Volume 15, Issue 2 - Strategies for Health Care Cost Containment

We compare health care spending in the USA to other industrialized countries and find that payment rates for hospitals, physicians, and drugs are generally much higher in the USA than they are in other industrialized countries while the quantity of services – as measured by the number of physician visits, hospital days and prescriptions filled per capita – is relatively similar across countries. We then explore policy initiatives designed to control payment rates and volume of services and review the success and failures of these initiatives. Within the USA, the private sector pays significantly higher rates for hospital and physician services and drugs than the public sector. Thus, if the USA is going to reduce health care spending, it may be necessary to begin by reducing payment rates in the private sector. Options to achieve this goal are presented.

The ultimate aim of health care policy is good care at good prices. Managed care failed to achieve this goal through influencing providers, so health policy has turned to the only market-based option left: treating patients like consumers. Health insurance and tax policy now pressure patients to spend their own money when they select health plans, providers, and treatments. Expecting patients to choose what they need at the price they want, consumerists believe that market competition will constrain costs while optimizing quality. This classic form of consumerism is today’s health policy watchword. This article evaluates consumerism and the regulatory mechanism of which it is essentially an example – legally mandated disclosure of information. We do so by assessing the crucial assumptions about human nature on which consumerism and mandated disclosure depend. Consumerism operates in a variety of contexts in a variety of ways with a variety of aims. To assess so protean a thing, we ask what a patient’s life would really be like in a consumerist world. The literature abounds in theories about how medical consumers should behave. We look for empirical evidence about how real people actually buy health plans, choose providers, and select treatments. We conclude that consumerism is unlikely to accomplish its goals. Consumerism’s prerequisites are too many and too demanding. First, consumers must have choices that include the coverage, care-takers, and care they want. Second, reliable information about those choices must be available. Third, information must be put before consumers in helpful ways, especially by doctors. Fourth, the information must be complete and comprehensible enough for consumers to use it. Fifth, consumers must understand what they are told. Sixth, consumers must actually analyze the information and do so well enough to make good choices. Our review of the empirical evidence concludes that these pre­requisites cannot be met reliably most of the time. At every stage people encounter daunting hurdles. Like so many other dreams of controlling costs and giving patients control, consumerism is doomed to disappoint. This does not mean that consumerist tools should never be used. If all that consumerism accomplished is to raise general cost-consciousness among patients, still, it could make a substantial contribution to the larger cost-control efforts by insurers and the government. Once patients bear responsibility for much day-to-day spending on their health needs, they should be increasingly sensitized to the difficult trade-offs that abound in medical care and might even begin to understand that public and private health insurers have a legitimate interest in controlling medical spending.

This chapter traces the history of attempts at cost control in the United States from the origins of our modern health care financing system in the 1930s and 1940s, through health care cost regulation in the 1970s, and the deregulatory 1980s and 1990s, to the Affordable Care Act.

Tort reformers blame the high cost of American health care on defensive responses to rampant medical malpractice litigation. Defenders of the tort system counter that holding health care providers liable for negligence improves safety and ensures compensation for injury. The relationship between medical malpractice and health care expenditures is more complex than either of these positions reflects. The existing medical malpractice system increases medical spending mainly because it has evolved in tandem with other inflationary features of the health care system and may make those features even more difficult to change. In other words, medical malpractice is both a symptom of a costly health care system and a costly disease in its own right.