Monday, June 14, 2010

Controlling Health Care Costs

via John Goodman:


Elisheva Hannah Levin said...

Hmmm. Could it because if patients are to actually control costs, they would have to have some power over their own health care decisions? And how they pay for it?

HaynesBE said...

Thank you for your comment.
Patients can't directly control costs, but they do control what they are willing to pay for--which is what I think you meant. When only 12 cents out of every health care dollar is spent directly by those who receive the benefits, cost-to-value calculations are terribly skewed. The further away out-of-pocket payments are from the actual costs, the less our expenditures reflect using resources according to true scarcity.

I am not sure why our political leaders do not understand the importance of this economic fact. Even if they hope to gain in the short run, eventually it is going to catch up with all of us--and it's not going to be pretty!

Thanks again!!

Anonymous said...

The observation that patients controlling healthcare dollars wasn't mentioned was correct. However, the Economics 101 implication is only a small part of the puzzle. You have to get to graduate level economics before the psychology of economic decisions are addressed.

Healthcare is not a commodity, an Econ 101 topic. Acutely, the decision on how, when, and how much to consume are complex and driven mostly by an impetus beyond the consumers control. IN the long run consumers can lead healthier lives, which will reduce the need for healthcare consumption. However, the success of accomplishing this on a broad scale is linked to the same human failing that has led to the BP disaster. We tend to relegate to zero the probability of events that are in the distant future, have no definite time of occurence, or have a probability below some personal threshold.

One thing this article did allude to is the problem of how providers and hospitals get paid. Right now they get paid for 'doing something.' Specialties that have prcedures generally earn more than medical specialties, those in which an exam and a prescrition constitute care. Some cardiologists will tell you that their colleagues do too many unnecessary tests because they can justify it by recording the appropriate words in a chart--and proiers become expert in recording the appropriate words in the chart. The tests often don't improve the diagnosis or the care, but they are a way to increse revenues. Such an approach is known as 'aggressive billing' in the medical industry. And, given that most of the patients that are suitable for 'aggressive billing' are older, medicare costs are directly impacted. The article didn't address this directly, but it did suggest that payment for reducing hospitalizations, i.e., improving patient care, might help reduce costs.

Another aspect of the way providers are paid is that educating patients, i.e., talking to them, is not 'doing something.' Therefore providers offer what few words of wisdom they can in a ten minute office visit and send patients on their way. So, many patients don't get the education they need to manage their disease. Think about diabetes. Blood sugar, cholesterol, diet, exercise, risk of organ damage in at least five major organ systems, how all this is linked together and strategies for how a patient can manage all the factors to reduce the risk--that's a lot for a ten minute office visit. So, patients are sent on their way with inadequate knowledge to manage their disease.

On the hospital side of things, inflated prices cause medicare to play a game of deciding what percentage of billed costs they will pay, which sends ripples across the healthcare industry. Billed charges of eight dollars disposable latex gloves (actual cost of box of a hundred is a couple of bucks), or eighty dollars for a strip of spandex with a pocket of holding an ice pack on an elbow or knee requires medicare to enforce a payout of some small percentage of billed charges.

So, while thinking in terms of commidity consumption will help on the patient side of things, it is exactly that mode of thinking that is causing some of the problems. We need to go beyond that. I'll leave it there.