Big Data, Market-Based Reforms Lowering Health Care Costs

News that spending on health care has slowed down has been making the rounds over the past few weeks. This is a big deal, given our recent history with out of control health care costs, but the story within the story may be even more important: the reduced health care spending isn’t solely due to the recession.

Two new studies just published in the journal Health Affairs suggest that major structural changes are also bringing costs down, suggesting that the lower spending could outlast the economic downturn. WSJ:

The authors concluded that the remaining 55% was largely tied to “fundamental changes,” such as slowed development and adoption of new imaging technology and drugs, increases in out-of-pocket charges for patients, and more efficient practices among health-care providers. “It’s all adding up to a story that says it looks like it’s different from what we’ve seen in the past,” said David M. Cutler, an author and a professor at Harvard.

Of particular importance is the role played by new medical technologies. Historically, most medical tech developments have been innovations in care itself: new drugs, new miracle treatments, new expensive equipment. These have tended to raise health care spending by increasing the amount of care people consume.

But now we’re entering an era where medical tech developments are more about data collection and streamlined service delivery. This kind of tech is one of the best hopes we have of bringing health care costs down. These studies are an early sign that this tech may be living up to its promise.

The study also makes another important point: increased out-of-pocket spending is driving health care consumption down. When third parties bear the cost of care, patients have little incentive to bring market discipline to the health care sector. When patients have to bear more of the cost themselves, they’re more likely to limit their consumption of care.

It’s too early to tell whether the slowdown in health care spending will continue, but the structural changes these studies point to are encouraging. While the political debate over Obamacare continues, the health care industry continues to evolve on its own. So far, we like what we’re seeing.

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  • Lorenz Gude

    As I have pointed out many times US health care costs, as a percentage of GDP, about double what a country like Australia spends in return for slightly worse outcomes. Technical innovation hand in hand with structural changes are one way to make at least some progress. But imagine how hard those hospitals, doctors, insurance companies etc are going to fight to keep that extra 8% of US GDP. It’s a fair chunk of change and if I had a piece of it I’d buy a congress critter or two make sure I kept it. That leaves collapse as a cure and I think that is what it will take to pry their cold dead fingers off our GDP.

    • Jim Luebke

      Do you know how much of that 16% goes to the Miracle Factory (which is apparently winding down), how much goes to the Litigation Factory or defensive medicine, and how much goes into building palatial medical centers?

      It seems to me that that kind of knowledge, broken out in terms of fractions of that 16%, could go a long way to informing this debate.

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