Efforts at Containing Costs in Health Care

Efforts at Containing Costs in Health Care

Escalating U.S. health care expenditures have prompted many discussions on the need for health care reform; discussions which have been widely divided in the past. Today, the general consensus is one in support of some method of reform; there is acknowledgement that health care costs are increasing beyond reasonable and/or feasible limits. The issue is determining the causes of escalating prices, the potential solutions to cost control, the effects of reform on market forces, and the weighted impact on the "bottom-line" for all stakeholders.

Total Health Care Expenditures

The United States has the highest health care expenditures in the world, an estimated $8223US per capita, 17.6% of its GDP in 2010 - 2.5 times more than the OECD average of $3268US (OECD Health Data, 2012). However, nations which spend less than half of this amount, e.g. Japan and the United Kingdom, demonstrate better health care outcomes as illustrated in Figure 1, by higher life expectancies. Also of note, despite being ranked as the 7th wealthiest nation for 2012 by Forbes, access to health care is limited by its affordability or more appropriately, its unaffordability. More than 40 million Americans claim that they are unable to afford health care (Fox, 2007). These circumstances, as well as the fact that U.S. health care expenditures are outpacing inflation, average wages and GDP (Fodeman & Book, 2010), clearly demonstrate that U.S. health care expenditures are too high.

Some attribute high health care expenditures to high health care prices, with Americans paying more per unit and providers earning more per service (Vladeck & Rice, 2009). Health care spending associated with physician services is seen to be 5 times higher in the United States than other rich nations: $1600 vs. $310 per capita, an annual difference of $390 billion nationally (Hixon, 2012a). Primary care physicians earn about a third more than their counterparts in peer nations (Laugesen & Glied, 2011); specialist physician services cost 3-6 times more in the U.S. and are the biggest driver in the price gap (Hixon, 2012a).

Physician services and health care resulting from physician decisions, arguably contribute to major health care expenditures. Earnings and referral decisions leading to overutilization and high cost advanced care referral contribute to unbearably high health care costs, even though the latter is not seen to improve health outcomes (Hixon, 2012a).

Figure 1. Graph via Mary Meeker of KPCB as cited in Hixon, 2012a.

Effects of Potential Cost Containment Strategy on Market Supply and Demand

One proposed method to help with cost containment is a shift away from specialist based care toward a primary care based system. Overspecialization precipitates over testing and compromises quality and as such the improper distribution of physician services within the United States is a major cause of overpriced, yet underperforming health care (Gottfried, 2010). The ideal ratio of primary care to specialist care physicians is 70:30 however the opposite of 30:70 exists within the United States (Gottfried, 2010). Thus an increase in the supply of primary care physician services and a decrease in the supply of specialist care physician services are needed. A shift toward increasing primary care service demand and decreasing the demand for specialist care is also required.

The increase in primary care physician services would require a greater influx of candidates into primary care practice, something which may be encouraged through scholarship provision for those interested in family medicine. Addressing the great differences between primary and specialty care service reimbursement may also serve to encourage entrance into primary care practice and increase the supply of these services. Decreasing the supply of specialist physicians is also important in facilitating the proposed shift. Limits must be placed on specialty residency programs so as to ensure optimal specialist entry to meet the needs of the American people, without creating overspecialization; fewer specialist training spots