Viewpoint
Evading the Law
Public health is the neglected foundation on which individual health care rests.
Health care is regulated, not only by the government, but also by natural and economic laws. William J. Baumol, a professor of economics at Princeton University, elucidated one of the latter in 1966.
Productivity does not change at the same rate in all economic sectors, Baumol said. It can advance much more rapidly in sectors that make products such as cars or computers than in service sectors such as education, health care, and law enforcement, where labor is the greatest expense and the time needed stays constant. It still takes five musicians to play a Mozart string quintet, Baumol noted. Productivity is not going to increase in this area.
Wages tend to follow productivity changes in the most rapidly advancing sectors. The need to attract workers in service industries, where productivity is fairly flat, pushes up wages and costs. Thus, the price of services increases more rapidly than inflation; or subsidies such as tax monies are provided; or services deteriorate and there are larger classes, shorter patient visits, and fewer police officers. This poses a problem for government; a policy of “no new taxes” leads to poor schools and more crime. Businesses face rising health insurance premiums and taxes. Interestingly, Baumol’s Law is also known as Baumol’s Disease.
In health care, the macroeconomic problem is compounded by an aging population and continuous development of drugs and technologies, most of which increase costs without increasing productivity. There are, of course, opportunities to improve the efficiency and productivity of health care delivery. Tort reform could reduce the costs of defensive medicine and liability insurance. Patient safety and quality improvements are already reducing costs. Efforts to eliminate costs of unjustified variations in care will and should continue, but all these will only make a small difference financially.
Because Baumol’s Law precludes any chance of lowering the price of health care without damaging it, the only way to evade the law is to reduce the need for health care services. The Minnesota Medical Association’s Physicians’ Plan for a Healthy Minnesota proposes two ways to do this.
1) Primary prevention. Public health is the neglected foundation on which individual health care rests. We need more emphasis on populationwide prevention to reduce modifiable risk factors for disease and injury. If legislators are as concerned about health care costs as they profess to be, there is no excuse for not banning smoking in all public places, increasing the tax on alcohol, and requiring motorcycle and bicycle helmets and seat belt use and routine immunizations.
2) Secondary prevention. According to the Physicians’ Plan, “we must place the emphasis for cost control where the greatest opportunity exists—chronic care. More than 70 percent of health care costs are incurred by about 30 percent of patients. In fact, 5 percent of patients generate more than 50 percent of all costs. Today’s system largely tries to save money by extracting deep discounts for primary care. That system is … counterproductive. It prevents physicians … from investing the time and resources in prevention, health education, and care management, all of which can avert more expensive treatments in the future. The new system should focus cost-control efforts on chronically ill patients [and] those with complex diseases, who generate the vast majority of the expenses.” Physician- developed guidelines, an improved information infrastructure, a medical home for all, improved quality measurement and reporting, and payment system changes to support quality practice are necessary to achieve this goal.
Some parts of the service sector may never be able to evade Baumol’s law. Health care can. And it is our duty and the MMA’s intent to do just that.