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The Increasing Cost of Health Care - Rationing Health Care

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When health care rationing—allocating medical resources—is defined as "all care that is expected to be beneficial is not always available to all patients," most health care practitioners, policymakers, and consumers accept that rationing has been, and will continue to be, a feature of the American health care system. Most American opinion leaders and industry observers accept that even a country as wealthy as the United States cannot afford all the care that is likely to benefit its citizens. The practical considerations of allocating health care resources involve establishing priorities and determining how these resources should be rationed.

Opponents of Rationing

There is widespread agreement among Americans that rationing according to patients' ability to pay for health care services or insurance is unfair. Ideally, health care should be equitably allocated on the basis of need and the potential benefit derived from the care. Those who argue against rationing fear that society's most vulnerable populations—older adults, the poor, and persons with chronic illnesses—suffer most from the present rationing of health care.

Many observers believe that improving the efficiency of the U.S. health care system would save enough money to supply basic health care services to all Americans. They suggest that since expenditures for the same medical procedures vary greatly in different areas of the country, standardizing fees and costs could realize great savings. They also believe that money could be saved if greater emphasis was placed on preventive care and on effective strategies to prevent or reduce behaviors that increase

TABLE 5.12

Public opinion on the comparative cost of goods in the United States vs. Europe, 2004
Base: All adults
Much cheaper here Somewhat cheaper here About the same Somewhat more expensive here Much more expensive here Not sure Cheaper here More expensive here
SOURCE: "Table 1. Perceptions of What Is Cheaper and What Is More Expensive in U.S.A. vs. Europe," in Health Care News: One Reason Why the Costs of Medical Care and Prescription Drugs are Under Scrutiny, vol. 4, no. 3, Harris Interactive, March 2, 2004, July 7,2004). © 2004, Harris Interactive Inc. All rights reserved. Reproduced with permission in 2004.
Gasoline % 33 20 7 6 8 26 54 14
Food % 12 26 19 8 4 31 38 11
Clothes % 9 21 24 9 4 33 30 14
Computers % 9 19 21 7 3 40 28 11
Automobiles % 9 17 17 14 7 36 26 21
Cameras % 5 14 25 11 6 40 18 16
Medical care % 4 6 5 18 37 30 10 55
Prescription drugs % 3 4 5 19 39 29 7 58

TABLE 5.13

Public opinion among people 65 and older on the comparative cost of goods in the United States vs. Europe, 2004
Base: People 65 and older
Much cheaper here Somewhat cheaper here About the same Somewhat more expensive here Much more expensive here Not sure Cheaper here More expensive here
*Less than 0.5%
SOURCE: "Table 2. Perceptions of People 65 and Older of What Is Cheaper and What Is More Expensive in U.S.A. vs. Europe," in Health Care News: One Reason Why the Costs of Medical Care and Prescription Drugs Are Under Scrutiny, vol. 4, no. 3, Harris Interactive, March 2, 2004, July 7, 2004). © 2004, Harris Interactive Inc. All rights reserved. Reproduced with permission in 2004.
Gasoline % 45 32 5 1 7 10 76 9
Food % 18 30 22 10 * 20 48 10
Clothes % 15 29 28 9 18 44 9
Computers % 12 19 30 8 31 31 8
Automobiles % 16 21 21 15 4 22 37 19
Cameras % 6 9 39 13 3 30 15 16
Medical care % 3 14 26 40 17 17 66
Prescription drugs % 7 5 1 21 49 17 12 70

health risk such as smoking, alcohol and drug abuse, and unsafe sexual practices. Further, they insist that the high cost of administering the American health system could be streamlined by using a single payer for health care—as in the Canadian system.

Supporters of Rationing

Those who endorse rationing argue that the spiraling cost of health care stems from more than simple inefficiency. They attribute escalating costs to the aging population, rapid technological innovation, and the increasing price tags for labor and supplies.

