Question: Need Lower Costs? Answer: Higher Taxes !

 Kelley recently posted a thoughtful comment on what Massachusetts has been up to:

“Providers that charge prices deemed excessive and that they cannot prove are linked to above-average quality would pay a tax”

Additional taxes on physicians to reduce excessive medical cost? Yeah, that’s gonna work.

IMO, Physicians are getting a bum rap from people who blame them for rising medical insurance premiums. Yes, rising physician fees are among the reasons – but that cannot be the main reason.

First the big picture: physician charges, primary and specialists together, are + / - 30% of total national medical care spending.  (In the employer medical benefit plan I once managed, physicians’ charges amounted to 37% of our total yearly cost).  To blame rising premiums on a single component equal to 30% of the total medical spending is clearly wrong.

It’s true that insurance premiums rise because per capita medical costs rise.  So the right question is much broader: Why do medical costs rise?

I believe there are four main reasons:

1.  Aging population

Older populations have more chronic conditions that are more expensive to treat than conditions prevalent in a younger population.  (I assume everyone agrees that a “Soylent Green” strategy is no solution). 

2.  Impact of technology  

Modern innovations in medical care have generally been more expensive. (I assume everyone also agrees atorvastatin should remain on the market, along with MRI’s, laser surgery, and the multitude of examples of modern medical care that have value - not simply cost).

3.  Consumption of a more expensive mix of services year by year

A more expensive mix of services each year means the overall cost of medical care rises, even if not one physician raised her fees.  I almost never see this factor mentioned. 

It appears this change in mix results mainly from

(a) growth in the ratio of specialists to total physicians 

(b) evolution of more costly medical specialties (e.g., diagnostic radiology), driven by technology 

(c)  “downstream” impact on hospitals that must support the new kinds of treatments including necessary equipment/devices.   

4.  Overinsurance - insurance that reimburses medical expenses virtually in full. 

Medical professionals and institutions whose patients have their fees paid virtually in full have no incentive to find ways to reduce them.  And patients have no reason to care, or ask, if there may be perfectly adequate treatment alternatives that are less costly.

Are American policy decisions based on correct diagnosis of the problems we face?  For example, can anyone demonstrate whether Americans consumed too much care in 2009 or whether we consumed too little in 1980?  Why has the emergence of newer, super-specialty treatment not reduced the trend in total cost?  What is the evidence that the growth in specialist care is producing better outcomes - even for the same cost? How can medical care be delivered in many other nations with arguably comparable outcomes to the U.S. but at much less cost?   And by the way, if services are paid essentially in full by a third party - private or government, doesn’t matter – does it make sense to blame physicians for filling in numbers on what amounts to a blank check provided by the third-party payers?  The answers carry enormous policy implications.   IMO, the fees that physicians charge for their services are much less significant than these answers.  

Yet America has now been committed to specific “reforms” that don’t appear to consider, much less answer these questions.  Our health policy leaders and pundits have done a remarkably poor job explaining why.  In any case, I suspect that the answers aren’t to be found in any legislative body that behaves as though higher taxes are the right answer to every problem.