Health Care Costs: The Art Of The Practical

My last post argued that the escalation of health care cost is the root of the long term U.S. fiscal problem, and health care reform following the Massachusetts/ACA* model makes the problem worse. Recent analysis of health care spending in Mass in the five years since health care reform shows an acceleration of both spending and insurance rates relative to both the national trend and the previous trend in Mass (source).

And, MIT professor Paul Gruber, the economist who was an architect of both Mass health reform and the ACA, recently announced that the economic analysis underpinning the ACA is wrong. He now expects that private insurance premiums under the ACA will be much higher than expected (more).

Chart via Mary Meeker of KPCB

Even before the ACA, the U.S. had a huge health care cost problem. The chart at right is shows health care spending per capita versus income for the U.S. and peer countries. This chart has been around for a while, but the problem does not go away. Health care cost per capita in the U.S. is about 100% higher than other advanced countries. And, I have seen no data that says the quality of care justifies this.

Forbes contributor Dan Munro in a recent post took a stab at quantifying the cost savings likely to result from the major cost saving elements of the ACA (link). He concludes that the savings potential from these programs is incremental: a few percent. They miss by an order of magnitude the savings needed: reduction by ~40% would bring U.S. health care costs in range of other rich countries.

Politicians usually focus on the art of the possible: what the players will agree to do. Business people think in terms of the art of the practical: what does it take to win? I’m a business person, and I asked myself the question, what could produce the kind of savings that is needed? The good news: there are some potential answers.

1.         Make primary care more intensive and use it to drive down utilization of hospitals and expensive treatments and diagnostic tools. This is not speculation. There are several organizations in the U.S. that employ the “medical home” model: they provide people with access to all the primary care medicine they need for a fixed fee per month. These primary care doctors have no financial interest in the treatments they recommend. They spend more time with each patient, and hence have time to focus on wellness, early intervention, and solving less complex problems in-office, versus referring everything to specialists. Experience with medical homes shows that intensive primary care can reduce the cost of downstream treatment by 30%-50%.

Potential Impact of Medical Home on U.S. Health Care Cost. Data via Congressional testimony of Dr. Erika Bliss of Qliance Medical Group.

This is a great trade-off because primary care is a very small part of the cost of medicine. U.S. health care spending in 2010 broke-down into $350 billion for primary care, $1,000 billion for trauma and end-of-life, and $1,250 billion for “advanced care”, which is specialists, hospitals, advanced radiology, etc., other than end-of-life. That’s the first bar in the chart at right. And, about 40% of the cost of primary care is overhead added by funding primary care through the insurance system. If you take primary care out of the insurance system, double the actual primary care resource, and use that to drive down the cost of Advanced Care by 40%, you get the right bar, an overall savings over 15%. That’s the kind of savings we need. This won’t be simple, of course, and probably does not apply to all health care, but there is a big idea here that can make a big difference.

View the original article here