June 29, 2009


The Key to Fixing Health Care and Energy: Use Less (Michael Grunwald, Jun. 29, 2009, TIME)

[O]ur biggest problem in both health care and energy is essentially the same simple problem: we use too much. And in both cases, there's a simple explanation for much of the problem: our providers get paid more when we use more.

Undoing these waste-promoting incentives — the "fee-for-service" payment system that awards more fees to doctors and hospitals for providing more services, and the regulated electricity rates that reward utilities for selling more power and building more plants — would not solve all our health-care and energy problems. But it would be a major step in the right direction. President Obama has pledged to pass massive overhauls of both sectors this year, but if Congress lacks the stomach for comprehensive reforms — and these days it's looking like Kate Moss in the stomach department — a more modest effort to realign perverse incentives could take a serious bite out of both crises. [...]

[N]ot everyone realizes that we use too much health care; most of us assume that more treatment is better, that the best doctors are the ones who do the most to us, that our health costs are the world's highest because our health care is the world's most thorough. But a slew of research by the Dartmouth Institute for Health Policy and Clinical Practice has found that as much as 30% of our annual $2 trillion–plus medical bill may be wasted on unnecessary care, mostly run-of-the-mill diagnostic tests, office visits, hospital stays, minor procedures and prescriptions for brand-name wonder drugs advertised on TV. Our soaring health spending is on course to bankrupt the Treasury — along with state and local governments, big and small businesses, and millions of families — so again, it would be nice to cut out the usage that doesn't make us healthier, and can even make us sicker. [...]

Health care usually costs us money, too, and even when co-payments are low, visiting the doctor is time-consuming and inconvenient, and staying in the hospital can be downright dangerous. Still, Dartmouth has documented enormous regional variations in medical care that produce virtually no variation in medical outcomes, a testament to our tolerance for overtreatment.

So don't expect government intervention on the demand side — through education campaigns, tax incentives or targeted subsidies — to rein in our cravings. But in the energy arena, several states have already proven that rationalizing incentives on the supply side can transform the landscape. In most of the country, per capita electricity use has increased about 50% over the past three decades — despite conservation programs, efficiency incentives and the general rise of green. But in California and the Pacific Northwest, where state legislatures decoupled utility profits from sales volumes, electricity use has been flat. Instead of an incentive to sell more power and build more generating plants, the utilities had an incentive to help their customers save electricity and avoid the need for new generating plants. So that's what they did. Energy providers were much better than the government at influencing the behaviors of energy consumers. "That's what we need in health care," says Dr. Elliott Fisher of the Dartmouth Institute. "When providers get rewarded for volume, they provide volume. That's got to change."

In medicine, the idea would be to reward quality rather than quantity, to give providers incentives to keep us healthy and reduce unnecessary treatments, to encourage doctors and hospitals to promote a culture of low-cost, high-quality care.

Demand remains high because the costs of energy and health care are too low at the consumer level. Raise the out-of-poicket costs and demand will decline.

Posted by Orrin Judd at June 29, 2009 7:14 AM
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