Health Care Costs and Patient Health

Healthcare costs vary greatly depending on where you are. While this fact is empirically known there is some debate about the reasons why. For decades, the Dartmouth Atlas of Health Care has published research indicating that the varying healthcare costs are attributed to differences in practice. That is, different hospitals go about treating illness in different ways, each resulting in different costs. What the Dartmouth team also finds, most notably, is that higher costs do not parallel higher quality. Therefore, it should be possible to reduce costs without diminishing quality of care. This position has been acknowledged and embraced publicly by many leaders in this arena, including American economist Peter Orszag.

Peter Orszag

Do health care costs relate to quality of care? (photo: Getty Images)

However, a new Brookings Institute report disagrees. Louise Sheiner, a senior fellow at Brookings, accepts that healthcare costs differ geographically, but asserts that varying methods of medical practice are not to blame. Rather, her report claims that the overall health of patients is what causes the variation in cost. Essentially, the states with higher healthcare costs have sicker people. Those states have sicker people, she explains, because of socioeconomic factors affecting the need for medical care.

The correlation between costs and overall health is the crucial point of the two perspectives. Sheiner holds that a diabetic patient in a state with a high prevalence of diabetes is ultimately less healthy than an apparently similar diabetic person in a state where diabetes is less common. Based on this position, the variation in Medicare costs across states is caused mostly by the underlying health of the people in the state. How doctors treat patients has no effect at all.

A way to examine this idea is by analyzing the spending of people on Medicare as they move from one state to another. A recent paper produced by academics from MIT and the University of Chicago examined just that, and found the costs changed as soon as Medicare beneficiaries moved. That change happened regardless of if they moved to high-spending area or a low-spending one.

From that, we can determine that the overall health of a patient determines, at most, half of the differing costs. It is starting to look better for the Dartmouth team.

Also, consider how easily health care costs can vary. A patient’s bill will vary greatly depending on what hospital the ambulance takes them to, though the quality of care will not.

So what we know is that health care costs fluctuate significantly and overall health of patients cannot account for the majority of it. Therefore, there most be ways to lower costs without diminishing quality of care — good news for Americans.

from Peter Orszag Healthcare


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s