Not everyone who supports rationing thinks that the U.S. health care system is working well. Some rationing supporters believe that the nation's health care system charges too much for the services it delivers, and that it fails altogether to deliver to millions of uninsured. In fact, they point out that the United States already rations health care by not covering the uninsured. Other health care rationing advocates argue that the problem is one of basic cultural assumptions, not the economics of the health care industry. Americans value human life, believe in the promise of health and quality health care for all, and insist that diseases can be cured. They contend that the issue is not whether health care should be rationed but rather how care is rationed. They believe that the United States spends too much on health compared to other societal needs; too much on the old rather than the young; more on curing and not enough on caring; too much on extending the length of life and not enough on enhancing the quality of life. Supporters of rationing argue instead for a system that guarantees a minimally acceptable level of health care for all, while reining in the expensive excesses of the current system, which often acts to prolong life at any cost.

THE OREGON PLAN. In 1987 the state of Oregon designed a new, universal health care plan that would simultaneously expand coverage and contain costs by limiting services. Unlike other states, which trimmed budgets by eliminating people from Medicaid eligibility, Oregon chose to eliminate low-priority services. The Oregon Health Plan, approved in August 1993, aimed to provide Medicaid to 120,000 additional residents living below the federal poverty level. The plan also established a high-risk insurance pool for persons refused health insurance coverage because of pre-existing medical conditions, offered more insurance options for small businesses, and improved employees' abilities to retain their health insurance benefits when they changed jobs. A 10-cent increase in the state cigarette tax (providing approximately $45 million annually) helped fund the additional estimated $400 million needed over the next several years.

Oregon developed a table of health care services and performed a cost-benefit analysis to rank them. (See Table 5.14.) It was decided that Oregon Medicaid would cover the top 565 services on a list of 696 medical procedures. Services that fell below the cutoff point and thus would not be covered included liver transplants for patients with liver cancer; nutritional counseling for obese people; fertility services; and treatment for the common cold, chronic back pain, and viral hepatitis.

When setting the priorities, disease prevention and quality of life were the factors that most influenced the ranking of the treatments. Quality of life (quality of well being, or QWB, in the Oregon plan) drew fire from those who felt such judgments could not be decided subjectively. Active medical or surgical treatment of terminally ill patients also ranked low on the QWB scale, while comfort and hospice care ranked high. The Oregon Health Services Commission emphasized that their QWB judgments were not based on an individual's quality of life at a given time; such judgments were considered ethically questionable. Instead they focused on the potential for change in an individual's life, posing questions such as, "After treatment, how much better or worse off would the patient be?"

Critics countered that the plan obtained its funding by reducing services that were currently offered to Medicaid recipients (often poor women and children) rather than by emphasizing cost control. Others objected to the ranking and the ethical questions raised by choosing to support some treatments over others.

By 1998 the Oregon Health Plan had encountered major problems. The state was no longer promising universal care; physicians were seeking and finding ways to get around the rationing restrictions; and friction with federal Medicaid regulators was blocking Oregon's efforts to deny more treatments. A plan to require that employers insure all their workers or contribute to a fund to cover them failed. Spending

