Unbiased Analysis of Today's Healthcare Issues

Why does cost effective care spread so slowly

Written By: Jason Shafrin - May• 27•11

According to Fuchs and Millstein, here’s why:

  • Insurers hesitation to standardize coverage.  Standardization of coverage would force insurance companies to compete primarily on the basis of price, which would put pressure on their profits.
  • Employers bear too much of the marginal cost from employees choosing expensive health plans.  Because companies wish to avoid alienating employees, only 20% of large employers require workers who choose more expensive plans to pay the marginal difference in cost.
  • The public does not understand why cost effectiveness is good for them.  The general public does not typically realize that higher health insurance cost are not paid by employers, but by the employees themselves through lower wages in the long run.
  • Legislators need money.  Legislators seek campaign contributions from health industry stakeholders who benefit from the current inefficient arrangements.
  • Hospitals fear cost-effectiveness means lower reimbursements.  Hospital administrators often resist efforts to reduce hospital occupancy for fear that decreases in revenue will jeopardize their ability to cover large fixed costs.
  • Physicians fear pay cuts and loss of professional autonomy.
  • Drug and device manufacturers will lose profits.  Although manufacturer with unique products can sell their goods for a high price, there are alternatives to most medical products.  In these cases, firms attempt to create the perception that their products are unique to justify high prices.  Marketing and lobbying are vital parts of these efforts.

Source: Victor R. Fuchs, Ph.D., and Arnold Milstein, M.D., M.P.H “The $640 Billion Question — Why Does Cost-Effective Care Diffuse So Slowly?” NEJM, May 18, 2011.

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