The Health Care Cost Conundrum

By Scot Herrick | Cube Rules Commentary

May 29

Normally, I don’t post much on health care here outside of the consideration of health care and jobs. Plus, there is a whole bunch of mud-slinging about to happen as health care proposals work there way through Congress.

But, the New Yorker has an excellent essay on The Cost Conundrum of health care. The author of the article looks at why Medicare costs vary so much from community to community. A couple of interesting points to me:

Americans like to believe that, with most things, more is better. But research suggests that where medicine is concerned it may actually be worse. For example, Rochester, Minnesota, where the Mayo Clinic dominates the scene, has fantastically high levels of technological capability and quality, but its Medicare spending is in the lowest fifteen per cent of the country-$6,688 per enrollee in 2006, which is eight thousand dollars less than the figure for McAllen. (Ed. — McAllen, Texas, where the article starts)

Two economists working at Dartmouth, Katherine Baicker and Amitabh Chandra, found that the more money Medicare spent per person in a given state the lower that state’s quality ranking tended to be. In fact, the four states with the highest levels of spending-Louisiana, Texas, California, and Florida-were near the bottom of the national rankings on the quality of patient care.

And this one:

“Nearly thirty per cent of Medicare’s costs could be saved without negatively affecting health outcomes if spending in high- and medium-cost areas could be reduced to the level in low-cost areas,” Peter Orszag, the President’s budget director, has stated.

Most Americans would be delighted to have the quality of care found in places like Rochester, Minnesota, or Seattle, Washington, or Durham, North Carolina—all of which have world-class hospitals and costs that fall below the national average. If we brought the cost curve in the expensive places down to their level, Medicare’s problems (indeed, almost all the federal government’s budget problems for the next fifty years) would be solved.

The trick, of course, is how. And the article addresses that, too. The article is long, but immensely readable. And thoughtful. We need a bit of thoughtful. Take a look.

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About the Author

Scot Herrick is the author of “I’ve Landed My Dream Job–Now What???” and owner of Cube Rules, LLC. Scot has a long history of management and individual contribution in multiple Fortune 100 corporations.

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