It’s Not Just the Prices, Stupid: Health Care Reform Needs More Than Just Buyer Bargaining Power

Few doubt that high and rising prices are a primary cause of both the level and growth of expensive health care in the United States. But policy that only focuses on prices foregoes the opportunity to change the allocation of resources and, thus, the structure of health care delivery needed to improve our health and reduce the cost of the related services.  Serious public and private plan designers should recognize that a great price for an unnecessary service generates both quality and cost problems.  For example, see the Economist’s brief on back pain. This blog posting highlights the central role that a well structured primary care driven system can play in delivering cost-worthy[1] and only cost-worthy care.

The late Uwe Reinhardt, healthcare economist extraordinaire, is well known for a 2003 jointly authored article entitled “It’s The Prices Stupid: Why the United States is So Different From Other Countries.”  In January 2019, a co-author of the 2003 paper, Gerard Anderson, whom I met at Johns Hopkins University many years ago, and colleagues wrote an updated reprise and tribute to Reinhardt entitled “It’s Still The Prices, Stupid: Why The US Spends So Much on Health Care, And A Tribute to Uwe Reinhardt.”  .  Here’s a portion of the abstract (emphasis added.)

 “A 2003 article titled “It’s the Prices, Stupid,” and coauthored by the three of us and the recently deceased Uwe Reinhardt found that the sizable differences in health spending between the US and other countries were explained mainly by health care prices. As a tribute to him, we used Organization for Economic Cooperation and Development (OECD) Health Statistics to update these analyses and review critiques of the original article. The conclusion that prices are the primary reason why the US spends more on health care than any other country remains valid, despite health policy reforms and health systems restructuring that have occurred in the US and other industrialized countries since the 2003 article’s publication…”

Neither of these articles highlights how delivery structures and payment system differences across peer countries (OECD) affect expenditures and health outcomes.  The mix of types of medical care practitioners and payment structure are of particular importance.  In a recent publication highlighted by the Milbank Memorial Fund, the U.S. apportions (based on the average of state level data) 5.6 percent of its health care spending on primary care (see chart below.)  Based on data from the OECD, the spending ratio for peer countries averages 14 percent, more than double that in the U.S. In addition to providing background information, the OECD has also provided a vision for resource use, organizational structure, appropriate incentives, and measurement metrics to frame an efficient and equitable primary care driven system.

Allocation of Spending in the U.S. Among Health Care Components

Not only is the use of primary care relatively small in the U.S., it has been declining.  A recently released paper in the Annals of Internal Medicine notes that between 2008 and 2016 visits to primary care physicians (PCPs defined as family practice, general internists, and pediatricians) per 100 member years for adults between 18 and 64 declined by 24.2%, much of it attributable to increased out-of-pocket costs for non-preventive care.

In a July 2017 review of 30 studies (including 17 that were peer-reviewed and 4 done by state governments) conducted for the Patient-Centered Primary Care Collaborative, the authors observed the following: 

  • Of the 23 studies that reported on costs, 21 found reductions in cost for primary care driven approaches.
  • 23 of the 25 studies that reported on resource utilization found reductions in at least one measure of such use. 
  • Negative relationships between the percentage of expenditures on PCPs and 1) the percentage of the population with at least one emergency room visit in the past year, 2) the percentage of the population with at least one hospitalization in the past year, and
  • A negative relationship between the percentage of expenditures on PCPs and the percentage of the population with an avoidable hospitalization (if timely primary care had been provided.) See the below graphic. The average for the state of Minnesota is only slightly above half the OECD average.  Furthermore, for Minnesota in particular, the average hides significant differences between the results generated by primary care driven systems, especially in the Twin Cities, and those for hospital driven systems.

The above noted results for Minnesota did not arise purely by accident.  According to Claire Neely of the Institute for Clinical Systems Improvement, “the investment (in primary care driven systems) was the result of a demanding and engaged employer purchaser community; a culture of public performance measurement of health providers, coupled with improvement collaboratives; and local medical schools’ commitment to valuing and promoting primary care.”

