It’s Still the Prices, Stupid

Yevgeniy Feyman has one hit and one miss in his post about why U. S. healthcare is so expensive. Here’s his hit:

The verdict on U.S. spending is that it’s generally driven by price increases rather than volume. A 2013 report from the Health Care Cost Institute found that in 2012 “[t]he relatively slow growth of utilization compared to intensity-adjusted prices for inpatient, outpatient, and professional procedure services, reflects the ongoing trend in price growth outpacing service use.” Realizing that American prices for health care are responsible for high levels of health care spending (across the entire distribution), usually leads to one simple proposal – price controls.

Actually, there’s a miss hidden within his hit. Price controls alone won’t cure our healthcare system. Since much of the demand for healthcare in the U. S. and, presumably, elsewhere is physician-induced, that’s got to be brought under control as well since even if prices are controlled spending (and compensation) can be made to rise by prescribing more treatment. Any approach to solving the actual problem we have requires changing incentives.

The bigger miss is his assumption (to be fleshed out in the second part of his series) that costs can be reduced by the application of new treatments and technology. See the preceding paragraph.