David Blumenthal and others recently published a paper in the New England Journal of Medicine entitled “Health Care Spending — A Giant Slain or Sleeping?”
In it they look at the ongoing, and rarely discussed, phenomenon of slowing of healthcare spending, which has persisted over several years. Health care spending grew remarkably after the establishment of Medicare and Medicaid in the 1960′s, resulting in the fact that healthcare costs now equal about 18 percent of our gross domestic product (GDP) when they were only 5 percent before these programs were introduced.
This was no coincidence. A third party payer, even one we expect to value frugality such as the government, will increase utilization of services because they are already paid for, and will increase prices for the same reason unless the prices are negotiated. In Europe, prices for procedures and medications are frequently negotiated, but in the U.S. powerful drug companies and device manufacturers successfully resist this, resulting in relatively free floating prices.
In the past few years, however, overall healthcare costs have slowed their growth considerably and now actually lag behind the increase in GDP. We have had a much slower economy since 2008, which could be expected to slow healthcare spending, but this effect has been beyond what economists would expect based on this.
The authors discuss the many factors that may be involved in slowing healthcare costs, and also present some strategies that might help encourage this trend. They suggest that some of the provisions of the Affordable Care Act, including establishment of health care models that make providers of healthcare more financially responsible for the health of patients rather than profiting from their illness, may already be having a positive impact.
Movement towards having patients be more involved in their own health, including making informed choices about treatment and testing may reduce unnecessary costs.