Health Care

New Hampshire Public Radio ran a story yesterday about Governor Lynch's request that hospitals in the state stop building new facilities.  Normally, governors never miss an opportunity to encourage new business in their state, because in most markets, greater investment leads to better services or lower prices.  Finally, policy makers understand that the normal rules don't apply in health care:

[T]hese facilities are driving up utilization and driving up health care costs. Those are costs that we all see in our ever-increasing health insurance premiums. To that, I say enough.

What is missing from the health care market that causes the rules to be different?  There are a number of factors:

I'm in the time machine again this morning as I read this article by David Hilzenrath in The Washington Post about the federal government's new antitrust suit against Blue Cross Blue Shield of Michigan, that state's largest health insurer.  Here are two key excerpts from the article, which illustrate the issues:

In some cases, Blue Cross's contracts required hospitals to charge other insurers significantly more than they charged Blue Cross, the federal antitrust suit said. In other cases, Blue Cross agreed to increase the prices it pays hospitals - boosting costs for its own customers - in return for commitments that other insurers would be charged no less, the lawsuit said.

[...]

The nonprofit Blue Cross plan in Michigan covers more than nine times as many Michigan residents as its next-largest commercial competitor and more than 60 percent of the state's commercially insured population, the government said.

In this month's issue of Health Affairs is an article by Michelle Mello, Amitabh Chandra, Atul Gawande, and David Studdert that estimates the national costs of medical liability.  Here's what they find:

Concerns about reducing the rate of growth of health expenditures have reignited interest in medical liability reforms and their potential to save money by reducing the practice of defensive medicine. It is not easy to estimate the costs of the medical liability system, however. This article identifies the various components of liability system costs, generates national estimates for each component, and discusses the level of evidence available to support the estimates. Overall annual medical liability system costs, including defensive medicine, are estimated to be $55.6 billion in 2008 dollars, or 2.4 percent of total health care spending.

From the abstract of a new working paper by Harvard Professor David Cutler, "Where Are the Health Care Entrepreneurs? The Failure of Organizational Innovation in Health Care:"

Medical care is characterized by enormous inefficiency. Costs are higher and outcomes worse than almost all analyses of the industry suggest should occur. In other industries characterized by inefficiency, efficient firms expand to take over the market, or new firms enter to eliminate inefficiencies. This has not happened in medical care, however. This paper explores the reasons for this failure of innovation. I identify two factors as being particularly important in organizational stagnation: public insurance programs that are oriented to volume of care and not value, and inadequate information about quality of care. Recent reforms have aspects that bear on these problems.

Here's a bit more detail from the paper about the orientation of public insurance programs to volume not value:

New from the Center for Retirement Research at Boston College is an issue brief with the provocative title, "Does Staying Healthy Reduce Your Lifetime Health Care Costs?"  The answer is, "not so much:"

Our main finding is that although the current health care costs of healthy retirees are lower than those of the unhealthy, the healthy actually face higher total health care costs over their remaining lifetime.  To illustrate, the expected present value of lifetime health care costs for a couple turning 65 in 2009 in which one or both spouses suffer from a chronic disease is $220,000, including insurance premiums and the cost of nursing home care, and 5 percent can expect to spend more than $465,000.  The comparable numbers for couples free of chronic disease are substantially higher, at $260,000 and $570,000, respectively.  This brief explains this somewhat counterintuitive finding.

It is kind of like the way being a very poor driver -- prone to accidents and the like -- may reduce your lifetime expenditures on automobiles.