Economics, Entitlements

Healthcare’s Quadrilemma: Tech, Insurance, Outcomes, Costs

Ben Bernanke’s address was not the only one to make news at Jackson Hole. (Rohan can tell you all about Bernanke and QE3.) Jordan Rau over at Kaiser Health News’s Capsules Blog reports on the presentation from Harvard economists Katherine Baicker and Amitabh Chandra (from their related paper) in which they discussed how health spending is affected by technology. They questioned whether we could slow the growth of health costs by shifting away from low value (high cost, minimal benefit) treatments to higher value alternatives. The title of their paper succinctly highlights the tradeoff: “Aspirin, Angioplasty, and Proton Beam Therapy: The Economics of Smarter Health Care Spending.” As a means to that end, they proposed better use of patient cost-sharing and provider payment incentives to encourage more efficient use of healthcare. They call for more information about the cost-effectiveness of treatments. With that, providers and patients could make better judgments about the value of their healthcare spending.

The choice among therapies was not the only trade-off they highlighted. They connected the technology trade-off with the growth of accountable care organizations (ACOs), which were expanded by the Patient Protection and Affordable Care Act for use in Medicare. In an ACO, doctors coordinate to provide efficient care for their shared patients. If they save money while achieving good outcomes, the doctors get to keep some of the savings. If their treatment is poor, however, those doctors may have to absorb some of the financial loss involved. Baicker and Chandra’s two main concerns about ACOs are whether they can resist the excessive use of technology, even given incentives to do so; and whether their growth in market share will push prices up, offsetting any savings for Medicare.

On the one hand, an ACO might not achieve savings as expected if it will continue to use more expensive and only marginally better technology. On the other hand, an ACO could achieve savings, grow in market share, and leverage its position to command higher prices. Chandra will present these views on health spending here at AEI on September 9, in an event titled: “Solving the Healthcare Quadrilemma: Technological Change, Insurance, Outcomes, and Costs.” He will be joined by Tomas Philipson (an AEI visiting scholar) and Sheila Smith. Be sure to join us for this lively discussion as they debate the merits of technology and cost-effectiveness in healthcare.

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