Health Care Cost Control Is Hard, And Humbling

Nov 03, 2010

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Let's be honest. We really don't know what's going to control health care costs, long term. Today's politically winning idea could be tomorrow's platter of humble pie.

There are lots of different thoughts about how best to do it. But which of them deserve political and legislative support? On the private side, one big idea centers on high-deductible plans, sometimes coupled with health savings accounts. The theory is that individuals, acting as prudent purchasers and spending their own money, will make more efficient health care decisions. This approach, the consumer-directed health plan concept, puts more of the cost risk on individuals.

On the public side there are accountable care organizations. Under this model, an integrated delivery system would be responsible for providing all the health care required by a defined population. Higher quality and lower cost would be rewarded through a new type of administrative payment system, yet to be developed and tested. This could put more of the cost risk on providers.

But will either consumer-directed plans or accountable care organizations really help solve the health care cost problem? Before we answer with confidence, keep in mind that our past track record with potentially cost-saving innovations is not good.

One such innovation began in California and was replicated elsewhere in the 1980s when laws were passed across the nation to permit insurers to selectively contract with hospitals. The network-based HMO was born and, by the 1990s, it looked like managed care would finally crush health care cost inflation. And it did, for a few years. Perhaps some politicians and health policy wonks had predicted just that. Perhaps some thought the battle had been won. They were wrong.

HMO market share grew and the plans kept ratcheting up constraints on providers and consumers, trying to maintain profitability. Then they went too far. The backlash was fierce. The kinder, gentler PPO replaced the HMO, politicians supported benefits mandates and patients' bill of rights laws and high health care cost inflation returned. As hopeful as some might have been about managed care, and as promising as the concept seemed, HMOs ultimately proved to be a failed model.

And what about Medicare prospective payment systems, Congress's best attempt yet at controlling Medicare costs? They were implemented first for hospitals in the early 1980s and, later, for physicians and post-acute and long-term care facilities. They too had some years of success, keeping Medicare prices in check. But with no direct control over volume, they ultimately could not tame costs. Their original objective and flawed design makes a mockery of the notion of public health care cost control as, each year, Congress overrides scheduled cuts to physician payments.

The story of comprehensive, private Medicare health plans is no different. Once touted as cost savers, and paid at rates guaranteeing just that, the payment system under which they operate has spun out of control. Political meddling in response to special interests pushed payments to Medicare Advantage plans well above the cost of traditional Medicare. Congress has resisted a more efficient, competitive bidding payment system that would be immune from this problem.

We could not have known in 1995 what we know today about how each of these ideas would suffer a market or political failure. Perhaps some experts and policymakers were not duped, but enough were that these innovations were accepted by legislators, supported by businesses, and generally regarded as reasonable steps forward on health care cost control.

Is the same outcome the destiny of consumer-directed health plans and accountable care organizations or any other model we envision today? Even if they work here and there or with low market share, will they serve us well over the long term and as dominant models for the financing and provision of health care? Or will they suffer the same fate as managed care, prospective payment and private Medicare plans -- becoming victims of their own success, their own limitations, or political meddling? We can't know. But that doesn't mean we shouldn't try or that some of those ideas can't work if tweaked in certain ways. It just means that we should be humble, prepared to fail and keep thinking of new ideas to replace the ones that don't work out.

The history of health care cost control suggests that the chances of long-term success of any particular idea are low. This concept or that may be a political winner today, but that doesn't make it a fiscal winner of tomorrow. Do you think you know how to control health care costs? Don't bet on it.

Austin Frakt is a health economist and an Assistant Professor of Health Policy and Management at Boston University’s School of Public Health. He blogs at The Incidental Economist.