Increased Health Care Spending Just Might Be Buying Higher Quality Care

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Jonathan Cohn has looked at what appears to be a recent increase in health care spending (national health expenditures in the above graph) after a period of decline. Most likely this is due to a variety of reasons, and I don’t find it surprising that a period of decreased spending would be followed by increased spending. This is partially a sign of an improving economy as people are less likely to put off spending on medical problems when they have more money available. The increase in people covered by insurance this year due to the Affordable Care Act should lead to a further increase in spending, but this spending is desirable

Cohn looked at a variety of possible causes but didn’t hit on the key point that increases in medical spending might not necessarily be a bad thing until late in the article:

It’s not always the case that spending more on health care is a bad thing. New or more treatments might alleviate suffering, reduce disability, or extend life—all of which have value. Providing insurance to more people, so that they are more secure financially, also has value. The reason to worry about high health care spending is that the extra money America spends doesn’t actually seem to buy America better health care. But, over the long run, the real goal of health care reforms should be a combination of restraining costs and improving quality.

Traditionally it has been true that we could not see benefits from increased spending compared to other countries, but there are factors in health care which could currently be causing increased spending compared to previous spending in the United States as well as increased quality. There has been a push for Medical Homes, increased payment for primary care services, and for increased attempts at payment of doctors based upon performance as opposed to fee for service alone. If doctors are given incentives to screen more for elevated cholesterol and do more to treat diabetic patients this would lead to increased spending, with this spending being beneficial.

Contrary to the argument that we were not seeing quality for our past spending, The New England Journal of Medicine reports this week that complications among diabetic patients have decreased between 1990 and 2010. The Annals of Internal Medicine also reports that between 1999 and 2010 the number diabetics has increased, with a decrease in the number who have the disease but are undiagnosed, and that treatment has improved. Both having more diabetic patients and providing treatment which results in better control is going to cost more money. It is too soon to have any data to see if there is a correlation between increased spending over the past year and quality of care, but I do wonder to what degree the trends I noted in the above paragraph are contributing to higher costs and how this might correspond with further improvements in the quality of care.

Cross posted from Liberal Values

Author: Ron Chusid

14 Comments

  1. Yes, high spending on healthcare is not necessarily a bad thing. In fact, studies show that as GDP per capita increases, healthcare spending increases faster than GDP per capita. I can provide a link if needed, but this is pretty intuitive: as people have more disposable income, they spend a greater portion (not just a greater raw amount) of it on healthcare, since their other basic needs are generally already met. This is why charts that compare US healthcare spending with other nations in terms of raw amounts, or even in terms of percentage of GDP, aren’t really useful.

    But we should get our money’s worth from that extra spending. Are we? That question is difficult to answer due to the complications of diminishing returns as well as the direction of causation. Certainly there is some waste, but it’s not easy to tell how much of it there is, and I don’t think that’s the main problem.

    I think the heart of the problem is the distribution of spending. Rich countries like ours have a lot of money to spend on healthcare, which results in a lot of new, expensive treatments. Now, these new treatments may be a lot better or only marginally better than other treatments, but either way the dilemma then becomes access. Is it fair for rich people to have access to these new treatments without providing access to others? If not, what do we do about it? We can cap what rich people can spend (rationing) or we can subsidize the effective treatments for others, which gets more and more expensive as treatments get more advanced. Neither approach is without significant drawbacks.

  2. Seems like more spending on healthcare, more people covered, and more demand for doctors, nurses and healthcare workers has to be a gain for the economy overall – in addition to creating a healthier nation. Kind of makes you wonder why there was so much obstruction. Oh wait, I forgot. Obama.

  3. ” as people have more disposable income, they spend a greater portion (not just a greater raw amount) of it on healthcare, since their other basic needs are generally already met.”

    You mean like elective surgery…rhinoplasty, botox and all? You make it sound like healthcare can be considered a luxury item like a new car…or a new face.

    I have to disagree. I mean I see your point and to some extent you are right on the money Adad..but I guess my objection is that healthcare should never be a profit making business. That is the one thing, perhaps only thing that should be exempt from the Capitalist economy.

    I believe ALL citizens have a right to life and health and should not have to pay money as an individual. Collectively, yes for the industry has to thrive, new inventions and innovations, research etc.
    I am big on socialized medicine, where amazingly they find the money to do research and make innovative procedures.

  4. JS, do you mean to say that Democrats have argued that increased healthcare spending is a good thing, and that we needed health care reform to increase it further? I think the argument was quite the opposite. It’s hard to take the argument seriously now, that suddenly it’s a no-brainer that increased healthcare spending is good. I agree with the OP that increased spending is not inherently good nor bad, and it’s too early to tell if this latest increase is a good change, but I see no reason to assume that. And while increased access is a good thing, increased demand almost certainly isn’t. Healthcare workers are already in short supply, so increased demand would increase prices and wait times. We’re better off helping people stay healthier and therefore needing less healthcare, not more. How is it that the very factors that were cited as problems with the US healthcare system are now suddenly good things? Oh wait, I forgot, Obama. ;)

  5. sheknows,

    No, I’m not talking about elective things, though that may be a small part. It’s well documented that richer countries spend more on healthcare. That correlation exists across all nations, though the US is still an outlier even when that correlation is accounted for. I wouldn’t say that makes healthcare a luxury. It means that unlike other basic necessities, our desire for healthcare is essentially limitless. As long as there are diseases without 100% reliable treatment, there will always be those willing to spend a lot of money on cutting-edge treatments even if it only increases their chances slightly. That drives up costs especially as society decides that everyone, not just the rich, should have access to these new, best, expensive treatments. Yesterday’s cutting-edge treatment becomes tomorrow’s assumed standard of care, which means that it costs more and more to provide access to everyone.

