Why Is It So Hard to Reduce US Health Care Costs?

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This post originally appeared on Jan Henderson's blog, The Health Culture.


Professor Victor Fuchs and Dr Arnold Milstein, both of Stanford University, have an article in a recent issue of The New England Journal of Medicine that asks: Why is it so difficult to reduce health care costs in the US? The article is available in its entirety online, but for those short of time, here’s a concise (and depressing) summary.

The graphic accompanying the article is dramatic in its simplicity. Health care spending in the US is 17% of GDP. In other developed countries (Western Europe, Canada, Australia), the number fluctuates around 10%. And yet life expectancy in the US is the lowest of these countries – almost four years below that of the number one country.

We know that some physicians and health care providers manage to operate at less than 20% of the average cost of care, without sacrificing quality. If everyone followed their example, the US could save $640 billion a year (US health care costs for 2008 were $2.3 trillion). Why doesn’t that happen, or as Fuchs and Milstein put it: “Why don’t cost-effective models diffuse rapidly in health care, as they do in other industries?” The answer comes down to perceptions and behaviors.

Insurance companies resist the standardization needed to reduce costs because they would lose their competitive advantage over other companies and their profits would go down.

Large employers are afraid of alienating employees; plus they’re determined to resist any efforts that would increase the government’s role in health care.

The public opposes change because they do not understand who really pays for their health care. “The media, with rare exceptions, is the principal source of this misunderstanding.” Workers see employment-based insurance as a “generous” gift, rather than the reduction in wages that it actually is. The media emphasize misleading statistics: the relative benefit of clinical interventions, rather than absolute benefit. Plus: “Misleading headlines, designed to attract larger audiences, can make life difficult for physicians who want to practice cost-effective medicine but are beset by patients’ requests or demands for costly new therapies: the public reflexively mistrusts any apparent withholding of widely touted diagnostic or therapeutic interventions, even when they might do more harm than good.” Overuse leads to the dangers that come with overdiagnosis, but the public does not understand this. (Iatrogenesis is the third-leading cause of death in the US.)

Legislators, otherwise known as politicians, oppose cost-effective health care because their re-election depends on contributions from “health industry stakeholders who benefit from the current inefficient arrangements.”

Hospital administrators are afraid their revenues will decline; plus, they are afraid of any attempt to change the behavior of physicians, who might decide to use another hospital.

Physicians are resistant to change out of a fear of loss of autonomy and a concern that incomes would decline. “[I]ndeed, physicians in highly paid specialties would probably lose income in a more cost-effective system, though primary care physicians would probably come out ahead.”

Academic health centers fear cost-reduction because they’re concerned about possible conflicts of interest with their research and education objectives.

Manufacturers of drugs, medical devices, and equipment have the most to lose if accountable care or managed care organizations were free to negotiate for the best prices. “To preserve the present system, manufacturers of health care products spend heavily on federal lobbying.” See “legislators” above.

Physician, manage limited resources wisely and cost-effectively
Altogether, not a pretty picture. Is there any hope? Fuchs and Milstein propose that the problem could be solved with tax-supported universal coverage and/or “disciplined managed competition among health insurers.” They immediately add: “Neither solution is politically feasible.” But they have this caveat: not politically feasible “without robust physician support.”

"[T]he public’s visceral distrust of policies aimed at improving the cost-effectiveness of health care can be neutralized only by their confidence in what their physicians support. … [P]hysicians are the most influential element in health care. The public’s trust in them makes physicians the only plausible catalyst of policies to accelerate diffusion of cost-effective care. Are U.S. physicians sufficiently visionary, public-minded, and well led to respond to this national fiscal and ethical imperative? It’s a $640 billion question."

A modern version of the Hippocratic Oath, the Physician Charter, commits physicians to work toward “the wise and cost-effective management of limited clinical resources.” But there’s little physicians – or anyone else – can do to change the behavior of politicians, insurance companies, pharmaceutical companies, or other entrenched stakeholders.

It would be heartening to see visionary, public-minded physicians emerge as leaders of the medical profession in the fight to solve this important and extremely difficult dilemma. Perhaps they could inspire individual physicians to influence their patients, the public. And then …. Who knows? This is still a democracy, isn’t it?

Related links:
Doctors eliminate the middle man: Insurance
From MD to MBA: The business of primary care
From healthism to overdiagnosis
Out of Practice: The demise of the primary care practitioner
The states’ rights argument against health care: An ugly tradition
A doomed and dysfunctional medical culture
Are doctors tired of practicing medicine?
Can better care for the neediest patients lower costs?

Image: The Independent Report
Victor R. Fuchs, Ph.D., and Arnold Milstein, M.D., M.P.H., The $640 Billion Question — Why Does Cost-Effective Care Diffuse So Slowly?, The New England Journal of Medicine, May 26, 2011, Vol. 2011 (364), pp 1985-1987