High & Rising Health Care Costs

HEALTH ECONOMICS COURSE

Executive Summary & Critical Review: Thomas Bodenheim, (2005) “High and Rising Health Care Costs. Part 1:

Seeking an Explanation”, Annals of Internal Medicine, American College of Physicians (ACP), pp. 847-854

Medical School of AthensPostgraduate Programme in Occupational & Environmental Health

Peter J. Stavroulakis

Postgraduate Programme in Occupational & Environmental Health

Paper Specifics

US health care costs are rising rapidly (growth of almost 10% per annum)

Seeks to portray explanations with respect to the mechanism of underlying causes

The paper is easily readable by non-economists

Concise and pleasant read though backed up by scientific principle (and 67 references)


Snapshot of the US Health Care System


Underlying Causes/Perspectives

Not a problem External factors Absence of a free market Technological innovation Excessive costs in administering the system Absence of cost-containment Market power of the providers

This paper covers the first 3 perspectives


1. Not a problem

If the economy is expanding (broad economic cycle, growth) then growth in costs can be sustained

Comments: Exclusivity and purchasing power Strategic perspective (economies of

scale/scope)


2. External Factors

State of the overall economy Proportion of elderly people (5 times higher costs, άρα

φταίνε οι γιαγιάδες) Obesity

Comments: Under a systemic view, the economy is not an external

factor More data is required; longitudinal data linking specific

demographic cohorts with expenditures trends


3. Absence of a Free Market

In reality there is no free market (prices are not extracted solely via supply & demand); “a patient with a headache does not know whether the cost of care will be a $50 physician visit plus a bottle of aspirin or

$60,000 neurosurgery for a brain neoplasm”

Comments: We may model a free market divergent from the

original definition


Cost Sharing

Several studies with varying results Quasi Pareto principle (70% of expenditures by 10% of

the population) The 70% of expenditures may be unaffected by shifting

costs

Comments: System segregation (of the cost sharing services that is

dependent on severity) What patients really need within an inclusive perspective

that will lead to overall patient satisfaction


Competition Several strategies implemented from 1980 to today Practitioners’ consolidation made costs rise through gained

market power Managed competition?

Comments: The system is competitive Maybe quality has been overlooked Maybe the insurers insert a system caveat and hamper free

market competition (centralized market) Market power acts inversely...are we losing customers? Consolidation & price growth points to inefficiency Regulation of services from a body that takes into account all

stakes?


Addendum It is a matter of policy Solutions can be sought after by discretization of the scarcity

principle Maybe a paradigm shift is required Mitigation of the paradox of the insurance companies

(“reduce reimbursements to providers but incur more funds from purchasers”)

Health should not be considered a Veblen good Demand and WTP does not (or should not) increase whence

the price increases “Health care costs represent a battleground among competing

interests” while the product is (and always will be) uncontested


Thank you for your attention!

Health & Medicine

High & Rising Health Care Costs