CONTROLLING COSTS MEANS...CONTROLLING COSTS by Eric Schultz

In a recent post, Dr. David Himmelstein provides a critique of cost-control ideas being discussed in Massachusetts and elsewhere, and closes with his argument in favor of a single public financing program.

Discussions about who pays — whether it's a single-payer or otherwise — are, fundamentally, discussions about cost-shifting. But cost-shifting does little to get at the relentless underlying drivers of health care costs. And what's driving up health insurance costs are skyrocketing medical costs, which consume roughly 87 cents of every health insurance dollar (Mark Farrah Associates; 2006 MA HMO Enrollment Trends & Financial Performance). Dr. Himmelstein's call for a limit on the "profusion of expensive high tech facilities" is well taken, but it is only part of the problem. The ever-increasing cost of inpatient and outpatient hospital care, prescription drugs, medical liability and defensive medicine will not be tamed by implementing a single public financing program. Rand researcher Beth McGlynn reported that only half of all health care dollars are spent on appropriate medical care. Fixing this failed demand curve will first require that all players within the health care system have quality and cost information, combined with innovative health insurance plans.

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Dr. Himmelstein also claims that prevention and disease management will not reduce overall health care spending. Using a reference to a 1986 book, he argues that smoking actually reduces health care costs because smokers die sooner, thereby saving years of costly medical care. It's a provocative argument, but the logic doesn't hold up. The analysis does not appear to account for the costs associated with treating smokers during their lifetimes — a lifetime being extended all the time by expensive procedures and equipment — or societal costs such as lost productivity. The Centers for Disease Control and the Massachusetts Department of Public Health offer some staggering statistics. In the year 2000, smoking cost Massachusetts a total of $4.4 billion — $2.8 billion in health care expenses and $1.6 billion in lost productivity. Neonatal health care associated with smoking costs us $20,000 a day alone. We need to remain focused on prevention and disease management efforts to ensure the most optimal results are achieved. Investment in disease prevention and management will produce improved outcomes and save dollars only when the patient and their physician have information and incentives to follow clinical protocols over a sustained period of time.

Finally, Dr. Himmelstein claims that higher co-payments and deductibles will do nothing to reduce costs, and he cites some consumer behavior in single-payer Canada as evidence. But his argument ignores two key points about Canada. One, the volume of health care demand and supply in the U.S. dwarfs that of Canada. Two, many Canadians actually buy supplemental health insurance to fill their single-payer gaps. Co-payments and deductibles are not about shifting costs to consumers; they are about giving consumers “skin in the game” and thereby changing behavior.

Creating a single public financing program will never address the underlying factors driving up the cost of health care in the U.S. and Massachusetts. Let’s not be distracted from the difficult but ultimately more meaningful effort in Massachusetts to understand and address the root causes of our unsustainable medical cost trend.

Eric Schultz is the President and CEO of Fallon Community Health Plan