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Three keys to curbing costs

By Paul Mango and Nicolaus Henke

26 February 2009

Is it possible to provide adequate care to all? The short answer to this question is an emphatic yes, from both an economic and an ethical perspective. Yet we must understand that achieving these goals poses radically different challenges depending on local conditions, extends far beyond the traditional boundaries of the health care system alone, and requires reciprocal obligations between the government and the individual. These three caveats deserve closer analysis.

There are fundamentally different challenges, country by country, depending on the degree of economic development.

Developing and developed countries face different challenges when it comes to providing adequate health care for all. In developing countries, diseases, and therefore medical risks, are still largely a function of larger public-health issues: basic sanitation, the cleanliness of the water system, education, access to electricity, the prevalence of vaccinations, and access to basic medical care. The most serious challenge in these regions is the eradication of contagious, water-borne, blood-borne, and insect-borne diseases—malaria, typhus, tuberculosis, HIV/AIDS, and cholera, to name just a few. The potential for progress is dramatic. Some countries that have focused on such priorities, like Egypt, have achieved an increase of average life expectancy of 22 years over the last four decades. In countries that are still facing severe economic struggles, the fundamental challenge is to create the stable political environment, public-utility infrastructure, basic civic institutions, education system, and primary-care network that can help extend basic medical knowledge and technology.

In more developed nations, by contrast, the problem is not access to health care but rather its cost. The increase in the cost of health care in wealthy nations has outpaced GDP growth for the past 50 years by about 2 percent per year. If costs were to continue to soar at this pace—which, of course, is impossible—by 2100, health care would consume 70 to 90 percent of the GDP of the wealthy nations forming the Organisation for Economic Cooperation and Development (OECD).

Four factors are provoking runaway health care costs: wealth, technology, lifestyles, and aging. Lifestyle factors—such as lack of exercise, overconsumption of calories, smoking, excessive alcohol consumption, and the like—are the ones most important to alter. Fundamentally, it is an issue of behavior modification aimed at reducing chronic disease, and thereby dramatically improving the overall affordability of health care. Most health systems around the world spend between 1 and 2 percent of their budgets on the prevention of lifestyle-related disease or its progression. Nonetheless many of these initiatives are some of the highest-return initiatives in all health care, such as smoking cessation. Creating a delivery infrastructure with effective marketing to achieve behavior modification should be a key priority for health care policymakers.

This is not simply a health-system performance issue.

The challenge of providing adequate health care extends well beyond the direct authority of a nation’s health care system, since outcomes are driven fundamentally by social factors rather than just the health care system. The linkages to the workplace and to local economic and environmental infrastructure are important.

Consider that just within the region of Glasgow, Scotland—where there are few local differences among health systems—there is a local variance in life expectancy at birth of 22 years, within a driving distance of only eight miles. That variance is similar to the difference between life expectancies in Scotland and Sudan.

In developed countries, the issue is affordability—and the chief culprit is the treatment of lifestyle-induced chronic disease, which can now extend for decades. The key to success here will be altering several key behaviors: increasing exercise, moderating the intake of calories, reducing the incidence of unprotected sex, and reducing the abuse of narcotics, alcohol, and tobacco. Also crucial: improving primary and secondary education systems, imposing constraints on the food-processing industries, and developing a deeper understanding of the biases that shape what are seemingly irrational personal behaviors.

Obligations are reciprocal, involving commitments by both individuals and institutions.

When it comes to the most critical factors in health care—safeguarding public health, mobilizing multiple institutions, imposing regulations to control negative externalities, and building awareness of health dangers—the State is often a necessary and effective intermediary. Indeed, some of the greatest advancements in the overall health status of the world’s population have come from government-sponsored efforts to reduce the incidence of tobacco consumption, to prevent the transmission of HIV/AIDS, and to cleanse the water system. In addition, collaboration among such institutions as the global pharmaceutical companies, prominent academic medical centers, and the National Institutes for Health has led to marvelous discoveries and to greater practical applications of scientific advances. Thus there is a legitimate, and perhaps essential, role for government, nongovernmental organizations (NGOs), and commercial institutions in ensuring that adequate health care is available to all.

