Technology Growth and Expenditure Growth in Health Care, by Amitabh Chandra and Jonathan Skinner (Journal of Economic Literature)
In the United States, health care technology has contributed to rising survival rates, yet health care spending relative to GDP has also grown more rapidly than in any other country. We develop a model of patient demand and supplier behavior to explain these parallel trends in technology growth and cost growth. We show that health care productivity depends on the heterogeneity of treatment effects across patients, the shape of the health production function, and the cost structure of procedures such as MRIs with high fixed costs and low marginal costs. The model implies a typology of medical technology productivity: (I) highly cost-effective “home run” innovations with little chance of overuse, such as anti-retroviral therapy for HIV, (II) treatments highly effective for some but not for all (e.g., stents), and (III) “gray area” treatments with uncertain clinical value such as ICU days among chronically ill patients. Not surprisingly, countries adopting Category I and effective Category II treatments gain the greatest health improvements, while countries adopting ineffective Category II and Category III treatments experience the most rapid cost growth. Ultimately, economic and political resistance in the United States to ever-rising tax rates will likely slow cost growth, with uncertain effects on technology growth.
The New Era Of Payment Reform, Spending Targets, And Cost Containment In Massachusetts: Early Lessons For The Nation, by Robert E. Mechanic, Stuart H. Altman and John E. McDonough (Health Affairs)
As its 2012 session drew to a close, the Massachusetts legislature passed a much-anticipated cost control bill. The bill sets annual state spending targets, encourages the formation of accountable care organizations, and establishes an independent commission to oversee health care system performance. It is Massachusetts’s third law to address health spending since the state’s landmark health insurance coverage reforms in 2006. The 2012 legislation is a notable step beyond other recent cost control efforts. Although it lacks strong mechanisms to enforce the new spending goals, it creates a framework for increased regulation if spending trends fail to moderate. Massachusetts’s experience provides several lessons for state and federal policy makers. First, implementing near-universal coverage, as is planned under the Affordable Care Act for 2014, will increase pressure on government to begin controlling overall health care spending. Second, introduction of cost control measures takes time: Massachusetts enacted a series of incremental but increasingly strong laws over the past six years that have gradually increased its ability to influence health spending. Finally, the effectiveness of new cost control laws will depend on changes in providers’ and insurers’ behavior; in Massachusetts, private market activity has had a complementary impact on the pace of health system change.
Therapeutic Evolution and the Challenge of Rational Medicine, by Jeremy A. Greene, David S. Jones and Scott H. Podolsky (The New England Journal of Medicine)