Variation in care and Costs

Peter Orzlag on health care cost containment.

“The nation’s long-term fiscal balance will be determined primarily by the future rate of health care cost growth. If health care costs continued growing at the same rate over the next four decades as they did over the past four decades, federal spending on Medicare and Medicaid alone (Medicynical emphasis) would rise to about 20 percent of gross domestic product (GDP) by 2050-roughly the share of the economy now accounted for by the entire federal budget. Furthermore, controlling those federal costs over the long term will be very difficult without addressing the underlying forces that are also causing private costs for health care to rise. A variety of evidence, however, suggests that opportunities exist to constrain health care costs both in the public programs and in the rest of the health care system without adverse health consequences. Capturing those opportunities to reduce costs without harming health outcomes involves many challenges, including the time that may be necessary to generate significant savings-but even if reforms take time to generate savings, acting sooner rather than later can ultimately make a substantial difference.”

The geographic variation in Medicare costs is an opportunity.

Because more spending doesn’t mean higher quality care:

Medicare/Medicaid own the segment of the population that has the most morbidity, mortality and cost. The cost/quality variation indicates areas for improvement. We can continue our current haphazard laissez faire approach or try to become a system.

Our approach to costs, simply cutting fees, has squeezed providers (hospitals and practitioner’s) and assured insurer’s profits. This has created an atmosphere of cost shifting. Providers who lose money on certain type patients charge others more for care to make up the difference. In addition if you do more procedures, you earn more.

We should encourage efficiency and appropriate utilization and use the best approaches determined through comparison studies. Fees should be balanced to encourage use of primary care types over proceduralists. We need to control cost gouging by suppliers whether they are practitioners, hospitals, pharmaceutical companies (the fastest growing segment of costs).

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