The result is a paradox: while the world’s population may be entitled to access to good basic health care services, it is not necessarily entitled to good health. On the contrary: good health in today’s society requires a reciprocal obligation. The State and other institutions are required to provide the education, the infrastructure, and the access necessary for good health. In return, individuals and families are required to engage in healthy behaviors (or at least to avoid fundamentally destructive ones); to commit to recommended vaccinations and screenings; and, when illness occurs, to adhere to agreed-upon and prescribed courses of therapy. These obligations are destined to intensify, as medical technology will increasingly move from curing disease to improving the functioning of the body (for example, through memory enhancement or cosmetic surgery). In a world where behaviors are increasingly the primary determinants of health status and medical risks—and, therefore, of medical-resource consumption—the individual must behave in ways that promote health, reduce risk, and conserve scarce resources.

Ensuring adequate health care for all will require bold decisions. Society must reach a consensus on the extent of health insurance coverage that will be available to all on a tax-funded basis (recognizing that even the market-focused United States provides 61 percent of health care spending from taxes); a consensus on how to foster the social determinants of health, in particular economic development; and a consensus on an ethos of reciprocal obligation. The government and its institutions must meet their obligations; at the same time, the individual and families must live up to theirs.

Comment [30]

Agree? Disagree? Let us know what you think. Please include your full name with your comment. Comments may be edited.

A recent article in The Wall Street Journal was an interesting read.

I have presented my views regarding “how to reduce health care costs” are on my blog and its title is "Process of Continuous Improvement and Pharmaceuticals".

Improving manufacturing technologies might solve all of ills but every bit helps.

Posted 7 June 2009, 19:03 by Girish MALHOTRA
One of the biggest problems in healthcare is one that gets almost no attention at all — the massive inefficiencies that exist within hospitals. CMS has reported that hospitals waste 20-50% of their resources due to inefficient processes and lack of operational visibility. Across the U.S., hospitals spend approximately $700B annually, one-third of the total U.S. healthcare spend. If the CMS report is accurate, the savings opportunity that exists through operational improvements within the hospital environment is $70B-$350B. Even a small percentage of this total would be sufficient to fund many other necessary healthcare reform initiatives.

Posted 5 June 2009, 11:35 by Charles Young
We get what we pay for; i.e, we have the best treatment, and the worst health, among developed countries. It’s because we overinvest in heroic rescue treatments and underinvest in prevention and public health. This maximizes profits for providers & insurers, while increasing cost externalities born by the public and employers.

Posted 26 May 2009, 15:06 by Ron Masters
Yes, it is certainly a fact that the cost of Healthcare in America is currently out of control. It seems as though the new administration are in the planning stages for a reform which could make all the difference. It seems like a voluntary benefit option would become very popular as it would allow the employee, worker or individual to choose from a variety of benefits which would in effect, work for their personal situation. An example would be adding a medical tourism package to the policy where the coverage would allow the individual to travel abroad at a more affordable cost for a specific procedure.
Posted 16 May 2009, 19:45 by Michael Dunage
As a retired orthopedic surgeon, I would like to comment on “medical tourism’ to places like India. There can be savings is everything goes well. However problems can and do develope after time with procedures such as total hip or knee replacement. Who will take care of the hip that dislocates? Who will do total joint revisions? Many surgeons and institutions now refuse them unless the primary was preformed there. Will the implant manufacturers sell the same implants overseas at much reduced prices? Medical tourism may look attractive but “let the buyer beware”!

