why medical care is expensive

David Kent, a Boston MD and professor of medicine, wonders why “less expensive, lower-quality innovations abound in every economic sector—except medicine”.

[M]edicine is distinct from most other markets, in which cost-decreasing, quality-reducing products are continuously being introduced—think IKEA, Walmart and the Tata car. Several reasons may explain this “medical exceptionalism.” First, there is fundamentally a lack of incentives both for physicians to control costs, especially under a fee-for-service regime, and for patients to demand less expensive treatment when insurance shields them from the direct costs of care. Second, medical “bargains” frequently come with health risks, and trading health for money strikes some as vulgar, regardless of ratio. The inherent ethical unease that decrementally cost-effective innovations can elicit poses a serious public relations and marketing challenge.

However, consumers have been comfortable with many decrementally cost-effective options outside of health care that pose similar health risks. For example, automobile manufacturers produce many vehicles that lack certain safety features (for example, side-impact airbags), because some consumers are willing to forgo those options to reduce the purchase price. Why not in health care? ….

[Health care is different, many believe, because] consumers are shielded from the costs of their care. A system based largely on prices (that is, price rationing) may control costs better than our current system, but it would of course mean that those with the most money have first dibs on scarce health-care resources, and there might be little left over for those without means. (There are other reasons too why most consumers can’t be expected to comparison shop for emergency coronary angioplasty or for charged-particle radiosurgery for their glioblastoma the same way they might for gasoline, underwear and cling peaches). It is a fantasy to believe that price rationing alone can provide an acceptable mechanism for the controlled distribution of medical services, and some other means are thus also needed. ….

But regardless of the mix [of price and non-price rationing], expanding coverage to the uninsured, caring for our aging baby boomers, and accommodating new, effective technologies—while still feeding, clothing, housing, and educating ourselves, and catching an occasional movie—will require our system of distribution of health services to be more cost-sensitive, and will almost certainly mean the adoption of some decrementally cost-effective strategies for saving money.

David Kent, “Just-as-good Medicine”, American Scientist 98(2), March-April 2010.

David Kent is an associate professor of medicine and clinical research at Tufts University in Boston. His research focuses primarily on cardiovascular and cerebrovascular disease. Dr Kent received his MD from McGill University and an MSc in Clinical Research Design and Statistical Analysis from the University of Michigan.

This ungated article is a valuable contribution to the health economics literature. It should be required reading for students – and their professors.

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