Is the Medical Inflation Rate Due to Unresricted Care?

I’m skeptical. Floyd Norris, who usually is smart enough not to join the ‘Pain Caucus’, claims it is in The NY Times:

The federal government is now starting to build the institutions that will try to reduce the soaring growth of health care costs. There will be a group to compare the effectiveness of different treatments, a so-called Medicare innovation center and a Medicare oversight board that can set payment rates.
But all these groups will face the same basic problem. Deep down, Americans tend to believe that more care is better care. We recoil from efforts to restrict care.
Managed care became loathed in the 1990s. The recent recommendation to reduce breast cancer screening set off a firestorm. On a personal level, anyone who has made a decision about his or her own care knows the nagging worry that comes from not choosing the most aggressive treatment…
From an economic perspective, health reform will fail if we can’t sometimes push back against the try-anything instinct. The new agencies will be hounded by accusations of rationing, and Medicare’s long-term budget deficit will grow.

I don’t buy this, especially when you consider the high cost inflation that’s occurred in Massachusetts, the home of RomneyObamacare.

First, unnecessary procedures do not appear to be driving cost differences. What is driving cost differences? Price gouging. That is, certain hospital systems and medical practices have de facto monopolies, either through consumer loyality or market share. For instance, in 2000, Tufts Health Insurance (this is not associated with the university), in response to Partners HealthCare’ (which includes the Harvard hospitals) demands for much higher reimbursement rates, announced they would no longer include these hospitals. After a day, Tufts backed down. This wasn’t about unnecessary care: Partners simply wanted to charge more for the same care. This type of thing is still happening: now Tufts Hospitals is butting heads with Blue Cross.
The second problem, as I’ve discussed before, is that the claims of unnecessary procedures, to a considerable extent, are overhyped, at least in terms of costs*. That assumption is based on an analysis that conflated high-income low-need patients with low-income high-need patients. In other words, the supposed evidence that regional disparities in costs reflect unnecessary procedures didn’t take into account the role of poverty.
Sure, we should not provide unnecessary care. But much of the problem seems to revolve around anti-trust and poverty. We need to fix those things.
*Poor antibiotic use, for example, is a real problem. But, in most cases, in an immediate sense, this is a relatively cheap ‘procedure’ and one heavily borne by the consumer.

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6 Responses to Is the Medical Inflation Rate Due to Unresricted Care?

  1. Russell says:

    Mike, did you read this article on over-utilization?

  2. Tony P says:

    We need to move toward more preventive medicine. This was painfully obvious in the Missouri VA study. They managed to reduce costs form $45K per patient to $17K per patient. Not only that but patient outcomes actually improved.
    But you are correct about the hospitals, they’re gouging.

  3. Pierce R. Butler says:

    If we for some reason take at face value the claim that medical costs rise due to costs of malpractice insurance and litigation, then a solution presents itself easily.
    With a universal care guarantee, as in, say, Canada, those harmed by faulty or inappropriate medical procedures need not attempt to claw the costs of years of treatment from doctors, hospitals, or insurers. If monetary damages are effectively zero, only penalties for suffering and lost opportunities would be legally actionable, and – collateral benefit! – the malpractice caseload in US courts would drop by some huge percentage.

  4. Tyler DiPietro says:

    Monopoly pricing is a big deal in medical markets. But there are also demand side influences, like the fact that insurance in effect acts as prepaid medicine at a relatively low cost, meaning that consumers will do less as individuals to lower the costs incurred by the care they receive.
    I’ve said it before and I’ll say it again: price controls and rationing are coming, it’s only a matter of time.

  5. Ben says:

    Simple. People buy what the doctor tells them to buy – and they don’t pay for it. Someone else pays for it. So there is no incentive for the doctor to make sensible recommendations or for the person to ask hard questions about price. As a result, the vendor lets the price float onward and upward. Same thing with referrals; which leads to high salaries, which leads to competition for expensive schooling, which allows the schooling to become more expensive… ad infinitum, until the payer runs out of money.
    For people with no HI, that’s fast. They are priced right out of the market. Nobody caters to them. If the whole market were competitive, with no insurers, however, there would be segmentation and the whole thing would be more affordable. But the kinetics of that shift would be wrenching, particularly for doctors who spent all that money on their educations and would find salaries shrinking.

  6. Citizen K. says:

    I’d like to see the citations supporting your argument that price gouging is a bigger issue than overtreatment. I find the Dartmouth Atlas of Health Care convincing, and Shannon Brownlee’s book on the subject is well worth reading. Reid touches on overtreatment in The Healing of America as well.
    The Unites States leads the world in MRI and CT machines per million. That has delivered exactly nothing in terms of improved outcomes, but it has contributed greatly to the highest health care costs in the world.

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