Posted 11 May 2009, 17:10 by James Turner M.D.
I think that huge chunk of healthcare cost (in developed countries) comes from the fact that patients have no visibility into price and quality of care they are receiving. Patients seek doctors mostly via word-of-mouth (vs most other industries where the amount of data on the quality of the product from costumer perspective is abundant – just imagine buying a book at amazon.com and the amount of reviews that would be available). Another (big) factor is the fact that a patient is completely unaware of the price of the service (and most don’t even care that much because most of it is covered by insurance).

In a system where patients could choose physicians based on expected quality of care, AND have full transparency (and more accountability) into pricing for medical services they receive, they would think about healthcare decisions like consumers, and not like patients (with no skin in the game). This would of course require a radical shift in physician and patient mindset

Posted 6 May 2009, 21:42 by Marina Udier
Good read on a tough problem. As a diabetes educator with diabetes, I feel the fundamental problem is that we expect others to heal us, educate us and take care of us. What happened to you are the controller of your health and health care? When we take responsibility for ourselves we are on the way to good health. Then we should expect a system to be in place that allows us to get care if needed at a reasonable cost.
Let our “leaders” operate under the same restraints most of us do when accessing health care we will see changes.No more free care at the best hospitals while most of us toil without an adequate health care umbrella.

Posted 6 May 2009, 19:52 by P. Christian
Broadening the definition of Consumer Driven Health Plans to encompass more financial incentives and options for consumers to manage their health is perhaps the way to bring together cost reduction and behavior change. Medical Tourism, for example, being added as an option into employer-provided health plans would expand choices for employees to included world renowned doctors and five star facilities, while SERIOUSLY shaving an employers health care costs. The employer may even choose to share those savings with employees who opt in for a trip, say to India for bypass surgery or knee replacement.

The expansion of Medical Tourism is also proving to widen consumers’ awareness of what options are out there besides their own community’s health services—some at better quality, some at better prices. The transparency of cost and medical outcomes at many international hospitals makes it easy for consumers to investigate, compare and make informed choices—the ultimate in consumer driven health care. To find out more about how employers can incorporate Medical Tourism, or how patients can better understand international options, visit the websites of reputable medical tourism facilitators, such as http://www.worldmedassist.com.

Posted 6 May 2009, 18:09 by Robbie Neely
Great discussion. We all know that most of the healthcare dollar goes to care for people with chronic conditions. Some integrated healthcare systems have shown that it’s possible to do an excellent job of this; however, it’s expensive. Looking upstream at the issue, it’s now been proven in many studies, first coming out of the University of Michigan, and now out of many large U.S. companies, that it’s possible to prevent much of the development of chronic disease. Of course, saying it is much easier than doing it. It’s hard to help one person change a habit. Is it even possible to help an entire nation of people change one unhealthy behavior? How about a list of unhealthy behaviors? Behavioral specialists know that the problem is not one of education or knowledge. Most people know what they need to do – eat less, exercise more, stop smoking – but to date they’ve been unsuccessful at doing it. The real issue is one of motivation. Human behavior being what it is, what this usually boils down to is incentive. The bottom line is that whatever new system we create, it has to include incentive for people to take better care of themselves. Does this mean higher insurance rates for obese people? Possibly. Does it mean taxes on unhealthy foods that are then used to subsidize health foods? We’ll never be able to remove the increasing amount of dangerous river debris fast enough. We have to go upstream and do something about the beavers.

Posted 6 May 2009, 16:45 by Dennis Ostrem, M.D.
Well put Taylor and Resnick. If most HR managers could include “Optimal Personal Wellness” improvements as part of the corporate bonus program, then maybe those millions of workers that believe they are “fine” when it comes to their individual health condition,would seek improvement or at least maintain their current condition by better eating, not smoking,drinking less and exercising. Corporate Health plans get the best part of the business, because they provide Health care only for as long as the individual is employed. Maybe if they were also left with part of the after the fact health issues they might develop programs to ensure a healthier future for all.

Posted 6 May 2009, 14:22 by john bennett