February 21st, 2019
The Centers for Medicare and Medicaid Services just released their projections of health care expenditures from 2017-2027. They predict that by 2027, health care expenditures will represent 19.4 percent of America’s GDP, an increase from 17.9 percent of GDP in 2017.
Should we be worried about these projected increases in health care spending? Or is it just the price we pay for better health?
In a recent Health Affairs research article, “What’s Been the Bang for the Buck? Cost-effectiveness of Healthcare Spending Across Selected Conditions in the U.S.“, health economist David Wamble and colleagues from RTI health solutions find that, for certain health conditions, spending on medical interventions over the past twenty years has corresponded with improved disease outcomes. They conclude that there are clear “trade-offs between decreased spending and health improvements driven by medical care” and thus policies that try to reduce health care spending “may hinder health care innovation.”
In response to Wamble and colleagues’ analysis, Abe Dunn and Lasanthi Ferando at the Bureau of Economic Analysis smartly pointed out several limitations of the piece, including:
Importantly, Dunn and Ferando point out that just because health and spending for certain conditions are correlated doesn’t mean that all of this spending is valuable or efficient. They write:
“Overuse of words such as ‘quality’ and ‘innovation’ can minimize the importance of rooting out inefficient treatments. When patients receive duplicate tests, this inefficiency raises the cost of treatment without benefiting consumers. Similarly, if an expensive new drug is used instead of a cheaper alternative of equal quality, this inefficiency also raises the cost of treatment without benefiting consumers and lowers the value per dollar spent on treatment.”
Dunn and Ferando’s critique is well-written and spot-on, but there’s a bigger picture that they’re missing. This bigger picture is not technical, but political and rhetorical.
The widespread concern over rising health care costs (especially drug costs) is threatening to pharmaceutical and medical device companies who set prices for their products. Their best recourse is to argue that their prices are not too high, because the value patients get in terms of improved health is worth the price. This argument is also sort of a scare tactic — if we reduce health care spending, we will inevitably reduce quality and innovation, and people will die.
The study by Wamble and colleagues was funded by the National Pharmaceutical Council, a research organization funded by the pharmaceutical industry. It’s a shrewd move by pharma to use economic analysis to back up the idea of high prices leading to innovation.
What pharma gets wrong is that the relationship between health care spending and health is not always a direct relationship. Some of the most valuable treatments, such as insulin for people with type 1 diabetes, or Epipens for allergic reactions, have traditionally been cheap and widely available. It was only after companies realized they could take advantage of patients’ reliance on these drugs that they jacked up the price. As Elisabeth Rosenthal writes in An American Sickness, prices for health care services are not based on value, they’re based on whatever the market will bear.
At the same time, at least 20 percent of health care spending is wasted on unnecessary care, inefficiencies, administrative costs, and fraud. Medicare spends more than $7 billion on 31 common low-value care procedures, a small fraction of unnecessary care provided.
The idea that lowering health care spending necessarily worsens health outcomes makes no sense when you look at other countries. As many researchers have noted, other developed countries spend a significant amount less on health care compared to the U.S., but they also get a better value. Not only do most developed countries provide universal health coverage with less cost-sharing, they have better health outcomes.
How do these countries do this? They provide much more to their residents in the form of social services such as housing support, education, income support, and child care, which affect health as much or more as access to medical care. These countries also hold down costs by having their governments negotiate prices with industry, a policy that pharma is deathly afraid of happening in the U.S. Let’s hope policymakers can see through the screen of rhetoric and take needed action on health care prices.