    This problem exists regardless of our financing mechanism–whether it is based on regulated free markets or socialized medicine. To expand access, either system would need to figure out if they are either going to ration care to reduce demand from the rich (this was part of the intent, aside from raising revenue, of the new tax on “Cadillac plans”), or else subsidize it at increasingly high expense such that everyone can access the current standard of care, or some combination of the two.

    My point: Increased healthcare spending is not inherently bad, but it does present a problem of distribution of access, particular in a society like ours with a large disparity of wealth.

  6. Adelinesdad, oddly enough I mean what I say, not what you seem to imagine me saying. ;-)

  7. JS, that’s why I phrased my response beginning with a question. When should we consider increased spending and demand for healthcare to be good and when is it bad?

  8. “When should we consider increased spending and demand for healthcare to be good and when is it bad?”

    The typical articles on the high cost of health care in the United States generally write about how much more surgical procedures and medications cost here compared to other countries. These are cases when increased spending is bad.

    The types of examples I mentioned in the post are cases when it is good. Spending more on treatment of diabetic patients (other than for newer drugs costing more) is good. It is worthwhile to spend more to see them more and achieve better control, which leads to reduced complications. Long term this can also save money. It is also good to spend more if it means spending money on health care for people previously denied coverage.

  9. I agree, Ron.

    My issue is it was argued that increased healthcare spending was bad before Obama but now good after Obama. You correctly noted in your OP the shortcomings of that argument: that increased spending may not have been all bad before (you mentioned better diabetes management) and might not be a good thing now (you mentioned we don’t yet know the exact causes of and results from the most recent increase).

    JS claims that increased spending is good–a boon to the economy and evidence of a healthier nation–and wonders why anyone would oppose it, which he answers by claiming the reason is “Obama.” It seems to me that reasoning, in light of the prior reverse argument in which high healthcare spending was cited as hurting our economy and evidence of poor healthcare delivery, is also driven in large part by the reason of “Obama.” That’s not to say there aren’t valid arguments both ways, but I’d say “Obama” seems to be a key factor in determining which side of the argument people tend to fall.

    My larger point is that even if high spending is good, the bigger problem, in my view, is how to balance innovation driven by consumers willing to pay top-dollar for marginally better outcomes, with access to those innovations to those who can’t afford to.

  10. The typical articles on the high cost of health care in the United States generally write about how much more surgical procedures and medications cost here compared to other countries. These are cases when increased spending is bad.

    Absolutely. My US Dentist wanted $20,000 for the fixed bridge work I needed so I went to Mexico and got the same thing done for $2,300… Something is wrong.

    In Sam’s Club this morning I checked the price of Mucinex. 40 pill twin packs (80 pills total) cost $36.55… In Mexico the same over-the-counter drug costs $4.95 for 100 pills.

    Market forces aren’t going to change any of this what needs to be done is for Medicare, Obamacare, Medicaid to do what HMO’s, Private Insurance, VA Hospital System etc have done for years… Demand volume discounts from drug manufacturers.

  11. It’s a process. I’m sure we’ll all stay tuned…

  12. SteveK, I wonder if the makers of Mucinex would have created their product if they thought that all of their consumers would pay only $4.95 for 100 pills. Since they sell them at that price in Mexico, clearly it costs them less than that to mass produce the pills. But the upfront cost of research/testing required to create a drug has to be recouped from somewhere–which means people/countries that can pay more, will need to.

    Also, a lot of stuff costs less in Mexico–not just pharmaceuticals and dental work.

  13. adelinesdad,

    They don’t sell Mucinex in Mexico they sell 600 mg tablets of Guaifenesin which is exactly the same as Mucinex.

    About 10 years ago Mucinex in the US cost $8 +/- for 30 pills and there were several generic brands (Guaifenesin) available at Walgreen’s, Pay-less, Costco, etc. for about 1/3 the price.

    Not sure what happened but I do know generic Mucinex suddenly disappeared and the cost of Mucinex doubled at the same time that the Reckitt Benckiser Group (Dutch Multinational) bought out the American Company that owned Mucinex (2008).

    2005 to 2009 was a busy time for Reckitt Benckiser, and they also bought “Clearasil”, “Durex Condoms” and “Scholl’s Footcare Products to name a few.

    I’m sure these takeovers were all done with American Business and the American people’s best interest at heart though… Simply another example of free unregulated markets in action but this time at least was a little good news… This time Big Business remembered to bring (I mean take) the condom (company) too. :|

  14. Well brand-name vs. generic drugs in a whole ‘nother issue. I don’t know what would cause a generic drug to be pulled–maybe some patent dispute, which might bring us back to the principle I brought up: that drug makers (including a company that acquired one) have to recoup the cost of R&D. In any case, it sounds like now we’re talking about a very specific scenario, not necessarily a general trend. I don’t know how often generic drugs disappear from the marketplace after being introduced, or whether that is due to some systemic problem.

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