health care cost containment? E=p*q

Spending on personal health care services in the U.S. has skyrocketed. Whether this is an entirely bad thing is subject to debate. Some of the additional spending has been productive in terms of producing better health. Some of the additional spending probably has not been productive. The difficulty is in knowing wasteful spending when one sees it. For example, if a physician orders a CT scan for you, is this wasteful? Perhaps an accurate diagnosis can be made without the scan. However, perhaps the scan provides reassurance that there is not something dreadfully wrong with you. Establishing uniform rules for when a procedure is to be done may save money (and may be worth doing for this reason), but realistically mistakes will be made. Political candidates and public officials speak of "wasteful" spending as if it were labelled such. If this were true, strong budgetary pressure would have eliminated waste a long time ago.

The equation in the title expresses a simple truth. Expenditures on personal health care services (E) equal the price of such services (p) times the quantity of such services (q). To lower E, one has to lower p and/or q. Health care providers understandably resist reductions in p. Years ago, Congress adopted the Resource Based Relative Value Scale for Medicare Part B. A purpose was to increase relative prices paid to primary care physicians and reduce prices paid under Medicare to specialists. 20 years later, this process is still underway. In the end, some reduction of prices is possible, but we need to be prepared for health care provider bankruptcies and exits. The public does not oppose reductions in p since it perceives it to be at most indirectly affected by such policies, but large reductions in p will have some adverse consequences.

Then there is q. One possibility is to increase deductibles, copays, and coinsurance. This approach works to reduce q, but does it only reduce the q which has low benefit to patients? The answer seems to be it reduces some high benefit q as well. Then alternatively, insurers can refuse to cover new technologies or insist that old technologies be tried first. Or they can "ration" care in other ways.

The bottom line is that health care cost containment is not a pleasant process, especially if appreciable savings are to be generated.

The present public discourse about health care reform (understandably in that some sugar coating helps get bills passed) implies that there will be cost containment if the bills are passed. There is a distinction however between new taxes and cost containment to achieve a budget neutral bill. Real cost containment in the end will not be painfree.