Overcharged for health care
TheStar.com – opinion/editorialopinion
Published On Wed Aug 03 2011. Will Falk
One of the biggest challenges facing our health-care system is what to do about declining costs.
No, that was not a typo. The actual cost of many services and procedures has been spiralling downward — yet the amount provincial governments spend on health care has been spiralling upward. How can this be?
Let’s take a look at one example: cataract surgery. The procedure now takes a lot less time to perform than it did a decade ago. What once took an hour now takes just 15 minutes. Yet taxpayers see no benefit because the fee paid to the surgeon has remained the same — about $420. Ophthalmologists now make $28 a minute for this procedure, and top surgeons can do 40 on a good day. Nice work if you can get it.
Many operations, including hip and knee replacements and cardiac surgery, take less time than they used to. Many require shorter hospital stays or have become, as with cataracts, outpatient procedures. But while the real costs have gone down, the prices paid by governments have, for many procedures, stayed the same.
Radiology is another good example. Our governments scrapped the old film-and-light-box way of doing things that you see on TV, and invested in new equipment that cuts in half the time it takes a radiologist to read an image. Efficiency improved, but radiologists are still paid as though they were doing their jobs the old-fashioned way. The average radiologist in Ontario makes about $650,000 a year. The top quarter are likely in the million-dollar-plus club.
Health-care costs often decline at the per unit level. Many lab tests are cheaper now than they used to be, as are things like MRIs. Aspirin, drugs that are off-patent, and even some primary care also cost less. Health care is a high-tech industry and time-saving innovations that improve outcomes are being introduced all the time.
As in other high-tech industries, such innovations tend to drive costs down over the long term. According to Moore’s law, as products such as computers and cellphones improve, their price drops markedly — a win-win for consumers. Moore predicted that price per CPU would decline by half every two years — about 20 per cent every year. We’re seeing the same improvements in quality and real costs in health care, but consumers — individual patients and provincial governments — aren’t saving a bundle. Instead, the providers are making more.
My U of T students estimated that over the past five decades, the actual cost of cataract surgery has dropped 5 to 7 per cent a year. I estimate that the annual decline in lab and radiology costs has been in the 3 to 7 per cent range. This jibes with academic research showing that the cost of infectious diseases has been dropping by about 5 per cent a year since the 1940s (remember measles, polio and small pox?).
Data on surgeries are a bit more mixed, possibly because the people doing the reporting know that they are going to be paid based on the costs they report (again, nice work if you can get it). But if you talk off-the-record to surgeons about a given procedure such as hip replacement, they will tell you they can now do two to four a day instead of one to two. The length of stay in hospital after such an operation is half what it was a decade ago. It is likely that the costs are actually declining even if the reported numbers appear flat.
Nevertheless, over the past decade, health-care spending has been climbing by about 7 per cent a year. Partly that’s because we do more of some things: for example, ordering 256 CT scan slices instead of four (a good thing). Partly it’s due to people living longer (also good). And partly it’s because of the introduction of improved techniques requiring initial investments in equipment and retraining (also good, to a point).
But in other cases, it’s now clear that we are simply overpaying. Cataract surgeons and diagnostic radiologists are probably collectively now overpaid by several hundred million dollars; when hospital costs are added in, the overpayments may well be in the billions in just these two areas alone.
Frankly, it’s ridiculous that the fee schedules are “adjusted for inflation.” In many cases, they should be adjusted for deflation. The public — the government — must recoup some of the productivity gains that have occurred from the investments we have made in new technologies that allow health-care practitioners to do their jobs better and more efficiently.
The moral of the story? It’s time for us to check the bill, just as we would in a restaurant — and, just as we would there, complain when we discover we’ve been overcharged.
Will Falk is Executive Fellow in Residence, The Mowat Centre, and SPPG Adjunct Professor, Rotman School of Management, University of Toronto
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