Uh-oh. It's starting to look like those predictions of a continuing decline in health cost inflation were indeed premature. As this page predicted earlier this year, a report on 2003 health spending by the Center for Studying Health System Change was not something to celebrate ("A study best forgotten," June 21, p. 20). Last week, the center and the Employee Benefit Research Institute found that a two-year movement toward lower costs had stalled and that health costs rose at an annual rate of 7.5% in the first six months of 2004, essentially unchanged from 2003. Even though hospital utilization grew at just 0.8%, hospital prices were still 7.7% higher and spending on prescription drugs increased by 8.8%.
This is happening at the same time that the much-vaunted consumer-driven healthcare movement is supposed to be driving down costs. Employers have been shifting spending to employees for the past couple of years through higher premiums, deductibles and copayments. New high-deductible health plans have been designed to make workers more aware of the true cost of care.
What seems apparent is that these modest tools of spending control have been little but speed bumps for the runaway semitrailer of health costs.
If you've been reading the pages of this magazine you know why. A hospital building boom, patient demand for the latest and best treatments, and widespread inefficiencies of the care system are the real cost drivers.
Our Nov. 29 cover story (p. 6) is one of the best illustrations of how hard it will be to put the brakes on spending. The article discussed the vast potential of new imaging technologies in diagnosing and treating diseases at the cellular level. For example, the combination of positron emission tomography and CT is being used not only to find cancers but also to evaluate in microscopic detail which treatments are working.
These technological breakthroughs have long-term potential for savings lives and developing new drugs, not to mention avoiding needless treatment. The problem is the short term, when every provider who wants to remain competitive will buy as much of the new technology as possible. While a conventional CT scanner goes for about $700,000, the new combined PET-CT units start at $2.7 million apiece. Even in the long run, there are few systems to evaluate which modalities and/or applications are most cost-efficient.
Meanwhile, as reporter Cinda Becker reports in this issue, nonradiologist physicians are busy buying their own imaging equipment and doing the radiology themselves, with a certain effect on healthcare inflation and uncertain results in quality of care.
As mentioned, great hope for cost relief is being placed in consumer-directed health plans, including the new health savings accounts that were passed as part of the huge Medicare Modernization Act of 2003. Though only about 4% of employers now offer these high-deductible plans, a new study by Mercer Human Resources Consulting finds that 26% of large companies are planning to do so within the next two years.
There is merit in making people aware of the cost of healthcare procedures, but there are limits to how much cost- and information-sharing can do to limit overall expenditures. For one thing, the vast majority of spending is on a relatively small subset of the population, those with chronic illnesses whose costs far outstrip the out-of-pocket limits in consumer-directed plans. For another, the march of new technology, including new hospital construction, hasn't slowed and in fact is accelerating.
As we have been saying ad nauseam this year, we need a national commitment to such systemic changes as disease management, preventive care, clinical research into effective care and information systems to help manage care more efficiently. We have also been reporting on some signs of progress in those areas, but as last week's evidence shows, the runaway cost semi is speeding right by them.