Code Red: Two Economists Examine the U.S. Healthcare System

March 12, 2010

Bending the Curve Versus Shifting the Intercept

Filed under: Budget,Efficiency,Health Reform,Health spending — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 4:42 pm

Time for another guest blog. This from my long time collaborator Will White at Cornell University.

Recently there has been a lot of discussion of “bending the curve” on health care costs. The basic notion is straight forward. Health care expenditures are currently growing much faster than GDP. Project current rates forward and it’s easy to conclude that it won’t be too long before health will gobble up the entire national product. (The CBO estimates that at existing rates, we will get there around 2082). But slow down the rate of growth to a sustainable level by permanently flattening the trajectory of the health cost curve and bingo, problem solved.

Bending the curve is certainly an appealing idea. But taking a look at some of the kinds of strategies actually being proposed, it seems “shifting the intercept” may be a more appropriate metaphor. Take the recent 2009 Brookings piece “Bending the Curve” by Joseph Antos and colleagues. They call for improved use of IT, better use of comparative effectiveness research and improvements in the health care workforce. All good ideas that could potentially substantially improve efficiency and slow the rate of cost growth. But permanently? Past history is replete with innovations like the Medicare Prospective Payment System whose implementation was accompanied by substantial savings, but where eventually the potential for gains was largely exhausted and cost growth returned to its old levels. The real elephant in the room seems technological change. The introduction of new technology could certainly be better rationalized; everyone has stories of expensive new tests and treatments yielding questionable benefits. However, raising the bar and requiring a higher cost benefit ratio to introduce new technology by no means guarantees there won’t still be substantial cost growth. This will depend on the pace of medical innovation and how it impacts on costs and that seems hard to forecast. If we really want to bend the curve, there is a simple solution, but I don’t think most people would like it: move to a budget driven system that caps growth at the level of growth in the GDP.

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