So That's Why It's So Expensive

Blame insurance, not just tech, for spiraling health costs, says an MIT economist By Howard Gleckman Economists have long believed that technology is the main reason that health-care costs are rising so rapidly. The endless stream of innovation, from new drugs to delicate tools for microsurgery, the theory goes, largely explains why medical spending has exploded from 5% of the U.S. economy in 1960 to 16.5% today. According to some studies, as much as 65% of that growth could be laid at the feet of tech.

Now a young economics professor at the Massachusetts Institute of Technology is challenging the conventional wisdom. After studying data going back to the 1960s, Amy N. Finkelstein has concluded that the real culprit for the rapidly rising cost of health care is the massive expansion of medical insurance over the past 40 years. Sure, new technologies play a role, but doctors, hospitals, and consumers adopt them so freely largely because insurance foots the bill. ``Where does that technological change come from?'' asks Finkelstein, 32, who lives in Cambridge, Mass., with her economist husband, Ben Olken. ``I am trying to get inside that black box.''

If Finkelstein is right, her work could change the way policymakers and the companies that pay for most medical care think about costs. For example, if individuals have to pay more for their care through high-deductible health plans, they may cut spending. Her theory could also spur the drive for evidence-based medicine, the effort of some reformers to encourage the use of only those treatments that have been proven to work (BW -- May 29).

Already, Finkelstein's analysis is shaking up views across the political spectrum. ``This is pathbreaking work,'' says Joseph R. Antos, a health economist at the conservative American Enterprise Institute. Adds the more liberal MIT economist Jonathan Gruber: ``This really changes the whole landscape in the way we think about health economics.''

Why is insurance so important? One obvious reason, Finkelstein believes, is that consumers opt for more care if someone else pays for it. But the more significant effect may be that insurance guarantees a steady source of revenue for hospitals and other health providers. Such ready cash encourages them to build new cardiac-care centers and stock up on the latest high-tech equipment, knowing it will be paid for. ``If you produce expensive new things for medical care, people will buy them,'' says Paul Ginsburg, president of the Center for the Study of Health System Change in Washington. He has found results similar to Finkelstein's by looking at medical spending patterns in 12 U.S. cities.

Finkelstein's breakthrough confirms a theory first advanced almost 30 years ago by Harvard economist Martin Feldstein. At the time he didn't have detailed health-cost data to prove his case. Then in 1987 a massive Rand Corp. study concluded that technology accounted for more than half of the rise in health-care costs. Insurance, Rand figured, increased costs by just 10%.

So Feldstein's theory gathered dust until Finkelstein discovered the proof by sifting through long-forgotten paper records in MIT's library. There, she found that hospital spending soared after the federal Medicare program began in 1966. ``I thought, why am I getting such a large number,'' she remembers.

Finkelstein had the papers scanned and shipped to a company in Cambodia, where it took 18 months to turn the records into usable data. The story they told was dramatic. In regions such as the South, where most seniors had no insurance, health spending soared after Medicare. But in New England, where many already had coverage, Medicare had much less impact on costs.

Not everyone buys her conclusions. Some think she has overstated the importance of insurance. Others question whether her results apply to private coverage as well as Medicare. But she has prompted many experts to rethink their long-held views. And now that Finkelstein thinks she's figured out how much insurance has increased costs, she wants to find out whether all that extra spending has paid off with better care.

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Lax doctor registration in Australia again

More than a year after the State Government toughened doctor registration in the wake of the Jayant Patel scandal, a Google search has revealed another surgeon with a questionable past. Eugene Sherry has been stood down from his job at Rockhampton Hospital after it was discovered he had served six months in a US jail in 1982 for raping a nurse along with two other doctors.

Dr Sherry, who trained in New Zealand and worked in Mackay for six months before moving to Rockhampton three weeks ago, twice failed to reveal the conviction to Queensland authorities. The Medical Board of Queensland, which was tipped off to his past by the Australian Medical Association, has now asked him to show cause why his registration should not be cancelled. The Crime and Misconduct Commission is examining the case.

Health Minister Stephen Robertson yesterday ordered criminal history checks to be conducted on all 14,000 doctors working in Queensland. Mr Robertson said Dr Sherry had been working in NSW since 1983 and was automatically registered in Queensland under an agreement between the states. "We don't think it is appropriate that doctors with these serious convictions should continue to practise," he said.

Premier Peter Beattie announced that the medical board would again be overhauled to focus solely on the registration of doctors, with a police representative added to ensure there was a thorough check of credentials.

Liberal leader Bruce Flegg yesterday criticised the Government for again failing to ensure proper checking of doctors. "At the end of the day, the Government is the employer. It is up to the Government to check the staff that they employ," Dr Flegg said.

In the wake of the Patel saga, new checks were introduced to ensure overseas-trained doctors seeking registration in Queensland had not been deregistered elsewhere. The checks include a Google search, but it is understood this was not done on Dr Sherry because he was trained in New Zealand and had already worked in NSW for 20 years.

Meanwhile, federal Nationals MP De-Anne Kelly has made a series of further allegations against a Mackay Hospital doctor. Ms Kelly accused Egyptian-trained surgeon Abdalla Khalafalla of falsifying surgical notes during procedures in which he operated alone. Dr Khalafalla, whose competence is being reviewed by the Royal Australasian College of Surgeons, is supposed to be prohibited from operating alone. "The Royal Australasian College of Surgeons was well aware that the operating notes for that particular operation were false," Ms Kelly said, when referring to a particular case.

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For greatest efficiency, lowest cost and maximum choice, ALL hospitals and health insurance schemes should be privately owned and run -- with government-paid vouchers for the very poor and minimal regulation. Both Australia and Sweden have large private sector health systems with government reimbursement for privately-provided services so can a purely private system with some level of government reimbursement or insurance for the poor be so hard to do?

Comments? Email me here. If there are no recent posts here, the mirror site may be more up to date. My Home Page is here or here.

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