TABLE 5.14

Health care service categories and rankings
Rank Category ID No.
SOURCE: "Health Care Service Categories and Rankings," in Oregon Basic Health Services Program, February 22, 1991
"Essential" Services
1. Acute fatal, prevents death, full recovery
Examples: Repair of deep, open wound of neck. Appendectomy for appendicitis. Medical therapy for myocarditis.
2. Maternity care (including care for newborn in first 28 days of life)
Examples: Obstetrical care for pregnancy. Medical therapy for drug reactions and intoxications specific to newborn. Medical therapy for low birthweight babies.
3. Acute fatal, prevents death, w/o full recovery
Examples: Surgical treatment for head injury with prolonged loss of consciousness. Medical therapy for acute bacterial meningitis. Reduction of an open fracture of a joint.
4. Preventive care for children
Examples: Immunizations. Medical therapy for streptococcal sore throat and scarlet fever (reduces disability, prevents spread). Screening for specific problems such as vision or hearing problems, or anemia.
5. Chronic fatal, improves life span and QWB (Quality of Well–Being)
Examples: Medical therapy for Type I Diabetes Mellitus. Medical and surgical treatment for treatable cancer of the uterus. Medical therapy for asthma.
6. Reproductive services (excluding maternity and infertility)
Examples: Contraceptive management, vasectomy, tubal ligation.
7. Comfort care
Example: Palliative therapy for conditions in which death is imminent.
8. Preventive dental (children and adults)
Example: Cleaning and flouride.
9. Preventive care for adults (A–B–C)
Examples: Mammograms, blood pressure screening, medicaI therapy and chemoprophylaxis for primary tuberculosis.
"Very Important" Services
10. Acute nonfatal, return to previous health
Examples: Medical therapy for acute thyroiditis. Medical therapy for vaginitis. Restorative dental service for dental caries.
11. Chronic nonfatal, one time treatment improves QWB
Examples: Hip replacement. Laser surgery for diabetic retinopathy. Medical therapy for rheumatic fever.
12. Acute nonfatal, w/o return to previous health
Examples: Relocation of dislocation of elbow. Arthroscopic repair of internal derangement of knee. Repair of corneal laceration.
13. Chronic nonfatal, repetitive treatment improves QWB
Examples: Medical therapy for chronic sinusitis. Medical therapy for migraine. Medical therapy for psoriasis.
Services "Valuable to Certain Individuals"
14. Acute nonfatal, expedites recovery
Examples: Medical therapy for diaper rash. Medical therapy for acute conjunctivitis. Medical therapy for acute pharyngitis.
15. Infertility services
Examples: Medical therapy for anovulation. Microsurgery for tubal disease. In–vitro fertilization.
16. Preventive care for adults (D–E)
Examples: Dipstick urinalysis for hematuria in adults less than 60 years of age. Sigmoidoscopy for persons less than 40 years of age. Screening of nonpregnant adults for Type I Diabetes Mellitus.
17. Fatal or nonfatal, minimal or no improvement in QWB (non–self–limited)
Examples: Repair fingertip avulsion that does not include fingernail. Medical therapy for gallstones without cholecystitis. Medical therapy for viral warts.

for the health plan climbed to $2.1 billion in the 1997–99 state budget period, up from $1.7 billion in the 1995–97 period. Higher cigarette taxes did not offset the increase, requiring more money from the state's general fund.

The Oregon Health Plan did serve to reduce the percentage of uninsured Oregonians, from 17% in 1992 to 11% in 1996, placing Oregon among the states with the lowest rates of uninsured residents. Still, by 1998, five years after the Oregon plan was initiated with the goal of having no uninsured people in the state, coverage was far from universal. Despite the Oregon plan's best efforts, there were still approximately 350,000 people in Oregon who had no insurance. The plan's supporters observed that the downward trend in the rates of uninsured was a measure of the plan's success and hailed the state's pioneering efforts.

The Oregon Health Services Commission (HSC) continued to modify the plan's covered benefits. The Commission's most recent effort to refine the list of covered services began in January 2002. The HSC sought to reduce the overall costs of the plan by eliminating less effective treatments and determining if any covered medical conditions could be more effectively treated using standardized clinical practice guidelines (step-by-step instructions for diagnosis and treatment of specific illnesses or disorders) while preserving basic coverage. The benefit review process will be ongoing with the HSC submitting a new prioritized list of benefits on July 1 of each even-numbered year for review by legislative assembly.

In 2001 the Oregon Health Plan was given a three-year grant of nearly $1.5 million from the Robert Wood Johnson Foundation, the nation's largest philanthropy devoted solely to health and health care, to help expand coverage to new populations within the state. The grant money acknowledged the success of the Oregon plan and supports statewide research and evaluation as the state moves to cover more people. In June 2004 the Robert Wood Johnson Foundation awarded the Office for Oregon Health Policy & Research (OHPR) a $260,000 grant to study the impacts of the benefit reductions and changes to the Oregon Health Plan. OHPR will collaborate with investigators from Portland State University and the Oregon Health & Science University over the next two years to develop a better understanding of these impacts on access to health care in the state. Researchers will look at shifts such as increased hospital and pharmacy costs resulting from the elimination of outpatient mental health coverage for OHP beneficiaries.

