Is Technology to Blame for Rising Health Costs?

Oregon surgeon Nick Benton offers some important thoughts in response to my column on the supposed death of the private insurance industry:

I am a ENT maxillofacial surgeon in Corvallis, Oregon, for the past 20 years. The West was at the vanguard of managed care in the 1990s, and at the time, I was the Physician Director of Utilization Review for my 75-doctor multispecialty group. We did a lot of capitated care in those days. I have some comments about managed care then, and the coming ACO trend.

First: ACO's are just managed care, but supposedly with more data and transparency. If you don't think they are managed care, you are mistaken. They had to change the name, because managed care is so well known, and disliked by health care consumers.

Second: Just like before in the 90s, we will find that managed care will likely change provider behaviors temporarily, and there will be some "short term" savings. This will likely play out over a few years until reality sets in.

Third: It is health care inflation that matters. If we were still at 10% of GDP for health care spending, we wouldn't be worried. Instead, we are at 17% and rising.

Fourth: Managed Care/ACO's will not control costs in the long term. I will offer you very compelling proof.

It is undeniable that Kaiser Permanente is the managed care king. They have millions of covered lives of all ages. They have been managing care around the primary care practicioner since the beginning. They are not for profit. Doctors are salaried. There is no incentive for anyone to do a single extra test or expensive procedure. They have tremendous buying power for drugs and supplies. Most striking of all, is that they run the entire operation on a 5% administrative margin. Lastly, they have no high dollar CEO's etc, skimming off profits, and no shareholders to satisfy.

So with all of that going for them, why haven't they put all of the competition utterly out of business? I'll tell you why. If you look at what drives health care inflation, in the long run it is technology. I offer this definitive and landmark study by the Kaiser Family Foundation, which has no affiliation with Kaiser Permanente.

All of those expensive new and patented drugs, devices, and tests are extending our lives, but killing the economy. They go up and up and up in price. Two years ago, we didn't have the $93,000 prostate cancer treatment (provenge). We didn't have the $126,000 treatment for advance melanoma (Yervoy). Or the new $300,000 treatment for some cystic fibrosis patients. Now we have them, and patients expect to get them, if they want and need them. That is what is driving health care costs in the long run. Period.

In any mature managed care setting, you will ultimately squeeze out all of the savings you can, but then it's over. After that, it is new and expensive treatments that will drive your cost inflation. Kaiser Permanente has to offer the same expensive new treatments, as any other insurer does. They cannot negotiate a cheaper price on a patented drug or device, or test, that has no legal competition. That alone is why they are not necessarily the low price leader in any market in which they compete. If you want to see how this ACO thing will wind up 5 or 10 years from now, just look at Kaiser right now, and look at what their premiums are doing. They are going up and up and up."

Wow, there's a lot in there. I can't vouch for his assertions about the price of the treatments he cites, nor for the specific assesments about Kaiser Permanente financials. But his point is a powerful one: What if our science is simply misaligned with our economics? Much has been said about the cost of advanced treatment, but what if there simply is no systemic health reform that will adequately address the rising cost of care, except one that actually denies genuinely useful treatments?