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More on Cost Curve Bending: Do We Want the "Flat Screen" Approach, or the "Med Fed"?

Posted Oct 13 2009 10:05pm











Jeremy Shane, a longtime healthcare watcher, reads The Wall Street Journal and The Washington Post this morning and makes a great point: "The government embraces breaking, not just bending, the cost curve when it comes to subsidizing 'clean' cars, but seems oblivious to the same techno-opportunity when it comes to healthcare."

Indeed. In today's WSJ we learn that the Energy Department is lending half-a-billion dollars to foster the development of electric cars, specifically, "The Karma," to be made by the Al Gore -backed Fisker Automotive, Inc. The Journal's Josh Mitchell and Stephen Power quote Henrik Fisker making a good point:

Mr. Fisker says all new technology starts out being expensive. He pointed to flat-screen televisions that once started at $25,000 but are now affordable to the mass market."


Fisker is exactly right. On TV sets, the cost curve wasn't just bent, it was broken--or flattened--by flat screens. And that's what you want: the win-win of a better product at a lower price.

All technology starts out expensive and then, if it works, and is mass produced, it becomes cheaper and cheaper in real terms. It takes a lot of work, and a lot of money, and a lot of trial and error, but mass production, leading to economies of scale, is the proven method, having worked steadily and reliably for the past three centuries or so of the Industrial Revolution.

And the same logic applies to health care. Do you really want to save money on health care? Do you really want to "bend the curve"? Fine. Then help people live longer and better. Find cures to diseases, so people don't get sick. That's the politically sustainable way to break the curve.

And maybe such curve that's what our leaders in Washington have in mind, but there's no real evidence that they are thinking in those terms. Instead, all we hear about is new ways of saying "rationing"; the need to slow the introduction of new technology so as to slow the increase in costs.

Thus we get reworkings of the "Med Fed" idea--the idea of a "Federal Medical Reserve," as a play on the Federal Reserve Board, the nation's monetary overseer. The latest iteration of the idea comes from Dr. William R. Brody, president of the Salk Institute for Biological Studies, writing in The Washington Post today:

So why not let Congress continue to decide how much, in total, it is willing to obligate to Medicare spending each year? Then create an autonomous agency, like the Federal Reserve, to oversee and determine how Medicare dollars should be spent.

Members of this Federal Medicare Reserve would consist of a Board of Governors and a chairman, nominated by the president and confirmed by Congress, who would be charged with defining how the system should operate and how dollars should be allocated. There could also be a series of regional Medicare Reserve Boards that would provide more local oversight over Medicare payments.


It's an interesting idea-- if.If the Med Fed were to grapple with the utilization of new technology as a way of bringing costs down, well, that could be good. Of course, it would also be complicated. But if the Med Fed were to take the simpler approach, of simply holding down costs--a.k.a. rationing--well, that would be bad. Disastrous, in fact, including disastrous politically for those who sought to create a Med Fed.

Politicians who vote for a Med Fed thinking that they can hide behind the remoteness of their new creation are kidding themselves. In a Glenn Beck- ed world, the voters will quickly figure out who is responsible for unpopular cuts.

That's the bad news. The good news is that if the politicians, and the policy wonks, could bring themselves to actually deliver better health to people the same Beck-watchers would reward them.
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