Portrait of American Health Care

November 22, 2013 at 4:07 PM Leave a comment

There are several articles to commend in the November 13th issue of JAMA, a special issue devoted to “Critical Issues in US Health Care”.  But perhaps the most important one, by Moses et al, is a wonderfully detailed snapshot of the American health care system over the past three decades, and how it has evolved over that time.  Some interesting observations:

 

  • We all know that health care inflation has exceeded general inflation over that time.  But there are a few ways that can happen: we can use more stuff per person, we can have older people who on average therefore need more care as they age, or we can raise prices for the same services.  Which one is the biggest factor?  The surprising answer is that the increases have come mostly from increased prices, and not increased intensity of service or older average population.  So if that’s where the increase has come from, perhaps our prices have been allowed to rise through us not knowing how much medical stuff costs?
  • Is insurance paying more or less of the bill now than in 1980?  Despite the general impression that purchasers are pushing more of the bill onto individuals, the answer is that out of pocket spending for health care is declining as a percentage of the total bill.  Most of the compensatory increase has been picked up by government in the form of increased Medicare and Medicaid spending.  So we shouldn’t conclude that we aren’t spending more on health care as individuals.  We are.  We’re just spending an unfathomable amount more as governments and employers, more money than most nations’ GDP.
  • True or false: most of the money we spend on health care is for the care of the elderly?  False.  80% of total national HC expenditure is on individuals younger than 65.  As with those over 65, most of that money is spent on chronic disease care.  So the thought that simply reforming Medicare will get us back to sanity is wrong.

 

The article goes on to identify three big factors that the authors think produced these results: industry consolidation, information technology, and consumerism.  (At CIVHC we talk about the three tsunamis: debt, information, and the empowered consumer.  More on that later.)  The sectors that are consolidating fastest are insurers, pharmacy benefit managers, and physician groups.  The consolidation of these sectors as well as with others like hospitals, affords the resulting organizations the market leverage to raise prices.

 

IT, including the installation of EHRs and the infancy of the use of Big Data, is beginning to reduce the fragmentation that is the hallmark of American health care inefficiency.  But we are in a phase in which that massive investment, public and private, has added to cost, but the returns from reduced fragmentation are just beginning to accrue. 

 

Finally, after a long tradition of paternalistic relationships in medicine, consumers are demanding that the industry begin to produce products they want to buy, not simply what the industry thinks is best for them.  But as anyone who has used the system lately knows, health care has a long way to go be as customer centric as the average online retailer who remembers what you’ve bought before and offers you similar items when you return to the site.

 

I speak on these topics often, and it strikes me that the changes we are watching are not simply roiling health care, but the structure of American society.  The same factors that are driving change in health care are changing other industries, and challenging them to make a better product or experience, with more stuff at lower cost and delivered exactly as we need and want it.  As I type this, I am listening to Pandora, where I’ve customized the station to my musical tastes.  I did that for the cost of having to listen to an ad every half hour or so.  Now why did I buy albums in the past?  I can’t remember.

 

The first shift is from a society in which people assumed that everything could be bought on credit, and that debt could be accumulated indefinitely without consequences.  While this is still hotly debated among economists, it doesn’t make sense to the average person that you can get something for nothing; eventually, you have to pay your debts, or someone else does.  In health care, the someone else is the next two generations, on whom we’ve loaded several trillion dollars’ worth of debt, much of which was incurred for that increased Medicare and Medicaid spending we mentioned previously.  The mental shift from thinking that the Internet driven stock market would pay for a multitude of sins, to the horrible realization that we might have to pay up ourselves, is sobering indeed. 

 

The second shift is the explosion of information technology.  We aren’t using it well or effectively for the most part yet, but we’ll get the hang of it, and when we do, we’ll use it individually and collectively to drive services to value, the way it works in other industries.  There are a bunch of interesting experiments out there currently, including Centers of Excellence networks, mobile apps that identify value providers for those paying their own bills (like people with high deductibles, which will eventually be most of us), reference pricing, and the emergence of all-inclusive bundles for elective services.  Two factors kept us from shopping for medical services the way we shop for cars and dishwashers: first, almost no one cares about price when spending other people’s money (think expense accounts), and second, if your customers don’t care about the money, then who bothers to put out a price list?  But benefit designs that make patients into consumers again, e.g., reference pricing, will awaken all of our inner shoppers, and when that happens often enough, the price list will become de rigeur among providers.  Why will we go to all this trouble?  See the section on debt above.  Remember, it’s looking grimly like we’ll have to settle our own bills, within our own lifetimes.

 

The final shift happens when you get people spending their own money and information technology gives them Ebay pricing and rankings for providers.  There are large employers who are already doing this for their employees, and part of the appeal for private exchanges will be these kinds of shopping tools. 

 

There will still be problems, no doubt.  Emergency care is still a problem, in that when you fear dying, you’re not very price-sensitive.  In that circumstance, “trust me” from an ED doc sounds like a mandate, not an offer to purchase.    But I think the era of blind purchasing in health care is over.  And that will make the kind of article Moses et al produced all the more interesting when we look at our current decade in retrospect.

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Why medicine is changing Insurance, cash, and moral hazard

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