Joseph J. Doyle Jr.

Risky business: Cutting health costs

By Joseph J. Doyle Jr.
October 11, 2009

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CONCERNS ABOUT death panels can be dismissed as rants, but a real key to the health care debate is whether costs can be reduced without jeopardizing the quality of the care. News stories regularly cite claims that Medicare costs can be cut by 30 percent without jeopardizing health outcomes, for instance. While many procedures and spending are undoubtedly wasteful, research by me and others cautions against indiscriminate reductions. After finding circumstances that allow for apples-to-apples comparisons, this work reveals that higher health care spending can yield better health outcomes.

In one recent study, we examined what happened to people who had health emergencies while visiting Florida and were exposed to different health care systems that were not designed for them. We found, for example, that a visitor suffering a heart attack in Fort Lauderdale can expect 30 percent higher hospital costs compared to a similar visitor in nearby West Palm Beach.

We studied more than 270,000 patients who suffered such emergencies and found that patients in areas with high health care spending had significantly lower inpatient mortality rates than those who visited low-spending areas.In earlier research, we found a similar disparity in outcomes of automobile accident victims. That research found that uninsured patients received less care and had higher mortality rates compared to similar patients - such as those who did not have automobile insurance, lived in the same neighborhood, and drove similar cars - who did have health insurance.

Such studies are not the last word on the issue, but they suggest caution before indiscriminately reducing health care spending. The focus on costs is of course understandable. At the aggregate level, this nation spends far more on health care per person than any other country. And even though high-cost markets in the United States spend 60 percent more than low-cost markets, health outcomes, such as heart attack survival, are similar across these areas.

The sheer size of the disparities suggests at least some waste in the system. That said, a lingering question is whether differences in the underlying health of patients across areas account for the spending differences: patients in worse health receive more care, and areas with less healthy patients will have higher costs.

We need a much better understanding of what care is effective at saving lives through investments in comparative effectiveness research. (Full disclosure: such research is what I spend much of my time doing). If there is waste in the system, we need credible ways of identifying it. But research alone is no guarantee to find waste and reduce costs. Expensive treatment may be found to be effective.

More likely, and more troubling, is that it will be difficult to tell what works well. A procedure that is expensive and experimental now could become affordable with experience. A health care system that only compensates providers for care that is cost-effective today could prevent the development of life-saving procedures.

That said, there are limits to what consumers, including governments, can spend on health care.

It is politically convenient to claim that it is possible to reduce spending and achieve higher quality, and hopefully that claim is true. But before promising to cut the fat out of Medicare, we need to be sure we don’t hit the bone as well.

Some spending is wasteful and some saves lives. We need better ways to measure which is which.

Joseph J. Doyle Jr. is associate professor of applied economics at the MIT Sloan School of Management.

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