In its 2018 Health Care Cost and Utilization Report, the Health Care Cost Institute identifies one major target for how primary care could deliver less costly care along with better health outcomes.  In three figures (10-12), the report illustrates the significant influence on spending of the treatment of those with chronic disease.  Based on data from the four commercial insurers in its database [2] (Aetna, Humana, Kaiser Permanente, and United Healthcare), the report identifies 20.2% of employer sponsored covered lives as having one of five chronic conditions: hypertension, asthma, diabetes, attention-deficit/hyperactivity disorder, or congestive heart failure. Those with two or more of these conditions constitute 5.8% of the population covered.  The related spending for 2018 is reported as follows:

  • No chronic disease – $3,755 per person (74% of covered lives)
  • One chronic disease – $9,187 per person (20.2% of covered lives)
  • Two or more chronic diseases – $20,762 (5.8% of covered lives)

Clearly, how medical care delivery systems treat patients with chronic disease matters immensely.

A recent Health Affairs article entitled “Living in a Country with a Strong Primary Care System is Beneficial to People with Chronic Conditions” addresses this set of circumstances by observing differences in self-reported health and limitations regarding five activities of daily living across 31 European countries. The paper concludes as follows:

“…We found that people with chronic conditions were more likely to be in good or very good health in countries that had stronger primary care structure and better coordination of care. People with more than two chronic conditions benefited more: Their self-rated health was higher if they lived in countries with a stronger primary care structure, better continuity of care, and a more comprehensive package of primary care services.”

In a February 6, 2020 blog posting, Milbank Memorial Fund President Christopher F. Koller argues that a rebalancing from hospital systems driven medical care to one based on primary care “will not happen by itself.  Those who benefit from current arrangements cannot be expected to change their practices.  Shifting costs from one payer to another or getting more patient ‘skin in the game’ hinders rather than helps rebalancing.  And the shift away from fee-for-service provider payments to payments that encourage population level accountability is necessary but not sufficient.” (Emphasis added.)

Clearly, high and rising prices of American health care should concern us; however, at least as important, is the investment in primary care to steer us to the most coordinated and cost-worthy care.  If we were able to decrease the prices of current health care but continued to use the same processes of care, insufficient coordination and uncostworthy care would still be with us.  Some areas of the country have strengthened investments in such primary care directed and coordinated services and, thus, decreased some of the most expensive care provided in emergency rooms and hospitals. Debates about national policies such as “Medicare of All” coax us into waiting for some Washington, DC one size fits all solution, whereas purchasers (both public and private) of health insurance plans and medical care know that they need local solutions now.  

What if we thought globally and acted locally; that is, we learned from the innovations that have taken place around the world to craft local solutions.  As Koller points out, such innovations will not come from those who benefit greatly from existing (costly) delivery system structures.  Those with opportunities to create countervailing market power, including cooperative efforts to make their spending be both more efficient and more equitable, should marshal their forces to change the dynamics of local medical marketplaces to be better stewards of their communities’ resources. 

The next community investments should be in improving access to primary care rather than to building expensive new specialty-oriented, hospital-connected facilities.  Such investments would help primary care providers manage multiple chronic conditions, assure uninterrupted access for doctors to their patients’ electronic medical records, and help us avoid preventable ER visits and hospitalizations when coordination of care can make a difference.  Such a strengthening  of primary care would also support the Fox Valley’s Community Health Needs Assessment that so many in our communities have worked on to guide our health care investments.

[1] The term costworthiness comes from Paul Menzel’s 1983 book Medical Costs, Moral Choices. The term refers to the “care which brings patients and other affected parties benefits whose value is at least as great as that which would be obtained by using the same money to satisfy other needs and desires instead.”

[2] Data include both fully insured enrollees as well as those for whom the insurer provides third party administrative services to self-funded organizations.


4 thoughts on “It’s Not Just the Prices, Stupid: Health Care Reform Needs More Than Just Buyer Bargaining Power

  1. This is really good. You should submit it to some online blogs…like Project Syndicate. This is much more instructive that the Acemoglu piece you sent the other day.

    Bill McLaughlin



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