NCPA - National Center for Policy Analysis


October 8, 2009

If there is one certainty about the health care sector, it is that its costs increase over time.  But what if this conventional wisdom is wrong, asks Harvard University economist David M. Cutler?

There are several pieces of evidence that suggest increases in health care might actually moderate significantly, if not decline relative to the gross domestic product (GDP), over the next few decades - even without the type of systemic changes proposed by the current administration.  As a result, the financing crisis in health care could be much less dire than most people believe, says Cutler.

First, is the changing nature of medical technology:

  • As the market become more crowded, new technologies increasingly substitute for older technologies and thus naturally result in less cost-growth than the first high-cost technological intervention for the same problem.
  • Although new treatments will continue to increase care for some diseases (such as cancer and Alzheimer's), these increases will be tempered by such substitutions in the more crowded fields of other diseases (e.g. cardiovascular disease).
  • New technologies have the potential to reduce the number of patients receiving expensive care.

Second, is the potential for technology to lower the administrative costs of care:

  • A recent study shows that physicians spend an average of 142 hours per year interacting with health plans, at an annual cost of $7,000 per physician.
  • Another study shows that 35 percent of nurse's time in medical or surgical units was spent on documentation at an estimated annual cost of about $50 billion.
  • Money is also wasted in insurance administration and in efforts to comply with regulations promulgated by multiple agencies with overlapping responsibilities.

The final factor is the improvement in the management of care for chronic conditions which is now notoriously poor:

  • The rates at which hypertension, high cholesterol levels and diabetes are controlled fall well below 50 percent; secondary prevention efforts are also limited.
  • Readmissions for congestive heart failure, for example, are often preventable but still very common.
  • In many of these cases, better management of care is associated with lower lifetime spending.

Source:  David M. Cutler, "Will The Cost Curve Bend, Even Without Reform?" New England Journal of Medicine, Volume 361, No. 15 (1424-1425), October 8, 2009.


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