Fed Chair Worries About Healthcare System

Improving the healthcare system will not save money. If done correctly, it in fact may cost more money. These comments by Federal Reserve Chairman Ben Bernanke should make us skeptical about presidential nominees' promises that fixing the system will make healthcare more affordable.

Mr. Bernanke spoke about the iron triangle of healthcare where only two of the three elements, access, quality, and cost, can be optimized. Like the laws of gravity, no one has found exceptions in healthcare where the iron triangle does not apply. According to a Health Affairs article earlier this year, we rank dead last among nineteen industrialized countries with the highest costs per capita, millions uninsured, and the worst quality outcomes. Despite all of our spending, we don't live the longest. When speaking to the Senate committee on healthcare reform, Mr. Bernanke noted, "that improving access and quality may increase rather than reduce total costs" and the better question may be, "whatever we spend, [are] we are getting our money's worth?" As an economist, he declined to offer solutions, but that hasn't stopped the Republicans and Democrats from offering some of their own.

The Republicans feel that consumer driven healthcare is the answer. Theoretically patients would make smarter choices if they had more financial skin in the game with higher deductibles and health savings accounts. Research by the Kaiser Family Foundation has found otherwise with patients more dissatisfied with these less comprehensive products. They are decreasing utilization by skipping tests, procedures, and medications. These short-term savings to the system may simply be overwhelmed by long-term expenditures as easily preventable problems are not addressed and treated later when complications arise. In addition, the public doesn't want this kind of fiscal responsibility. Already when tasked to fund their retirement, the vast majority don't, are inadequately prepared, and planning to work longer. This is despite that planning for their retirement is in their best interest. Unlike retirement, however, one can't plan on when to get seriously ill.

The Democrats feel that through legislation they can require insurers to expand coverage and lower costs. While a noble ambition, this ignores basic economics of the iron triangle. Although healthcare costs slowed dramatically in the 1990s due to these attempts, this trend was only temporary. Since 2000, healthcare premiums have exploded rising faster than increases in wages and inflation. This year employers expect to see a rate increase of 10 percent despite an economy in recession. It seems that healthcare has an immutable inherent cost that can't be artificially lowered.

Perhaps there is a third option. Our country has healthcare organizations that have mastered the iron triangle. Research has shown that the vertically integrated healthcare organization Kaiser Permanente consistently outperformed university and community hospitals in decreasing risk of heart disease by 30 percent. The VA healthcare system provided better care to its diabetics than doctors in the community. The Dartmouth Atlas of Care found that even though there was not a large difference in health outcomes, the cost of caring for Medicare recipients in the last two years of life varied widely from $93,000 per patient at UCLA, $85,000 at John Hopkins, and $78,000 at Massachusetts General, to the lowest at $53,000 at Mayo Clinic. The "savings" from the most expensive programs could be moved to provide better access or quality care to those who need it, but it won't change the total medical cost expenditures.

Moving the country towards streamlined information technology driven healthcare systems that deliver great care won't be easy. Healthcare is currently provided by hospitals and doctors each working separately in little fiefdoms which worked well two centuries ago when patients died of acute illnesses and infections. Today patients are busier than ever, caring for aging parents, and dealing with chronic illnesses, that were never faced by generations ago. The public already gets a variety of choices in financial services, consumer electronics, air transportation, and dining, which are often provided by well-run, highly regarded, focused organizations. Why not healthcare?

Healthcare will never be cheap, but we can get more for our dollars. With baby boomers entering retirement, the solvency of Medicare in jeopardy over the next decade, and total healthcare expenditures accounting for 20 percent of GDP by 2016, it is not surprising that Mr. Bernanke is concerned about the health of the healthcare system.

Our healthcare crisis will only be solved if the entire industry reorganizes into systems which are aligned to focus on the end product, great healthcare delivery, rather than the piecemeal mom and pop cottage industry which currently exist. This is far harder than it sounds and will require leadership from within healthcare to get it done.

If as a country we fail to solve this crisis, our economy will simply worsen as the workforce will become increasingly unhealthy as more people find healthcare unaffordable and consequently will be unable to work or be competitive in a global marketplace. This is a competition we cannot afford to lose.