Rationing by HMOs

Until 2000, steadily increasing numbers of Americans received their health care from health maintenance organizations (HMOs) or other managed care systems. According to the Kaiser Family Foundation's Trends and Indicators in the Changing Health Care Marketplace, 2004 Update, by 1999 national enrollment in HMOs topped eighty-one million, nearly four times as many as were enrolled just a decade earlier (twenty-one million). The number of enrollees, however, declined during 2000 (78.9 million enrollees) and in July 2003 HMO enrollment was down to about seventy-six million. The number of HMOs operating in the United States also dropped from 560 in July 2000 to 500 in 2003.

Managed care programs have sought to control costs by limiting coverage for expensive experimental, duplicative, and unnecessary treatments. Before physicians can perform experimental procedures or prescribe new treatment plans, they must obtain prior authorization—approval from the patient's managed care plan to ensure that the expenses will be covered.

Increasingly, patients and physicians are battling HMOs for approval to use and receive reimbursement for new technology and experimental treatments. Judges and juries, moved by the desperate situations of patients, have generally decided cases against HMOs, regardless of whether the new treatment had been shown to be effective.

"SILENT RATIONING." Physicians and health care consumers are concerned that limiting coverage for new, high-cost technology will discourage research and development for new treatments before they have even been developed. This has been called "silent rationing," because patients will never know what they have missed.

While new technology is thought to contribute heavily to the growth of the nation's health care bill, its precise toll is unknown. Some estimates have put the share at 30–50%. Yet new technologies often save money by increasing the efficiency and effectiveness of medical care. These savings may, however, be offset when the new technology increases the volume of services delivered, resulting in an increase in total spending.

In an effort to control costs, some HMOs have discouraged physicians from informing patients about certain treatment options—those that are very expensive or not covered by the HMO. This has proved to be a highly controversial issue, both politically and ethically. In December 1996 HHS ruled that HMOs and other health plans cannot prevent physicians from telling Medicare patients about all available treatment options.

IS LESS HEALTH CARE BETTER THAN MORE? Although health care providers and consumers fear that rationing that sharply limits access to medical care will ultimately result in poorer health among affected Americans, researchers are also concerned about the effects of too much care on the health of the nation. Several recent studies suggest that an oversupply of medical care may be as harmful as an under-supply. They assert that supply appears to drive demand—in areas with more physicians and hospitals, people visit physicians more often and spend more days in hospitals with no apparent improvement in their health status.

Dr. John E. Wennberg, a physician and epidemiologist, and his colleagues at Dartmouth Medical School found tremendous regional variation in both utilization and the cost of health care that the researchers believe is explained, at least in part, by the distribution of health care providers. In an article published in the March 2002 issue of Health Affairs, Dr. Wennberg also suggests that variations in physicians' practice styles—whether they favor outpatient treatment over hospitalization for specific procedures such as biopsies (surgical procedures to examine tissue to detect cancer cells)—greatly affects demand for hospital care.

Variation in demand for health care services in turn produces variation in health care expenditures. Dr. Wennberg and his colleagues reported wide geographic variation in Medicare spending. Medicare paid more than twice as much to care for a sixty-five-year-old in Miami where the supply of health care providers is overabundant as it spent on care for a sixty-five-year-old in Minneapolis, a city with an average supply of health care providers. To be certain that the difference was not simply higher fees and charges in Miami, the investigators also compared rates of utilization and found that older adults in Miami visited physicians and hospitals much more often than their counterparts in Minneapolis.

The researchers also wanted to be sure that the differences were not caused by the severity of illness, so they compared care during the last six months of life to control for any underlying regional differences in the health of the population. Remarkably, the widest variations were observed in care during the last six months of life when older adults in Miami saw physician specialists six times as often as those in Minneapolis. Dr. Wennberg, who has studied variations in health service utilization for more than two decades, asserted that higher expenditures, particularly at the end of life, do not purchase better care. Instead, they finance generally unpleasant and futile interventions intended to prolong life rather than improve the quality of patients' lives.

The researchers concluded that areas with more medical care, higher utilization, and higher costs fared no better in terms of life expectancy, morbidity, or mortality, and the care they received was no different in quality from care received by persons in areas with average supplies of health care providers. The Dartmouth research and similar studies pose two important and as yet unanswered questions: "How much health care is needed to deliver the best health to a population?" and "Are Americans getting the best value for the dollars spent on health care?"

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