June 19, 2013

Many of the cost-saving measures of the Affordable Care Act were modeled after the Swedish health care system, which has proven itself to be efficient and cost-effective. Robert H. Frank wrote a great NYT column outlining how these provisions could streamline and ultimately reign in our out-of-control health spending here, if it scales properly. That's a big "if", and one that won't be answered for years to come. Here are the highlights:

But when illness strikes, the Swedish health care system responds efficiently. Managers have exploited economies of scale by consolidating services into fewer but larger hospitals. The American system has also gone through consolidation, but, by contrast, boutique hospitals are also more common here — partly in response to demands from patients with very high-cost health plans. In large hospitals, CT scanners and other expensive diagnostic and treatment machines are in nearly constant use, versus only a few hours of weekly use in some small ones.

Larger hospitals with heavier patient flows also enable their staff to hone their skills through specialization and experience. If you are getting a knee replacement or coronary bypass surgery, you want teams that do scores of such procedures each month.

Doctors in the two countries also face different financial incentives. In the United States, under the fee-for-service model, they can bolster their incomes, often substantially, by prescribing additional tests and procedures. Most Swedish doctors, as salaried employees, have no comparable incentive.

Another important difference is that, unlike many American health insurance providers, the government groups that manage Swedish health care are nonprofit entities. Because their charge is to provide quality care for all citizens, they don’t face the same incentive to withhold care that for-profit organizations do. That more hip-replacement operations are performed per capita in Sweden than in most other countries is almost certainly a reflection of the generous care options rather than of any inherent deficiency in Swedes’ hip joints.

The Swedes also provide drugs and other treatments only when evidence establishes their effectiveness. People can spend privately on unproven treatments, but the government refuses to impose their cost on taxpayers.

There are some downsides, but in some cases, those are features rather than bugs:

When I asked my Swedish hosts to describe any downsides to their system, several mentioned the waiting times for certain nonemergency services. One told me that whereas in the United States a wealthy or well-insured patient might schedule a hip replacement with only a week’s notice, in Sweden the wait could be as long as three months. He described such waits as a design feature, noting that they allowed facilities to be used at consistently high capacity, and thus more efficiently.

The bottom line here is that the requirements for outcomes-based treatment and other provisions in the Affordable Care Act will actually build efficiency into our current health care system. On the downside, though, as long as there is no negotiation for prescription drugs on a mass scale, costs will remain higher than they should.

When California set up their exchanges, they negotiated aggressively with regard to drug prices and insurer rates. The net result was that Aetna, Cigna and United Health opted out. Still, they were able to attract enough carriers to keep rates competitive and give Californians a healthy array of plans from which to choose.

Going forward, the question will be whether the Swedish cost-containment model will scale, and whether we can slowly shift the paradigm around health care to one where healthy people are the incentive, rather than sick people. Time will tell, but the indicators look good.

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