, 2013 which put the cost of health into the perspective of the overall budget. Here's the bottom line:

  • Federal spending for the major health care programs and Social Security will increase to a total of 14 percent of GDP by 2038, twice the 7 percent average of the past 40 years.
  • In contrast, total spending on everything other than the major health care programs, Social Security, and net interest payments will decline to 7 percent of GDP, well below the 11 percent average of the past 40 years and a smaller share of the economy than at any time since the late 1930s.

The report assumes that the provisions of the Budget Control Act of 2011, which brought sequestration, remain in place.

And, most important, the report assumes that the United States continues to operate in a free and open market for health care. Single payer care, like Canada and Europe, is not on the horizon, so we must follow this assumption.

The dual conclusions described by the CBO raise several questions:

  1. Can we control the impact of Social Security on deficit spending? I have already addressed that issue.
  2. Can we control the impact of health care costs on deficit spending? I will address that issue in this piece.
  3. Can we make the sequester work? I will cover that next time.

CBO notes that health care costs, as a share of economic output, have risen significantly since 1985. However, it also notes “[Through market forces] even in the absence of changes in federal law, growth in per capita spending on Medicaid and on health care financed through the private sector will gradually slow. The rate of growth of Medicare spending per beneficiary is also likely to slow.” This is consistent with a recent Kaiser Family Foundation survey. First, they note:

“Ask any American about what direction health costs are moving, and you'll likely get a completely different story. Preliminary results for a forthcoming Kaiser Family Foundation poll show that most Americans think that health care costs are actually growing faster than usual right now.”

However, the reality is different. The rate of increase in health care costs has slowed substantially since its high in 2002:

The reason people feel that health care costs are rising is because deductibles and co-pays are rising, and that is true. So, with this backdrop, what can Congress do to reign in health care costs? All sectors of the health care world need to participate: patients, doctors, clinics, drug companies and payers of health care benefits.

Come back tomorrow for more on the proposed solutions.

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Comments

Rein In vs. Make Affordable

Discussions of healthcare often resort to fuzzy generalizations. "Rein in" is one of them.  It would  be very helpful to agree on a definition of that.  In the political arena, everybody might use it and mean radically different things by it. To some, it might mean let up on the accelerator. Certanly not a bad idea, but when something is as terribly out of whack as costs in the USA, letting up on the accelerator is a long way from a solution.  I look at the suggestion of making drugs reasonable, as most intelligent countries have seen fit to do. I can hardly argue with the reasonableness of the idea.  As was pointed out, though, serious attempts to reduce those costs may simply make drugs disappear off the market.  Then what? Is this country prepared to take the next step and negotiate whatever arrangements are necessary to insure supply?  I'm sure that a lot of things can be gotten from non-American sources at bargain prices. It may require increased surveillance of the producers in those countries. Unsafe drugs are not a tradeoff for unaffordablly priced drugs.  In short, understand all the ramifications of cost-saving strategies and be candid about them.

Having done that, you still have major hurdles left. Take a look at bonus packages for hospital executives.  Supposedly this is reward for gains in efficiency.  Truthfully, it is related to increases in revenues and profits, where those are by reduced care quality, expansion, or a number of other things.  I think there's probably not a single bonus package ever given for increased concern for the provider or patient.  That's a hidden scandal that must be addressed.

Then there's the oversupply of the most expensive technology. Since hospitals and clinics compete with each other, they all have to have their own technical equipment for whose use they can charge. This is a layer of cost that results directly from the competitive nature of U.S. healthcare.  The biotech companies are extremely aggressive in getting their wares out in the marketplace. The government and policyholders are at the end of the line picking up the tab.  Something needs to be done to rightsize the really expensive stuff to the medical need. Hard task for our political system to take up.

Biotech Profits and Healthcare Costs

There's no easy solution. Corporations selling into healthcare feel that their accountability to stockholders trumps their adverse impact on society. You MUST reduce those profits or you can't restrain healthcare costs. One solution was simply to limit which solutions to a medical problem are covered. That is called "interfering in the doctor-patient relationship". And yes, you will have to interfere. And quality of care cannot be equal across the board. The very rich will just pay out of pocket and get the most expensive care. The very poor, if you intend to cap the rise in cost, will not get what Mr. Wayzata gets. Only under socialist rule, which all sectors of society seem to reject,  can this happen. So be extremely candid going into this.  You can't have the "freedom" that so many Americans seem to prize and equality. I think De Toqueville made that observation eons ago.

Cutting prescription costs

The New York Times had a story in October that showed one way to cut U.S. health care costs - rein in the pharmaceutical companies. Here's the link to the article, and a quote:

“'The one that really blew my mind was the nasal spray,' said Robin Levi, Hannah and Abby’s mother, referring to her $80 co-payment for Rhinocort Aqua, a prescription drug that was selling for more than $250 a month in Oakland pharmacies last year but costs under $7 in Europe, where it is available over the counter.

"In all other developed countries, governments similarly use a variety of tools to make sure that drug manufacturers sell their products at affordable prices. In Germany, regulators set drug wholesale and retail prices. Across Europe, national health authorities refuse to pay more than their neighbors for any drug. In Japan, the price of a drug must go down every two years.

"Drug prices in the United States are instead set in hundreds of negotiations by hospitals, insurers and pharmacies with drug manufacturers, with deals often brokered by powerful middlemen called group purchasing organizations and pharmacy benefit managers, who leverage their huge size to demand discounts. The process can get nasty; if mediators offer too little for a given product, manufacturers may decide not to produce it or permanently drop out of the market, reducing competition."