What Can Be Done to Make Health Care More Efficient?

(Photograph by Getty Images.)

Excellent medical care is common in the U.S., but it is provided amid all too evident dysfunction. Quality and access to needed services are high for some patients and low for others. Waste is rampant, and costs have escalated more rapidly than incomes for years. Patients and their insurers often pay widely divergent prices for services provided just miles apart. And the patient and insurance billing system is bureaucratic, opaque, and maddening for all concerned.

The fundamental problem is the absence of discipline and accountability. There is very little incentive for those providing care to patients, or for insurers, to become more efficient over time, or to lower their prices, because doing so provides uncertain returns at best. More often than not, cost-cutting does not translate into expanded market share and stronger financial performance.

In this way, health care stands out. In most sectors, consumers gravitate naturally to the businesses that can eliminate unnecessary costs or find better ways of delivering products and services, which translate into lower prices. But  the health care market misfires because of inherent and external factors that protect expensive incumbents even when they underperform and overcharge.

To provide high-quality care with the least possible use of resources, institutions and clinicians need strong financial incentives to become more productive over time, which can be a painful process. For the market to work, firms need to be able to attract consumers by sharing the financial benefits tied to efficiency gains with them. That is not a realistic possibility in many health care settings today because of numerous impediments. As just one example, consumers are price insensitive to expensive care because their costs don’t change once they’ve hit the deductibles in their health insurance plan, so there is no reason to seek lower-priced providers.

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Comments (62)
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  • Good article. I'd love to see policy-focused articles like this on more recent market innovations like Cost Plus Drugs, or Surgery Center of Oklahoma. There's been some mainstream coverage of both but nothing deep enough for my satisfaction.

  • As a physician, I have some thoughts. First, I totally agree with the problems as laid out in the article. There is not a truly free market in health care. CMS (Medicare and medicaid) set rules about reimbursement that have to be followed. Many insurance companies negotiate based on these rules and come to similar, if slightly higher reimbursements. There is little to no transparency about prices of care, especially specialty care or procedures. This leads to the inability to make informed decisions about where to get care (when it's not an emergency).

    Not mentioned in the article is that the main driver of increased cost over the past 50 years has been added administrative costs. The number of administrative postings has grown over 3000%, while the number of physicians has grown around 150% (data through 2009). Many of these administrative costs are due to increased regulations that require an army of people to check boxes and review paperwork.

    I don't know what the right answer is to decrease costs, but I think reducing administrative costs is a start. Getting rid of hidden master charge sheets and being transparent about prices is another. I dislike the burden placed on me for onerous documentation. Some of that is starting to improve. Outcomes based reimbursement may have a place in improving care, but it also pushes doctors to avoid treating sicker patients. There are so many facets to this complex issue that it will take multiple changes to improve and I'm sure that increasing bureaucratic oversight isn't the answer.

  • I liked this article, but a major part of this problem that is rarely mentioned is that we need more doctors. The number of doctors is not controlled by any market process. It is strictly limited way beyond what high standards would allow for. The number of new physicians should be determined by the number of qualified applicants. Every one of them should get in to medical college, not just a few of them. We cannot ever have a free market system if supply of the most important part is artificially limited.

    1. I second this and Kyle.Conway above. I like that the article pushes back on the idea that the problems with medical care are entirely thanks to the free market, and it’s right that pricing is far from transparent, but it doesn’t touch enough on the supply-side of the issue and why there is such a shortage of qualified practitioners in the first place and the measures that can be taken to address this.

    2. There are actually more than enough med school graduates. The bottleneck is residency slots, limited by the agreement both of doctors groups and the federal government (the government pays hospitals for training). No residency, no job.

      1. You are right, I was going to bring that up as well. But I think that if that bottleneck were removed and if medical colleges could expand or if new medical colleges could be opened, there would be many jobs for all these new doctors. Once the best and highest paying jobs in big cities are continuously filled, new physicians would have to start practicing in other areas that really need more physicians. But yes, those sort of industry trade protections whether intentional or as a result of clunky government healthcare policy need to be reformed or removed.

  • I'm sorry, but comparison shopping is just not going to work in health care. I don't know why conservatives keep trying to go back to this naïve idea.

    When your son or daughter falls and breaks their arm, you are not going to call around to hospitals to get estimates. You are going to take them to the emergency room and get them help. If your wife or husband gets cancer, you are not going to go bargain shopping for the cheapest treatment. You are going to get them the best treatment you can find.

