HC Costs Parsed: What’s Missing?, Part I

Posted on January 16, 2014


Becker’s Hospital Report commented yesterday on the State Health Care Cost Containment Commission’s recent look at the “9 Drivers of Healthcare Cost in the U.S.”.  A few items to note from the article:

  1. There should only be seven causes.  Of the nine causes named, the last two, “Expensive End-of-life Care” and “Provider Consolidation”, should be discounted and eliminated right off the bat.  End-of-life care is expensive; we have known it, and it will continue to be the most expensive part of a person’s insurable life.  That factor should be well-built into the pricing algorithms insurers use to calculate the cost of insurance each year.  I doubt if end-of-life care stopped accounting for 90% of a person’s lifetime healthcare costs tomorrow, we would all be given 90% rate reductions.  Yes, it is a factor but also a fact of life, literally.  It is as silly as if car insurers came out with a report saying high cost of insurance is driven by being a teenager (actually, a driver under age 25), or saying having kids is a major hindrance in saving for retirement.  It is an unavoidable phase of life, and it is priced-in already, or should be.
  2. “Provider Consolidation” as a negative affect on pricing flies in the face of the laws of economics.  Consolidation (mergers & acquisitions) is a beneficial activity for the consumer until the pricing power becomes oligopolistic (or where systems become too valuable to let capitalism run its course, i.e. ‘too big to fail’).  The U.S. is nowhere near the tipping point of consolidation where we have healthcare market behemoths with regional or national pricing influence manipulating costs.  In fact, popular thought is to expect 1000 more hospitals to close or be consolidated within existing systems, thus reinforcing the need for consolidation.  Let’s trust the government and the courts to guard against anti-trust violations, which is their job as regulators [see comment on CONs in future post].
  3. Of the seven remaining drivers, the first two “Physician, Facility and Drug Costs” and “Expensive Technologies and Procedures”, are research & development (R&D) focused.  It is hard to control the cost of innovation passed onto the consumer.  Also, it is a pretty tall order to expect that, over time, consumers will educate themselves to know what drugs, procedures, technologies, specialists are most effective and “worth” their cost.  I am a value buyer, and relish that kind of digging, and I don’t even know if I’m up for that.  As consumers, we will need time, tools and interest (aka an incentive).
  4. That leads to the next two other drivers, “Lack of Cost Consideration from Patients” and “Fee-for-Service” payments.  Both of these are in the cross-hairs of the Affordable Care Act.  If PPACA does nothing else, it should force more data to be available to allow consumers to participate responsibly as buyers of care, and to overhaul hospital compensation from ‘doing things and getting paid’ to ‘delivering the outcome of wellness.’  We must trust the system.

[See upcoming post for Part II]