10/18/2011 01:31 pm ET | Updated Dec 18, 2011

Prevention vs. Treatment and the Perverse Incentives Inflating the Costs of Healthcare

It's well known that Americans pay more for less when it comes to healthcare than just about any other country in the world. In 2009, we spent nearly $8,000 per person to provide medical care to just over 80% of our population -- that compares, for example, to just under $3,500 spent per person in the UK to provide care for the entire population. To add injury to insult: our counterparts across the pond get an extra year of life for their $3,500 than we do for our $8,000.

Why do we pay more for less when it comes to our health? Every policy wonk has his theory. Common ones include the high cost of American medical education (which is too expensive), or that permissive tort laws in the U.S. enable lawyers to profiteer the health system (which is true). But while each of these theories, and others, explain small quirks in our health system that certainly contribute to it's gargantuan price tag, they don't address the fundamental issue with our health system. And that's that our market-driven system introduces perverse financial incentives for medical providers that don't align with the health or wellbeing of Americans. This leads to wasted money and lost lives.

In our healthcare system, the fundamental billing unit is the "procedure" -- doctors charge per action, diagnostic or curative, taken on the part of a patient. While, on the surface, rewarding doctors for each step they take to make a patient better may seem fair, it has disastrous consequences for the structure of our health system. Chief among them is our top-heavy physician specialty structure.

Let's consider, for example, the incentives around America's #1 killer: heart disease. This malady is responsible for about one in four lives lost in the US. What causes heart disease? At the most basic level: poor eating, low physical activity, and smoking. It follows then, that if the goal was to minimize death and suffering resulting from heart disease, the health system would invest in improving diets, increasing physical activity, and eliminating smoking. The system would devote its resources and most talented minds to advising patients about their health habits at regular office visits with general practitioners -- well before they ever developed a symptom. But here's the problem: in our system, primary care office visits aren't exactly procedures. Not surprisingly, they don't bill very much, and the system doesn't invest very much into them.

By stark contrast, consider what happens to people after years of smoking, eating poorly, and being physically inert: They get heart attacks. In our procedure-oriented system, that's when you hear the "cha-ching" of the money rolling in. They're rushed to the emergency room, where all sorts of tests are run to characterize the heart attack, and then rushed to cardiac catheterization labs or operating rooms where life-saving procedures are attempted.

Now, imagine you're a newly minted physician (probably saddled with over $100 K in debt). What specialty do you choose? Do you go into primary care and get paid relative peanuts to help prevent people from getting heart disease, or do you follow your financial incentives and go for the career in cardiovascular surgery, waiting for your patients to get heart attacks so you can treat them? The findings of a recent study in Health Affairs are telling: the study considered whether or not the incentives to choose more lucrative specialties in the U.S. were higher than in five comparable OECD countries, and found that in the U.S., the difference in earnings between specialists and primary care physicians was highest -- surgeons made almost 2.5 times as much as their colleagues in primary care.

In this way, our for-profit, procedure-oriented medical system skews the incentives away from primary care, where disease prevention can happen, toward specialty care that is ultimately more expensive and less efficient. In our system, a heart attack prevented is a dollar (or many thousands) lost -- and the high number of specialists relative to primary care doctors reflects that. This perverse incentive set is a foundational reason why American healthcare costs more, is less equitable, and produces worse outcomes than almost any other health system in a comparable country.

Unfortunately, while the Affordable Care Act tips its hat to prevention, it does nothing to restructure the incentives that ultimately stack up against it. And as our population continues to age, the high costs of specialty care for diseases we could have prevented will continue to inflate our national debt. It is no doubt, then, that addressing our burgeoning healthcare costs, which have been projected to approach 20% of GDP in the next several years, will mean empowering preventive institutions--primary care among them. Only by realigning doctors' incentives with disease prevention efforts can we lasso in rising costs and, most importantly, improve the health and wellbeing of our country.