Finance: Bending the Healthcare Cost Curve Downward
Historically, physicians and hospitals have been paid for each procedure, test, visit, and consultation; that is, they received more pay for doing “more,” whether or not “more” resulted in good patient outcomes. This kind of practice drives up costs for health care. One of the ways the ACA seeks to reduce healthcare costs in the United States is by encouraging providers and hospitals to form networks to provide good-quality care to Medicare beneficiaries while holding costs down. In such a system, providers get paid more if they keep their patients well. One of the challenges for hospitals and providers is that the incentives seek to reduce hospital stays, emergency room visits, and use of expensive specialist and testing services—all the ways that hospitals and physicians make money in the current fee-for-service system. Unlike in other industries, prices for health care vary dramatically depending on who is paying and on geography. The U.S. system is a bit like shopping in a department store where there are no prices marked on the goods. You check out, and a few weeks later, you receive a bill that reads, “Pay this.” Growing movements toward price transparency in health care hope to empower patients to overcome information asymmetry, make wise choices, and foment competition that may lower prices. Physicians and hospitals that rarely competed on cost have been cushioned by third-party payers who pay the bulk of the bills. The advent of the Healthcare Blue Book (https://healthcarebluebook.com/) aims to do what the Kelley Blue Book does for used cars—namely, identify a “fair price” for specific healthcare services in the patient’s local area. Some argue that true price trans- parency will destabilize the healthcare industry. Others think that transparency may confuse consumers (Beck, 2014).
▸ Discussion Points 1.
Discuss the role of economists in the healthcare policy process. Read about the work of current health economists (e.g., Joseph Antos, James Capretta, Jeffrey Sachs, and Gail Wilensky) to understand their role.
2. Access the blog created by the journal Health Affairs (http://www. health affairs.org/blog/) and use the keyword “economics” to search for the latest articles about healthcare economics.
3. Discuss the gross national product in terms of healthcare expenditures. Which sorts of programs will not receive funding when health care con- sumes a large percentage of federal expenditures?
