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The Healthcare Cost Fallacy

June 8, 2013 6:14 pm by | 2 Comments

Al SharThere was just another article about how a simple, relatively low cost intervention saved a huge medical cost. This one which appeared in the Washington Post Wonkblog repeated the story about Oregon Governor John Kitzhaber explaining how a $200 air conditioner installed in a heart failure patient could save $50,000 in hospitalization. Another intervention focuses on how some type of universal screening would avoid a significant healthcare catastrophe and even larger costs. These types of articles usually appear as a commentary to demonstrate how out of touch healthcare financing is from reality and human needs. There is no question that certain actions have the potential to alleviate significant human suffering but I’m not sure that they are always symptomatic of a healthcare system that’s out of touch with but human and economic reality. I see, at least, two types of potential problems with the reporting of these “lapses in logic.”

Being a bit of a contrarian, I’ll talk screening first, where the logic usually runs something like a $100 screening procedure can identify and early treatment that would avoid a $10,000 operation. If the incidence of the condition is less that 1% then screening does not make economic sense. I, of course, don’t want to be the one in a thousand who would get the $10,000 bill but, given the way these payments are actually handled, it’s unlikely that anyone (including the uninsured) would actually pay that. Even in screening, things are not that simple. Take a look, for example, at the recent NY Times article about the costs of colonoscopies. Not only is there significant variation in cost, there are alternative screening methods and it’s not clear how frequently one needs to screen or even the best screening method. Finally, economics may not be the most important factor to consider. Having a patient die is often the least expensive treatment choice. The point is that these are complicated questions worthy of careful consideration.

And what about the air conditioner? What would happen to the Medicare trust fund if everyone with a heart condition was entitled to be reimbursed for an air conditioner? It might be as bad as if anyone who wanted a little motorized scooter could get one subsidized by CMS (Oh yes, it seems they already do that sort of thing). The fact is that decisions like this require thoughtful and, often individualized, consideration that large bureaucracies don’t do very well. I have personal evidence of this. A few years ago, my mother-in-law fractured her pelvis and was rushed to a hospital. Her doctor saw her, examined her and the x-rays and said that she was doing well but needed to go for rehab. She was also informed that she needed to remain in the hospital and extra day because “Medicare wouldn’t pay for rehab without that additional day in the hospital.”

So, what are we to do? The fact is that cost and quality are complex issues and it’s not practical for large bureaucracies to deal with subtleties. The best we can hope for is rational policies for a general population, the best information easily available combined with an effective way to manage the exceptions together with an ability to know the difference.

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Albert Shar, Ph.D

By Albert Shar, Ph.D QERTech

Albert O. Shar, Ph.D., is managing principal at QERT and finds practical technical solutions to today’s real world problems. Previously, Shar was the first vice president of information technology at the Robert Wood Johnson Foundation and served as a senior program officer for the Pioneer Group, seeking innovative projects that catalyze fundamental breakthroughs in health and health care. Before that, Shar was director for Information Technology Research and Architecture at the R.W. Johnson Pharmaceutical Institute, a Johnson & Johnson company, where he developed innovative ways to use IT to improve the drug discovery and development process. Prior to that, Shar held the positions of director of technology services, University of Pennsylvania Health System, and executive director and CIO, University of Pennsylvania School of Medicine. He has held research and teaching professorships at the University of Pennsylvania, University of New Hampshire, Swiss Federal Polytechnic Institute and University of Colorado. Shar is the author of more than 50 scholarly publications in medical technology, computer science, and pure and applied mathematics and holds a patent in medical imaging.
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2 comments
Marc B
Marc B

Why should there be general policies at all? Individual patients, with a doctor's guidance, ought to decide case-by-case.

The problem is that we have third parties involved (government, employer, private insurance) who pay for your health care. The third parties must then set policies that govern which treatments are paid for and how much.

It would be nice if they didn't have to choose, but funds are not infinite so they have to decide somehow. That doesn't mean they will make better decisions than the patient and doctor on their own would make.

If we were paying for our health care out of pocket, without third-party intervention, this would not be an issue.

Marc B
Marc B

"The best we can hope for is rational policies for a general population, the best information easily available combined with an effective way to manage the exceptions together with an ability to know the difference."

I don't agree. I think we can do much better. 

Why should there be general policies at all? Individuals, with a doctor's guidance, are perfectly capable of deciding case-by-case what is likely to be best and most cost-effective. You don't need to impose a "rational policy" from outside.

The problem is that we have third-parties who pay for your health care (government, employer, private insurance) and therefore must decide on payment policies (after all, they have limited funds and can't pay for an infinite amount of care).

If we were paying for our health care out of pocket, without third-party intervention, this would not be an issue.

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