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Kenneth Thorpe Headshot

Disease Drives Demand

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In an editorial yesterday, the Wall Street Journal argued that if the United States can implement policies that reduce the demand for -- and consumption of -- health care, we can reduce costs.

I don't disagree that reducing the demand for care would help to control costs; however, I do take issue with the Journal's assertion that creating more "individual responsibility for medical decisions" will completely solve our problems with excess demand.

Demand for health care (especially expensive care) does not begin with stepping into a doctor's office or filling a prescription. It comes from people needing care in the first place because they are acutely or chronically ill.

Most spending in our health care system is associated with patients with established, long-standing medical problems that require ongoing medical maintenance and intervention. Chronic diseases such as diabetes, heart disease, and cancer account for 75 percent of health spending in the U.S. -- and even higher proportions of spending in Medicare (96%) and Medicaid (83%). These diseases are responsible for two-thirds of the growth in health care spending since 1987.

It's not just a small group of Americans who are chronically ill. Today nearly half of Americans -- 130 million people -- need care regularly because they have chronic health conditions; many cases of which could be prevented or better managed.

An across-the-board increase in cost sharing borne by patients like these -- by increases in co-pays or cost sharing, as the Journal argues, is short-sighted policymaking. Increasing the price that patients face to reduce the likelihood that they will use health services may reduce health spending in the short-term (as in, patients may be less likely to see a doctor or fill a prescription), but will ultimately lead to more spending after their poorly treated illnesses render them in need of serious medical care or hospitalizations -- not to mention unable to work.

Spending for such patients is not reduced through reducing moral hazard but through effective medical management. Over 50 years ago, Nobel laureate Kenneth Arrow noted that when it comes to chronic illnesses, the debate about optimal cost sharing (balancing moral hazard and risk reduction) does not apply. In other words, the key to slowing the growth in spending is to attack its core causes -- the rising prevalence of disease -- which will decrease its associated costs.

Not to mention the fact that for all the "unnecessary" care that may be avoided by cost sharing, there are equally as many patients who may -- and already do -- avoid necessary care because of cost. Already, six in 10 Americans say cost forced their families to put off health care.

Today's Medicare program is an example of how -- even with high rates of cost sharing borne by beneficiaries (relative to private plans) -- costs remain high and outcomes poor. Medicare has high rates of preventable admissions to hospitals, and 20 percent of Medicare patients that end up in the hospital are readmitted within 30 days.

We are not going to solve this problem by continued increases in cost sharing, but instead by more effective care coordination and management before and after they leave the hospital.

By better managing chronic diseases, we avoid demand for costly procedures, such as amputations or surgeries that arise from untreated or mismanaged conditions. By preventing diseases, our system can avoid some costs altogether. The savings to both the health care system and the economy -- through improved productivity -- could be substantial.

The president and Congressional leaders -- on both the left and the right -- have rightly recognized that the problem lies in a misaligned delivery system in which Americans, insured or otherwise, aren't getting the right type of care to stay healthy and avoid costly procedures.

The solutions, such as improved care coordination and quality, will take some time to see the effects, but the result will be a radically different -- but ultimately more efficient and less costly -- health care system.