|
Page 4 of 5 How Can We Reduce the Cost of Health Care? Now that we have surveyed the causes for the high cost of our healthcare, we should examine whether there’s some method to bring those costs down that would allow us to avoid rationing.
Lots of methods for reducing the cost of healthcare have been proposed. But if we are to succeed in reducing costs, no matter which method we choose, fundamentally there are really only two options. Either we must reduce wasted expenditures (i.e., reduce fraud and inefficiencies in the system), or we must reduce useful expenditures (i.e., ration care.).
The entire public discussion on healthcare spending in the United States to date has rested on the assertion that the high cost of healthcare can be explained almost entirely by waste in the healthcare system, such as administrative overhead and suboptimal utilization of resources, or outright malfeasance. This argument, which allows us to imagine that we can control healthcare costs simply by eliminating all those unneeded expenditures, is the only politically feasible one that can be made today (since, if this argument were not true, our only remaining alternative would be to ration healthcare). Therefore, virtually all the methods that have been proposed for dealing with the high cost of healthcare are based on the assumption that improving inefficiencies in the system is all that is needed. (It is worth noting here that such an argument is only for public consumption. Experts in the field of healthcare economics, in their scholarly writings, generally accept the need for rationing as a starting premise.) Nobody denies that there are plenty of inefficiencies in the healthcare system. And nobody disagrees with the notion that we should make every effort to eliminate unneeded expenditures. The problem with relying on a reduction in inefficiencies as the primary means of controlling the rising cost of healthcare, however, is that it won’t work. David Eddy, in his 1996 book, Clinical Decision Making, examines the feasibility of reducing inefficiencies as a means of controlling the cost of healthcare. Suppose, he says, that in 1970 a severe austerity program had been initiated within the healthcare system that accomplished all the following things: 1) cut all administrative costs by 50%; 2) cut the costs of all prescription and nonprescription drugs, plus the costs of all other consumable medical goods, by 50%; 3) cut physician services by 20%; 4) eliminate all government public health programs; 5) eliminate all construction of healthcare facilities; and 6) eliminate all medical research. Further, assume that these cuts had been maintained, at the same levels, for the next 21 years. Obviously, one would expect such a drastic program of cuts to significantly reduce national healthcare expenditures. And in fact, it would. The following table compares actual U.S. healthcare expenditures for that 21-year period to the expenditures that would have occurred under Eddy’s austerity program (values are reported in billions of dollars). (Derived with permission from Eddy DM. Clinical Decision Making,1996: Jones and Bartlett Publishers, Sudbury, MA;1996.) Actual spending Eddy’s austerity spending 1970 74.4 59.2 1980 250.1 206.4 1989 604.3 499.5 1991 751.8 623.6 Notice that this austerity program saves a lot of money right away. In 1970, the first year of the cuts, only $59.2 billion would have been spent, compared to the actual expenditures of $74.4 billion. Further, the significant savings persist over time. In 1991, only $623.6 billion would have been spent under the austerity program compared to $751.8 billion in actual spending. But the truly amazing outcomes of this exercise are twofold. First is the astounding increase in expenditures over the 21-year period, even had the austerity program been instituted. And second, the amount of money actually spent in 1989 is roughly the same as the amount that would have been spent under the austerity program only two years later, in 1991. In other words, all that one would ultimately gain after 21 years of an austerity program even as improbable and severe as this one would be a little time; in this example, a little less than 2 years. Why is this? It is because the rate of increase in healthcare expenditures is largely unrelated to anything that was cut under Eddy’s austerity program. So when the cuts were made, society got a one-time savings, but then healthcare costs continued rising at the same rate as before – they simply started from a lower baseline. The rate of growth – the chief determinant of economic instability – did not change. So the only thing that was saved with this draconian effort was time, and not all that much time at that. Now, while Eddy, rightfully so, is highly regarded as an expert in healthcare policy and healthcare economics, one might nonetheless quibble with his analysis. Who’s to say that his math was correct, or that his underlying assumptions were reasonable? His exercise, when you get right down to it, really boils down to simple conjecture. We don’t really know what would have happen if such an austerity program had been followed. But in fact, in many ways we do know. In western countries like Canada and Great Britain, countries that have tightly-controlled, strictly budgeted, single-payer healthcare systems with overt rationing measures in full view, while overall healthcare spending is significantly lower than in the U.S., the rate of growth in healthcare spending is very similar to the double-digit rate we’re seeing here. The economic crisis we are experiencing is shared, and recognized, by most developed countries around the world, despite tightly managed healthcare systems in many of those countries. This same phenomenon – a one-time-only savings from drastic reform efforts – has been seen in the U.S. itself. The wholesale move to managed care, and the subsequent “reforms” that managed care organizations put into place in the mid-1990s, brought the annual rate of growth in healthcare to below 5% for a few years. However, the growth rate rapidly returned to its former double-digit pace. So, as Eddy’s analysis predicted, administrative reforms of the sort that managed care can institute may significantly reduce the cost of healthcare, but that does not change the underlying rate of growth. Therefore, the basic assumption made by virtually every party in the great healthcare debate (i.e., that centralizing control and thereby reducing inefficiencies is all that is needed), is wrong. Inefficiencies certainly account for a substantial proportion of healthcare costs, but cannot possibly account for the underlying double-digit rate of growth. And this unrelenting growth rate is the real problem. If we are to gain control of healthcare costs, somehow we must deal with this rate of growth. What is responsible for this unrelenting growth in the cost of healthcare? If it’s not waste and inefficiency, the only possible answer is that it’s due to an increasing volume of actual, useful healthcare consumed per capita. And this, as we have seen, is due both to advancing technologies (which is potentially controllable, but, practically speaking, only with rationing), and to an ever-aging population (which is not potentially controllable at all, save by completely uncivilized methods). To cut into that growth rate, then, we have to find ways to reduce not just waste and inefficiency, but also ways to reduce the volume of healthcare services being delivered per capita – even though many of those healthcare services are apparently useful. In other words, to reduce the rate of increase in healthcare spending, we have to ration care. And as we have seen, we must reduce the growth in healthcare spending. The economic pressures that will predictably occur in the next few decades will dwarf any pressure we are experiencing today. We need to gain control of these costs not just for our own near-term economic health, and not just to be fair to our children and grandchildren. Controlling healthcare costs is what we must do in order to avoid societal chaos. And since rationing is the only way to truly gain that control, rationing is what we must do. It is an economic imperative. It will happen (and is happening) whether we accept its necessity or not.
|
