Economist Uwe Reinhardt has a positive outlook about increasing value in the healthcare industry, but predicts there will be a few bumps and hard choices along the way.
I am very optimistic. Sometimes you need a recession to wake you up, he told a large gathering of Nashville Health Care Council members in Nashville on June 6. His comments came during a wide-ranging discussion with Bill Frist, M.D., former U.S. senator from Tennessee. Reinhardt, professor of economics and public affairs at Princeton University, is considered one of the leading authorities on healthcare economics.
Healthcare spending has slowed to the growth rate of the GDP, but it's the fifth time in history to do so, Reinhardt pointed out. It has happened five times and it can come roaring back. My own sense is that it may be more permanent. One factor is that participation in the labor market is flattening because of aging workers who want to retire. It slows GDP, he explained.
However, another reason for a slowdown in healthcare spending is that consumers are paying a greater share of health insurance and healthcare services. Cost sharing for patients has gone up. Patients are interested in prices, Reinhardt said, explaining that price transparency is possible because of large databases and information technology. Once people compare prices, you can't have huge price variations.
Reinhardt is particularly encouraged by opportunities for entrepreneurs to develop health information technology software that will also enhance clinical practices and increase efficiency. The government can be a great facilitator, he said. You need a lot of entrepreneurs who can dream who can develop software to eliminate waste. I think this will spring out of the ground.
Reinhardt mentioned the merit of using the economic concept of quality-adjusted life years, or QALYs, to frame discussions about healthcare value about what a life is worth. For example, many discussions are happening throughout the country right now about the hepatitis C drug Sovaldi, which has drawn attention not only for its effectiveness with up to a 90 percent cure rate, but high cost at $1,000 per pill.
Reinhardt pointed out that it costs $82,000 for a 12-week treatment. Is it worth buying those extra QALYs he asked. Most people who need that drug are low income, Reinhardt said. We are buying extra life years. . . I like to tell my students this is a conversation you will have.
Reinhardt also made a few interesting predictions about healthcare:
- The Affordable Care Act can't be repealed, but it can be fixed. Abolishing the employer mandate I think that will be the first thing where you get bipartisan agreement. That is the first thing I would do.
- Large corporations will continue to provide health insurance to their workers while small employers will give employees defined contributions to buy insurance. Once exchanges work and they will work, he predicted, employers can make defined contributions. An employer who is small can't afford a health benefit manager. It is more efficient to give a defined contribution.
- Many freestanding hospitals are nervous about mergers and acquisitions in the healthcare industry. This has happened before, Reinhardt pointed out. Some of this won't work. There will be a lot of experimentation with mergers, but a lot of them won't work. However, it is best for governments not to step in to keep hospitals open. The market should take care of that, he said.
- Consolidation of healthcare providers may result in bilateral monopolies. But you might not get that much price inflation, Reinhardt said. Another possibility is a public utility model with price ceilings.