Why It’s So Hard to Cut Waste in Health Care


The problem is they use less of all types of care. Introducing a high-deductible plan, for example, reduces scans for nonspecific low back pain and antibiotics for respiratory infections, as intended. But high deductibles also tend to reduce use of mental health services and of prescription drugs for managing chronic diabetes and high cholesterol, which can have negative consequences.

My own research shows covering uninsured individuals with Medicaid is a similarly blunt instrument for encouraging people to get critically important care. Medicaid increased preventive care, which was intended, but also increased emergency room visits, which was not. Even more targeted insurance that lowers only the price of specific and valuable care has modest effects at best, in encouraging the desired outcome.

Similarly, financial incentives that encourage physicians and hospitals to refrain from superfluous treatments may also jettison some indispensable care. Traditionally, these providers were reimbursed piece-rate, billing separately for each test and procedure, so that the more they did, the more they were paid.

To encourage only essential care, there has been a widespread shift to paying a fixed fee for a patient, regardless of what treatment is provided. A hospital might be paid $25,000 for a patient’s knee replacement, for example, and then have to absorb all the associated costs, including the hospital stay, surgeon’s fees and post-discharge rehabilitative care. Or a network of health care providers might be paid $10,000 a year for all of a patient’s health care needs.

That way, the medical provider is on the hook for the costs of treatment. But such incentives are a double-edged sword: What encourages cost-consciousness can discourage optimal care.

Countries around the world are grappling with these issues. A recent study of health care in 10 countries — including several with single-payer systems — concluded that, to one degree or another, they all are rife with inefficient and unnecessary care.

One reason it is so hard to trim waste is that physicians and regulators have already eliminated so many demonstrably harmful or useless treatments. Patients are no longer offered patent medicines, routine bloodlettings or lobotomies.

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