Despite an apparent slowdown in the annual increase in U.S. healthcare costs-to only about twice the rate of general inflation-there is little cause for celebration. Yes, a recent study's finding of a 7.4% health spending increase in 2003 is a good sign after several years of much higher growth. A slowing of prescription drug cost increases is also excellent news. Hospital utilization was almost flat, a sharp falloff from the increases seen in the past several years. God is great.
The problem is that the long-term trends, though they may be moderating somewhat, are still on an unsustainable course. The study that reported the new cost numbers, conducted by the Center for Studying Health System Change, also found no evidence of any systemic change. The dissemination of new technology and a payment system that still refuses to differentiate among treatment options based on efficacy will continue to cause healthcare costs to rise much faster than growth in the overall U.S. economy.
Everyone is still in on the party.
In 2003, hospitals used enhanced local market control to push hospital prices up 8%, even as utilization increases slowed to a crawl and wage rates increased only 4.2%.
Despite a slowdown in drug prices, manufacturers got away with a 9.1% increase in 2003, the center's study found.
For 2004, health premiums are rising at least 12%, more than 60% above the underlying health-cost inflation rate, surveys by benefit consulting firms show. That translates into employers looking to cut coverage and/or shift large costs to employees, threatening to expand the number of uninsured while making everyone else angry and less well off.
Which is why the situation involving WellPoint Health Networks is so embarrassing for this industry. WellPoint is trying to merge into Anthem in a $16 billion deal. The merger partners keep talking about how the combined company will provide new economies of scale and new abilities to track outcomes and thus lowering costs and improving quality. But WellPoint-which among major health plans pays out the least amount of its premium dollar for members' care-intends to pay 293 executives as much as $600 million in bonuses, severance pay and stock options.
The company's chairman and chief executive officer, Leonard Schaeffer, would get a diamond parachute worth $331 million. A spokesman for the company says only $42 million of this payday for the ages is "directly related to the merger." The rest consists of "incentives" he has accrued since 1986. That means he has received an average of $16 million each year in compensation beyond his huge salary and already-paid bonuses. He makes Dick Grasso look underpaid. Here's a question: Does WellPoint have a board of directors?
Put another way, if you take the midrange of the Institute of Medicine's cost estimates for covering each uninsured person, Schaeffer's booty would reduce the number of un-insured by some 236,000 people for a year.
However you look at it, it's a terrible statement about a healthcare system trying to lower costs and win added re-imbursement from the federal government.
Instead of treating executives like Saudi princes, we need to treat this spending situation as the crisis it is. Every player must work to speed the development and dissemination of strong clinical evidence of treatments that work, and base payment to providers on their successful use of those options. We also need far more preventive care and disease management programs.
The fear here is that the study showing a temporary slowing of health cost inflation may slow the movement toward desperately needed health system change. Instead of a pat on the back, treat it as a kick in the shorts.
What do you think?
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