printable versionVantage Point: Value—not cost comparisons between countries—should be focus of U.S. health-care reform efforts
BY VICTOR R. FUCHS
Victor Fuchs
The Annals of Internal Medicine recently ran a four-part series on controlling health-care costs. The following article by Victor Fuchs, PhD, one of the nation's foremost health economists and the Henry J. Kaiser Jr. Professor, Emeritus, is adapted from his editorial on the AIM stories that was published in the journal last month. For the complete original version, visit http://www.annals.org/cgi/content/full/143/1/76.
The level of health-care expenditures in the United States is extraordinarily high relative to other countries: In 2001, the United States spent $4,887 per person--double the average of other high-income countries. But it is important to distinguish between high levels of expenditures and high rates of growth because the symptoms, diagnoses and appropriate interventions all differ markedly. For example, between 1991 and 2001 the rate of growth of expenditures in the United States was the same as the average of these other countries.
The principal explanations for higher expenditures for physician services in the United States are greater administrative costs, higher physician incomes, more amenities and low-capacity utilization of physicians and equipment for specialized diagnostic and therapeutic procedures. Higher administrative costs, more amenities and low-capacity utilization of specialized equipment and personnel also explain the higher costs per adjusted admission in U.S. hospitals.
By contrast, the rate of growth of expenditures over time in the United States and in other countries is driven primarily by new technology and new applications of old technology. The exponential increase in patients receiving implantable defibrillators is an example of how technology can drive the rate of growth of health-care costs. Although technologic change in medicine usually results in greater expenditures, that doesn't mean it's undesirable: it also frequently brings benefits, such as extending life or improving the quality of life.
Much is often made about the fact that the United States spends more than 15 percent of the gross domestic product on health care while other high-income countries spend only 8 to 10 percent. But every country spends 100 percent of its gross domestic product on something; if other countries spend less on health care, they must spend more on cars or clothes or other goods and services. Is that bad for them and good for the United States? Not necessarily. It all depends on the value obtained by the spending.
There is no good reason why a country should set an arbitrary limit on the level or rate of growth of health-care expenditures. That is not a sensible social goal any more than a limit on spending for education, food, housing or any other good or service. What is sensible is to strive for a system of health-care finance and delivery that results in incremental value commensurate with that provided by other sectors of the economy. That goal is reached when the last 1 percent of health-care spending provides as much benefit as the same amount spent in some other way--such as enrolling an additional 2 million children in Head Start or increasing the number of police officers by 50 percent.
Better information about the benefits and costs of medical interventions would help to achieve that goal, especially when combined with a reimbursement system that motivates physicians to consider benefits and costs when making decisions.
To affect the growth of health expenditures--more important than levels in the long run--the focus must be on modifying the pace and direction of technologic change.
The United States needs a large, independent organization to assess the benefits and costs of technologies and to make that information readily accessible to physicians and other decision-makers. Several European countries have created such organizations; a highly promising model is the National Institute for Clinical Excellence in England.
Better information alone, however, will not usher in an era of cost-effective technologic change. It must be combined with a payment system that rewards physicians and hospital administrators for using the information to make appropriate decisions about drugs, devices and equipment. These decisions, in turn, will serve as signals to the suppliers of new technologies to keep potential benefits and costs in balance as they proceed with research and development.
To affect the level of expenditures, the focus must be on the behavior of physicians, whose decisions about drugs, tests and hospitalization determine the bulk of health-care costs at any given time. This will require changes in the scale of physicians' practices and how they are reimbursed.
Most physicians are in practices that are too small to take full advantage of steps to improve decision making such as drug formularies, electronic patient records and other innovations that contribute to effective and efficient care. Also the most widely used method of reimbursement, fee-for-service, generally does not provide physicians with proper incentives to weigh costs and benefits.
Probably only comprehensive reform of health-care finance can bring about the necessary organizational changes that will give physicians the information, infrastructure and incentive to deliver cost-effective care to the entire population.
To achieve comprehensive reform, Fuchs and his collaborator Ezekial Emanuel, MD, have proposed a voucher system for health care that would lead to more cost-effective care and also include the creation of an institute for technology and outcomes assessment to provide decision-makers with information about new medical technologies. The plan was most recently outlined in the March 24 issue of the New England Journal of Medicine, (see the story in the March 30 issue of Medical Center Report.)