THCB

If You Get What You Pay For, How Much Should You Spend?

I have been thinking lately about the state of the field of health services research. Having plied this trade for nearly 30 years, it struck me that many of the unanswered questions that I encountered as a doctoral student remain unanswered. I plan to post occasional blogs in which I pose these questions, discuss the state of the research, and explain why it is critical that we come up with better answers. The first question is really the big kahuna: If you get what you pay for, how much should you spend?

Everyone seems to agree that the U.S. spends too much money on healthcare. This has led many to embrace machete policies: Slash payments to doctors. Slash payments to hospitals. Slash payments to drug companies. Slash the number of specialists. Slash, slash, slash.

There is abundant research that past machete policies directed towards healthcare providers have adversely affect healthcare quality and access. There is also abundant evidence supporting the view that machete policies would curtail medical innovation. Medical providers and drug companies cite this evidence whenever they are threatened with payment cuts, proclaiming that any reductions from current levels would be disastrous for the American public.

(This is not to deny that a lot of spending is inefficient; unfortunately, no one has devised the machete that only slashes inefficient spending.) As I will explain in a moment, we are in no position to assess such claims. But note first that if cutting healthcare spending would be disastrous, the implication is astonishing: increasing spending would be wonderful. (I suppose it is possible, by sheer happenstance, that we are spending exactly the right amount of money on doctors, hospitals, and specialists, but the odds of that are about the same as the odds of getting a royal fizbin – astronomical.)

Unfortunately, health services research has taught us just enough to be totally confused about this issue. As I mentioned above, research tells us that if we follow a machete policy, quality and access will fall. But research does not come close to telling us everything we need to know about this tradeoff before we can reach a sensible policy decision. (Congressional Republicans deny the existence of this tradeoff and refuse to discuss it. This makes it easy for them to take out their machetes.) To determine whether we should slash, slash, slash we need to know two more things. First, exactly how much will quality and access suffer per dollar saved? Second, is too much?

Economists have produced interesting answers to the second question. Studying things like the tradeoff between wages and job safety, economists have concluded that we need to save at least several hundred thousand dollars to offset the loss of just one quality adjusted life year. The exact dollar amount remains open to considerable debate. Remarkably, this is the easier number to pin down.

We just don’t know how much quality will be harmed by a machete policy. We have some strong evidence that further reductions in Medicaid payments will cause substantial harm for patients with certain conditions such as heart disease, but those are cutbacks from levels that are already low and might not apply to other medical conditions. We cannot say whether these results will translate for Medicare or the privately insured. There are a few studies of Medicare cutbacks and while the results again suggest that there will be quality and access reductions, the standard errors are large enough so that all we can say is that the reductions will be anywhere from small to large. To make matters worse, these studies do not focus on physicians or distinguish among specialties, and are silent about cuts to home health care and other providers. And for the studies of medical innovation, we are quite sure that if drug profits fall, we will see fewer drugs. A lot fewer? We don’t know. Nor do we know if we will see one less statin drug or if we will never see the drug that cures Alzheimer’s. About all we can say, based on research by Harvard’s David Cutler and his colleagues, is that new medical technology is worthwhile in the aggregate (the health benefits of an entire generation of medical technology exceed the costs). But even the estimable Professor Cutler cannot identify the marginal impact of a machete policy on technological change.

When I started plying my trade, health care spending accounted for 10 percent of the GDP. Most people thought that was too high, but they could offer no logical reason why. It just felt that way. Today, spending stands at 17 percent of a much higher GDP. Nearly everyone thinks this is too much though a logical explanation is still elusive. It just feels like we are spending too much. Yet hardly anyone is proposing that we return to 10 percent though no one can state what the right number is. What will we be saying thirty years from now?

The bottom line when it comes to assessing health care spending, we don’t know much about the bottom line. We publish papers showing that some specific policy had some specific outcome, which is all well and good. At least we know that Congressional Republicans are putting their collective heads in the sand. But beyond that all we can do is make conjectures. The Congressional Budget Office is charged with making these guesses for federal legislation, but they have little to go on. They can project cost savings with a tiny degree of confidence. But no one has asked them if the savings are worth pursuing, which is just as well, because they cannot possible answer that question.

