Health summit: costs have nowhere to go but up: experts may—or may not—be able to agree on how to fix the nation's health care ills. Yet they all agree that providing health insurance will keep on getting more expensive

Risk & Insurance, Sept 1, 2004 by Russ Allen

Health care expenditures are going in one direction: up. The reasons for the rise in the cost of health care are, however, far more complex. Societal affluence, consumer expectations, the public's refusal to consider limits on medical procedures, the revulsion at rationing and the peculiarities of the health care industry all play a part. Then there's technology.

"In most industries, advances in technology decrease costs, but it's just the opposite in medical care," said Roberta Goodman, principal of the consulting firm Health Care Analyties LLC. She delivered her comments at the 2004 Ingenix Health Information Summit in May.

The health care industry's experiments with free market competition have added to the complexity of a system that still cannot protect an estimated 40 million people. In the 1970s, employers and unions typically offered one insurance program. One or a few large insurers, such as Blue Cross Blue Shield, had the majority of the market in most states. In the 1980s, competition increased with plans offering low out-of-pocket expenses through an HMO model with networks of physicians. The 1990s brought a consolidation of plan providers, but with greater variety to the products.

A new "experimentation" phase is about to begin, according to one consultant, whereby consumers may be far more exposed to the true cost of health care than they have been previously. "At the moment, I believe we are headed into an experimentation phase again," said Bill Schlag, a principal at the benefits consulting firm of Hilb, Rogel & Hobbs.

Consultants at the conference also noted that hospital volume for profitable procedures, not surprisingly, tends to go up over time compared to volume for less profitable procedures. As a result, providers' financial and legal interests are served by providing more care.

The consultants additionally pointed to the large jump in investment in technology companies in the biomedical fields and in the number of products in the pipeline. These forces add to the price of health care. Simply making new medical resources available will largely assure that they get used, said Goodman, an authority on the medical system. She cited research estimates that "50 percent of the rise in real medical costs is attributable to technology advances."

At a time when patients are acting more like informed buyers and doctors more like supply consultants, Goodman spoke of a recurring theme underscored by attendees: the need for a large, Web-based technology infrastructure with extensive databases that can inform every medical action based on evidence of sound, affordable practices.