Medical training leaves little room for elective courses and I have to admit my exposure to economics is limited to Econ 101. But did everything I learned there stop being valid?
Consider the idea that there are billions of dollars in savings if we limit "unnecessary" medical tests. If you get an MRI, you will get a very real bill for about $1000, which you will promptly pass on to your insurer, which then has to write a check. The current proposals for reform in health care seek to limit the use of MRI's by having some form of guideline developed by an expert panel, which would reduce the number of MRI's that are done. It seems to be common sense that the health system can save $1000 for every MRI not deemed necessary.
But most community hospitals have only 1 MRI machine. That machine is there whether you do 1 study every day or 100. The special room for magnetic shielding and the technicians running the machine all have to be there, essentially 24/7 to be available for emergencies, regardless of how many studies are done. So this becomes a fixed vs. variable cost problem. The fixed costs are high, and in this case, the variable costs are basically limited to how much electricity it takes to run the machine and the $30 the radiologist will be paid to interpret the study.
So, in reality, the hospital saves essentially nothing on each study that is not done. That means that the price charged per study has to go up. Or, as is usually the case, since reimbursement is limited by fixed allowable charges from Medicare or private plans, the lost reimbursement has to be made up from some other revenue source. This is the cost shifting that is the bane of our current insurance system. The only way to avoid the fixed costs here is to not have an MRI at all.
Now I am not arguing that doctors should order tests indiscriminately. But doctors order MRI's because they give you a lot of information, and that helps to improve the accuracy of diagnosis, and ultimately the timeliness of treatment. There are some MRI machines that are owned by private medical groups, but the vast majority are owned by the hospitals. There is rarely any direct financial incentive to the doctor for the test to be ordered.
The same is true for almost all "high tech" medical devices and procedures. The fixed development and acquisition costs are high and the variable costs are low. Most hospitals have 2 blood analyzers, one kept primarily for backup purposes. The cost for the chemicals to do each test literally is in cents. Many hospitals have 2 CT scanners, but even there the number of studies would have to be reduced by 50% to be able to eliminate a machine. Not likely.
So, how could we save money on high tech medical tests? Let's compare the situation to other consumer products. When DVD players first became available, it would literally cost $1000 to buy one. Now a better machine is available for $49. How did that happen? It wasn't because we limited access, but rather because we did not limit it. After the initial development costs were recovered, the marketplace dictated that the cost would fall. If the government plan limits the use of MRI's, it will simply guarantee that the cost of an MRI will always be high. Of course, not every living room will have an MRI, but in a free market, the costs should drop substantially over time.
In the US, we basically have not had constraints on buying high tech equipment, as there have been in virtually all other countries with national health plans. This means that the fixed development costs for medical advances has to be recovered in the American market. In turn, after those costs have been covered, other countries can buy the technology at a much cheaper cost, sometimes not much more than the variable cost of production. If the American market did not exist, it would be the end of new developments. The rest of the world has its limited access to most technology only because the American market subsidizes it.
There are 4 conclusions to this scenario. One, we cannot really save any substantial money by artificially limiting most medical tests and procedures. Two, if we do limit them, the development of new medical technology will probably cease. Three, the only way to lower the cost of medical technology is not to have us use less, but to have other countries use more. Do you think there would be no foreign market for medical technology? Ask the hundreds of thousands of foreigners who come to the US every year to buy it out of their own pockets.
The fourth conclusion is perhaps the most significant. When detailed, categorical analysis is done of the difference in costs between the US and other countries, it is not due to poor quality, waste or unnecessary tests. It is basically technology. The answer is not to deprive our citizens of the advances in technology, it is to get other countries not to deprive their citizens.
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You might find a recent DOJ Economic Analysis Group paper on Medicare Advantage plans interesting. It found that, despite the highly regulated environment, the introduction of additional plans into a local (county) market substantially increased the level of benefits offered in that market over existing plans and Medicare itself.
ReplyDeleteFor this to be the case, the plans must have had lower administrative costs than Medicare. It would also suggest that there are plenty of savings on the table from insurance market reform before we try to "control costs" by messing with patient-care decisions.