    The real problem with health care is that we have completely lost the thread on what health insurance is designed to do. Insurance is supposed to be a hedge against catastrophic costs, yet somewhere along the way we have converted health insurance into a health care payment system.

    Think about your car insurance. When you put gas in your tank do you file a claim? When you get a tune up, do you file a claim? When you have a minor repair do you file a claim? No. You only file a claim when the costs would be extraordinarily high. Typically claims are only filed for an accident (i.e. a catastrophic event). So why is it that we file claims on our health insurance every time we go to the doctor? Why are we filing claims when we get a prescription filled? Why are we forced to buy insurance to cover health events we will never face? Let's face it, as a middle aged man I don't think I need to pay for prenatal and pregnancy services on my insurance plan, but Obamacare mandated a one-size fits all/cover everything insurance policy.

    If you want to fix health care, you need to stop worrying about health insurance and start working to bring down health care costs. Here are a few ways to do that:

    1. Repeal Obamacare which added miles and miles of bureaucratic red tape that made the costs of everything go up. Not only that, but the demand that all pre-existing conditions be covered actually creates a disincentive to buy and maintain health insurance. Why go through the trouble of buying health insurance and maintaining it when you can just wait until you are sick and then sign up for coverage?

    2. Tort reform to lower malpractice insurance costs and cut CYA testing.

    3. Drug patent and FDA reform to make it easier to get drugs approved with incentives to allow generic brands faster. Stop the practice of allowing drug companies to "evergreen" their patents. Push a shorter patent timeframe but allow for royalties on generic versions of the drugs.

    4. Allow true a la carte health care plans. Let people pick and choose their coverage. There is no reason I should be paying for health care coverage I will never physically or biologically need.

    5. End anti-competitive state laws like Certificates Of Public Need (COPN) laws that limit health care options and prevent new health care facilities from being built to provide more competition.

    6. Expand the definition of family coverage to extended families. Why can’t I, as an employee with full health coverage, also cover my parents, or even my sister? Think of how many people we could pull off Medicare if we gave people the option of helping to cover their parents? With fewer people on Medicare and Medicaid those institutions could then offer more per person in coverage, and costs to normal patients will go down (because doctors charge patients with health insurance more for service to make up for the limited money Medicare and Medicaid gives them).

    If you do these things you will generate more competition and lower costs in the health care industry and that will make things better for everyone.

    1. I think point 2 works against your original point of consumers not comparison shopping. It will insulate bad doctors.

      1. Malpractice insurance is the single largest expense for doctors and hospitals by far. That single cost drives billions in higher costs for medical visits. It causes doctors to order tons of expensive but useless tests to rule out things the doctor already knows are not the problem. All of these things drive up costs, which drive up premiums, and waste time and money.

        Tort reform will not insulate bad doctors. It will free good doctors from the threat of frivolous lawsuits so they can go back to providing good care instead of just trying to cover their rear ends.

    2. Two non starters here. Failing to cover pre existing conditions means your idea is dead on arrival. Second, a la carte insurance violates the concept of insurance by creating a pool of risk that would require premiums beyond anything reasonable. Nice is you to point out pre natal and pregnancy services but you should also be aware women should not have to pay for the millions of practitioners to "fix" ED in men. And then subscribe will come along and say no sickle cell coverage for me, etc. See where this is going? I don't trust any group in the medical care system to have my back. Medical care is unlike a phone or a tv.

      1. I need an edit button!!!!

    3. Actually comparison shopping could work. Only about 2% of healthcare expenses is emergency care. The primary reason it doesn't work is because it's so hard to get good pricing information.

      Moreover, the most expensive treatment is often NOT the best treatment. Healthcare centers of excellence like the Cleveland Clinic, or Oklahoma surgery center are often MUCH cheaper but also offer the some of the best care in the country/world.

      3. agreed

      (from a previous post)

      If you want the price of something to go down, you need to increase supply faster than demand, AND have competition.

      Thus if you want total healthcare costs to go down. You should focus on increasing healthcare supply, and make sure there's competition (pretty much the opposite of what Obamacare did, which focused on more people getting healthcare coverage which will increase demand, and thus costs).

      To have that competition, you need to mandate that providers post those prices online. That price should also be the same no matter who's paying. IE, the cash price, insurance price, or government price should be the same no matter who's paying.

      If you increase supply, and have actual competition because people can see the prices, then that will focus providers on getting costs down.

    4. I don't think employers want to pay the premiums for all those dependents.

  • USA has excellent medical care, but no medical "system".
    There is no top to bottom plan for caring for our sick and preventing illness among the well.

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