In a nutshell: When it comes to healthcare spending, we do get what we pay for. If only we knew how much we wanted to spend.

Livongo’s Post Ad Banner 728*90

Categories: THCB

36
Leave a Reply

20 Comment threads
16 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
12 Comment authors
san felipe real estate for saleVikram CsteveMD as HELLbravomaster Recent comment authors
newest oldest most voted
san felipe real estate for sale
Guest

you are actually a excellent webmaster. The site loading pace is amazing. It kind of feels that you’re doing any distinctive trick. In addition, The contents are masterpiece. you have performed a great process on this subject!

Vikram C
Guest
Vikram C

In those some asian countries, patients who are treated free are learning grounds for new doctors.

Nothing is free, just like to point out. Yet, not saying expensive is better.

Vikram C
Guest
Vikram C

Corigendum above- resistance to ‘healthcare reform’

Vikram C
Guest
Vikram C

Barry- I reached similar conclusion based upon my research and studies. I find great parallel between rising college tuition fees and healthcare costs. Consumer demand is altering basic nature of professions such as teaching and healthcare and away from their basic tenets. My one liner isecrack is that when ‘price is equated to quality, high price is what you will get’. Returning to theme of this topic, its an interesting question of how much is enough. Basic quandrum comes from body which has great resilience and its hard to say how much is enough for it can adapt to variety… Read more »

steve
Guest
steve

“We just don’t know how much quality will be harmed by a machete policy. We have some strong evidence that further reductions in Medicaid payments will cause substantial harm for patients with certain conditions such as heart disease, but those are cutbacks from levels that are already low and might not apply to other medical conditions.” Those of us in the trade know that Medicaid is the lowest payer for just about everything. It is tougher to cuts costs when you start at the bottom. We would be much better off if everyone were in the same kind of system… Read more »

MD as HELL
Guest
MD as HELL

Government healthcare spending is nothing more than economic stimulus wrapped in political pandering. Private healthcare spending is runaway anxiety funded by the impression that it is free or prepaid. People hit their annual decuctible and then it is a free-for-all. Each patient is a cash cow, easily mikede once they avail themselves to the system. We will collectively spend less is the patient had to write the check, choosing either to buy a unit of care or keep the money. Until this is the pattern there will be no changing our collective spending, unless someone really makes us a collective.

Margalit Gur-Arie
Guest

People can’t write checks for, say, liver transplants and you can’t give everybody enough cash to allow for that possibility, so who are you going to give money to, and how much?
If all you are considering is ongoing care for cuts and bruises, that’s not where the problems are…

MD as HELL
Guest
MD as HELL

No one should get a liver transplant unless they can pay for it. Can you imagine how costly it would be if you had to buy the liver as well?

Margalit Gur-Arie
Guest

I wouldn’t want to live in your world.

nate ogden
Guest
nate ogden

I always expected you didn’t live in reality Margalit:)

Of the 7 billion people alive today exactly how many do you think have access to liver transplants? I would guess 10% or so.

And that 10% that does have access how do you think they have access? They can pay for it, either directly, through insurance premiums, or taxes.

MD as HELL
Guest
MD as HELL

Someone is writing the check.

nate ogden
Guest
nate ogden

we have expensive and demanding taste and the GDP to pay for it, for now. This is why all the previous efforts have done nothing but throw fuel on the fire. If you have a population that likes to consume you don’t create a plan like Medicare that offeres unlimited basic care paid for by future generations. You don’t pass laws mandating more coverage and less accountability.

Barry Carol
Guest
Barry Carol

Thanks for the response on drug importation, Nate. I can imagine, though, that if an American bought lower cost drugs from a foreign pharmacy that he thought was reliable but wound up with counterfeit drugs that caused harm, he would be looking for someone to sue. I think there would need to be something of akin to swim at your own risk signs when no lifeguards are present that protects U.S. providers and the government from suits by people that purchase low cost drugs from another country that turned out to be defective. The more I think about the difference… Read more »

bravomaster
Guest

well, research means you will not be sure you will get the required results or not. it remains question mark till end. so there might be some value able results or not. but effort must be there, you will loose or get something out of it. there is huge investment but positive effort definitely leads towards success and we have seen a lot of success in this regard. So i will suggest all these questions are valid but have to take chance.

