02/13/2009 05:12 am ET Updated May 25, 2011

Insatiable Health Care Appetite Trumps Cost Cap Efforts

Here's yet another hint about why reforming America's health system is so daunting-- the overall consumer price index jumped by 4.1% in 2007 while prescription drug prices rose by 1.4%, hospital prices went up 3.5% and fees charged by doctors rose by 3.9%.

So what's the problem? It seems that the health prices are rising more slowly than others. Obviously, this apparent good news isn't the whole story. In fact, health spending gobbles up a growing percentage of our GDP (16.2% in 2007) because total spending on care rose by 6.1% as increases in volume far outpaced price hikes. We took more pills and had more tests.

This is the latest bit of evidence confirming that any effort to cap costs will have to focus on limiting volume, which keeps creeping up. Politicians understandably prefer to adjust prices because that has little direct impact on patients. If Medicare cuts reimbursement for a physician visit by $5, that doesn't make it more difficult to see a doctor.

To the contrary, doctors will probably schedule more visits in an effort to maintain their income at a constant level. Or, as a therapist remarked to me recently, that's why poor people in government programs typically require more visits to deal with any given problem.

But if you try to limit the number of visits, tests or pills, that's quickly obvious to the patient population that generally believes more is better.

Hospitals offer an example of the difficulty. Between 1990 and 2006, the number of days Americans are hospitalized dropped by better than 28% (from 784 to 558 per thousand of us), continuing a trend that began earlier. But our national hospital bill continues to rise much faster than the price of any individual hospital service.

Part of that merely reflects the fact that people in hospitals are sicker than they once were (those with minor problems who used to be hospitalized are now treated as outpatients), but part reflects a growing intensity of services delivered to those who are hospitalized. Medicare has tried to combat that problem by paying a flat fee per diagnosis regardless of the services delivered, but private insurance continues to pay for individual services.

These trends also raise a quiet but potentially explosive question about whether America has enough physicians. Already there are complaints about local shortages. If behavior by American patients, who already tend to visit doctors more often than residents in other rich countries, is going to move in this direction, then there's a need to spent more money to educate more doctors -- a strategy that will drive costs up even further because, in medicine, supply creates demand.

If, on the other hand, we can create a system where people are comfortable visiting their doctor less often, the current system may be adequate for decades ahead. That decision, which has yet to inspire any public discussion, will have a big impact on medical costs during the second half of this century.

Originally posted to