Response to Peter Orszag: Efficiency Is Not Enough!

2017.12.05 Peter_R_Orszag_CBO_official_picture

Economist Peter Orszag, who blogs regularly on the economics of healthcare, recently highlighted a survey of healthcare CEOs conducted by his firm Lazard. The survey showed that these CEOs see that “Healthcare is reforming, just not in Washington.” 

Business (small and large) is rightly fed up with Washington’s petty partisan tinkering with the healthcare system. They’re not the only ones. Global strategists, such as Richard Haass (A World in Disarray, Penguin, 2017) are also fed up, since they think soaring healthcare spending will insidiously undermine the U.S. both economically and ultimately diplomatically across the globe.

Lazard financial advisory and asset management group’s study takes the temperature of global healthcare CEOs, indicating that they are looking to innovations within the healthcare system to push down prices and constrain total spending, as well summarized by Dr. Orszag.

Others have reached the same conclusion as Lazard. See, for example, my review of a Central Pennsylvania Business Journal webinar from November 2017.

On the other hand, some big businesses have for the moment lulled themselves into complacency about healthcare costs because they have been able to pass a good portion of their line-item costs onto their employees. See, for example, my discussion of a recent New England Journal Catalyst webinar.

My responses to Dr. Orszag:

  1. It is gratifying that more and more stakeholders, including Dr. Orszag, are zeroing in on the real problem with U.S. healthcare: soaring cost and diminishing marginal benefit.
  2. Surely there’s room for ideas from all quarters on solving this problem. Healthcare innovators are coming up with their own approaches, quite independent of government, and some show promise (though not uniformly so – see Lewis VA, Fisher ES, Colla CH.  Explaining sluggish savings under Accountable Care. N Engl J Med 2017: 37:1809-1811 ).  Also, some innovations are not as easy as they sound – see blog Cost Conundrum of Value Based Care.
  3. However, price pressures from outside the healthcare system are likely to be more direct and effective. One such approach was used successfully by Oregon in 1994 to keep its Medicaid spending under budget, while still maintaining coverage of all eligible citizens. See my discussion at Fixing U.S. Healthcare.
  4. So-called value-based payment should not reward efficiency for its own sake, since low-marginal-benefit service is still low-value, no matter how efficiently delivered. Rather, a reformed system should decline outright to pay for any low-marginal-benefit services or for frankly wasteful ones, efficient or not. See my further discussion.

Efficiency is important – but not enough to constrain unsustainable, non-costworthy healthcare spending.

Photo Credit:  By Unknown, http://www.cbo.gov/graphics/peterorszag.jpg, Public Domain, https://commons.wikimedia.org/w/index.php?curid=5256097

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