Barry Carol
Guest
Barry Carol

Nate – Isn’t the issue with drug importation the need for the FDA to be able to certify the safety of the drugs coming in from outside the country which they say they can’t do? Are you suggesting that we don’t need to do that or that we should just rely on the authorities in the countries of origin to perform that function? Also, if we could import drugs, I’ve heard it suggested that the drug companies would just restrict the supply of drugs they sell to countries with lower prices to enough to satisfy their own population plus a… Read more »

nate ogden
Guest
nate ogden

They say its for FDA to guarantee safety but they don’t do it now. Counterfit drugs are getting into pharmacies already. Its not the governments job to protect us from ourselves. If someone wants to do research and find a reputable foreign pharmacy then our government shouldn’t stop them. If its safe for me to travel to these countries and buy the drugs in person how is it unsafe for me to have them delivered to my house? The foreign ordering would only be short term anyways. The Pharma companies would be forced to equalize prices then there would be… Read more »

Margalit Gur-Arie
Guest

I have to agree with Nate on the level of service. Although the actual care is often as good as it is here, the amenities are not. As to non-profits, we have created a rather odd class of “non-profit” corporations which distinguish themselves from their for-profit counterparts only through their much more straightforward way of avoiding taxation. True, these so called non-profits are not beholden to shareholders. Instead they are beholden to a set of ego-maniacal boards hellbent on empire building (literally), and CEOs who in many cases draw multimillion dollar salaries, while firing workers, ignoring patient safety, advertising on… Read more »

nate ogden
Guest
nate ogden

“U.S. hospitals have more employees per licensed bed than their foreign counterparts though it’s not clear, at least to me, exactly why that is.”

I can help you with that Barry, American’s would never tolerate the level of service and care that is common in most other developed nation’s hospitals. We demand the latest, best, quickest, care and we want lots of it, all of that takes staffing.

Barry Carol
Guest
Barry Carol

Margalit – Roughly 85% of U.S. hospital beds are owned by non-profit institutions and systems. I don’t think the quest for profits drives high costs. Executive salaries don’t either. Most hospitals report very low profit margins with quite a few generating losses. As I noted before, U.S. hospitals have more employees per licensed bed than their foreign counterparts though it’s not clear, at least to me, exactly why that is. Most doctors will tell us that they are just trying to adhere to the standard of care in their community. However, I suspect that the standard of care itself was… Read more »

Barry Carol
Guest
Barry Carol

Nate –

When the late Albert Shanker was president of the United Federation of Teachers, a reported once asked him if he should also represent or at least factor in the interests of school children when negotiating union contracts, work rules, etc. in NYC. His response (paraphrasing) was: When school children start paying union dues, then I’ll represent school children. Sad but true.

Margalit Gur-Arie
Guest

Probably the same reason why the AMA does not advocate for the interests of patients…..

nate ogden
Guest
nate ogden

AMA doesn’t cloak every self serving greedy action as being for the benefit of patients either.

Every time the teachers union ask for more money its for the benefit of the children, well thats what they say its for.

Barry Carol
Guest
Barry Carol

While I don’t know exactly how they did it, I think most Western European countries and Canada developed a political consensus that spending 10%-12% of GDP on healthcare is about the right amount for them, somewhat less in the UK. Most countries are struggling with upward pressure on costs as their population ages and new technologies and drugs are developed. As we’ve discussed many times, prices per procedure are considerably higher in the U.S. While doctors earn more money on average in the U.S. than elsewhere, they account for only about 800,000 of the roughly 14 million people employed within… Read more »

Margalit Gur-Arie
Guest

I think Barry, that there is one more difference between us and those other countries: their institutions are not profit driven.

It may be that people here exhibit wishes that are different than those in other countries, but doesn’t it strike you as odd that these wishes align very well with hospitals’ interests to make money? So which one came first?

nate ogden
Guest
nate ogden

“the unregulated U.S. pharmaceutical market”

Its the regualtions that prevent insurers and plans from paying for imported drugs that maintain this perversion. Allow insurance to cover Canadian or Indian drugs and prices would plument over night. Since Rx makes up 20% of total insurance cost a 5% savings in total healthcare spending would be very doable. 5% with a simple regualtive change