Thursday, March 15, 2012

Supply-driven medicine and Costs



The Washington Post story below, on different prostrate cancer treatments leads me to believe most of the commentary on health care is missing something obvious. The conclusion, "When new, more expensive treatments become available we start using them, even if there isn't necessarily a noticeable improvement in health outcomes," I find the whole thing rather odd, have a number of questions, and am not willing to believe the Post's conclusion.


If consumers were completely in charge of funding their prostrate cancer treatments, I find it difficult to believe a treatment with the same efficacy could command a 100% price premium for long. But we know consumers don't pay for these treatments, except through insurance.


So why would insurance companies pay for more expensive treatments with similar efficacy? Only, I believe if there is a financial incentive, or government dictate to do so. The financial incentive would be higher health costs result in higher insurance premium, which is the life-blood of the insurance companies investment portfolio.


Is there some government mandate to provide proton-beam therapy? I wouldn't be surprised since the government has no problems forcing priests to hand out condoms at communion (or something like that).


Stories like this, I believe, are designed to point out what seems to be an obvious flaw in the market, and then leads to their pre-ordained conclusion that a dis-functioning market can only be corrected by more government control.


I look at stories like this and believe we are missing something basic in the analysis. To me, at least some of the basic stuff we are missing, is there is very poorly functioning market in health care and the distortions are partially driven the nature of health care procurement via tax deductible employer-sponsored insurance plans and the high degree of government control of prices.


(Thin stuff, old ground).




Supply-driven medicine

Austin Frakt flags a noteworthy study in the Archives of Internal Medicine that looks at who receives the most expensive care for prostate cancer. It had little to do with which treatment was better - and everything to do to with what kind of treatment patients lived closest to.

"No prostate cancer has been proven superior to the others," the study notes. But there are significant differences in costs: Proton-beam therapy for the average 60-year-old man will cost $63,511. Radiation treatment's price tag is nearly half that, at $36,808.

So who gets which treatment? This paper looked at about 19,000 men being treated for prostate cancer across California, and then looked at the availability of each treatment. What it found was those who lived closer to a facility with the more expensive proton-beam therapy were more likely to receive such treatment.

"To our knowledge, we show for the first time that the availability of a technology, in this instance a proton beam facility, in one's HRR is associated with a higher likelihood of receiving proton beam therapy compared with those living in an HRR where this technology is not available," the study concludes. "A single physician might explain the higher-than-expected rate of proton beam therapy in the Redding, California, HRR, since there are relatively low numbers of overall patients from this area."

This isn't exactly shocking news, that patients with easier access to more expensive treatments tend to use those therapies. It also likely speaks to some economic divides, with those in more affluent areas of California having easier access to proton beam treatment. It's notable though, in that it highlights how much of our medical system is driven by supply: When new, more expensive treatments become available we start using them, even if there isn't necessarily a noticeable improvement in health outcomes. Or, in the immortal words of Ray Kinsella, if you build it, they will come.

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