Most of us had to take a course or two in economics to get a bachelor’s degree, but few of us remember very much from those lessons. I can't say for certain that Econ 101 is where I first heard the expression “return on investment,” or ROI, but it's an expression that has stuck with me ever since.
The notion may gain greater prominence where healthcare payers are concerned in the years to come, thanks to the well-publicized Medicare crunch, but it's tough to imagine that the congressional Gang of 12, charged with finding further ways to close the U.S. federal deficit, won't be looking at ROI, even if they don't come up with a plan that instruct federal agencies to start thinking in this vein.
The problem for me is that I just can't see a decent ROI on healthcare spending that makes any economic sense.
I might point out that the American problems with Social Security and Medicare are not just American problems. Most of the nations that participated in World War II experienced a fertility surge starting in the late 1940s followed by a comparative birth dearth. The only difference is that the U.S. accounts for about a fifth of global economic output. As much as people in other nations get tired of hearing it, it is still true that as the U.S. economy goes, so go the rest of the world's economies. So it's vitally important that everyone in Washington get it right.
The problem with healthcare at this stage is partly that healthcare delivery is still grossly inefficient, but also that the latest and greatest drugs and devices are pretty expensive. The reason for that latter statement is obvious: The easy cures have already been invented. There is almost no low-hanging fruit out there.
Can healthcare delivery become sufficiently more lean to allow us to keep the innovation? I honestly do not know the answer. I've heard estimates that half of all U.S. healthcare spending is sheer waste, but that sounds optimistic. I think most of us would be thrilled if reforms to delivery could shave off half that amount.
Suppose just for a moment that all the demonstration programs and accountable care efforts don't pay off in anything close to the numbers needed to fix Medicare and overall healthcare spending. What will payers – especially the federal government – do to close the gap?
One approach might be to use a return-on-investment method to determine which treatments to cover rather than which progressions of a disease. In this case, Medicare would pay more for treatments that do the same job for less. The problem here is that least costly alternative was handed a pretty bad setback in DC District Court in 2008 and Uncle Sam has apparently seen fit to let it slide. After all, the statute does not specifically state that the Centers for Medicare & Medicaid Services can use cost as a factor in determining coverage.
Private payers, however, face no such constraints. What they do face is a patient who's all over the web, knows what the latest and greatest is, and demands it. Will consumers-as-patients settle for good enough?
Policy-wise, the real hangnail for healthcare spending is that there's no particularly good metric for ROI for a lot of healthcare spending. We've all heard more than one healthcare economist say that about 80% of healthcare spending is for those who will die within a year, while another 80% is on a group of patients with one or more of five or six disease and conditions. Somewhere in there is a Venn diagram of about 64% of healthcare spending that could be trimmed substantially with better end-of-life counseling and better continuity of care.
Still, most patients in that group will never return to work because they've retired already, and can't go back to work even if they hadn't retired because of lost vigor. So what we're doing is spending to live longer, but not work longer.
Is there's a fix for this problem other than the delays to retirement forced by bankrupted retirement funds? Policymakers can talk all they want about raising the age of eligibility for Social Security and Medicare, but that won't help Medicare much. The really expensive years are those past the age of 70.
So to answer my own question, ROI will not be King where healthcare spending is concerned, at least not as far as I can see. The real King of the Hill will be “do it faster and cheaper,” because these costs are going to come down one way or the other. It's strictly a question of how.