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COVID-19 and the cost of health care: What happens when the pandemic ends?

COVID-19 and the cost of health care: What happens when the pandemic ends?
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The COVID-19 pandemic has challenged a U.S. health care system where rising costs were already a major concern. A number of unknowns, including the effects of deferred non-COVID-19-related health care, make it difficult to predict the overall impact of the pandemic on our system going forward. One thing is clear: As the recovery evolves, it will be more important than ever to address escalating prices, wasteful spending and the inefficient utilization of our health care resources. 

The system braced for an onslaught of increased health care demands from a disease that promised to be deadlier and costlier than anything seen in recent memory. Fortunately, infection and death rates are likely to fall short of what was predicted by some early models. But the need to care for those afflicted has indeed been substantial. Initially, we did not fully anticipate the steep and precipitous drop in the use of non-COVID-19 health care services. 

According to the Medical Group Management Association, since the beginning of the COVID-19 crisis, the average medical practice has seen a 60 percent decrease in patient visits and a 55 percent decrease in revenue that was only partially offset by an increase in telemedicine encounters. Since April, some ambulatory practices have seen a rebound, but the number of visits is still roughly one-third lower than pre-pandemic levels. Of greater concern is a decline in hospitalizations for a number of urgent conditions like acute coronary syndromes, acute appendicitis, aortic aneurysm and dissection, gastrointestinal bleed, epilepsy and seizure, transient ischemic attack and atrial fibrillation. 

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We don’t yet know the impact this deferred care will have on health and health care costs. One concern is that it will result in poor health outcomes through missed diagnoses and delayed treatment for cancer and other serious conditions that will manifest sometime in the future through increased demand for health care services to treat patients in more advanced stages of their diseases. Some of the decline in non-urgent care may not fully rebound as patients lean more heavily on telemedicine or acclimate to going without care for minor ailments. Some providers may feel compelled to increase their prices to offset the decline in volume.

In spite of the unknowns, one effect of the pandemic has been to underscore the pressing need to safeguard finite resources by addressing wasteful spending and the inefficient use of health care. The key to these efforts is curbing the escalation in prices that accounted for three-quarters of the 18 percent growth in health care spending from 2014-2018, according to the Health Care Cost Institute. Although health care consumers are gaining more access to price transparency tools, they rarely use the information when making health care decisions. This is because the current structure of health insurance in the United States generally shields consumers from the true cost of care, making sticker prices largely irrelevant. 

However, blunt policies like price regulation are not the answer to escalating prices. Although average commercial health care prices are significantly higher than Medicare fees, according to a recent study in the journal Health Affairs, setting commercial health care prices to Medicare rates would result in a sudden drop in average hospital revenue of 35 percent with possible disruptions in access to care. Previous attempts to directly control health care prices have consistently failed to achieve the expected savings. A different approach is needed.

First of all, health care consumers need meaningful cost information that goes beyond a list of prices for individual services. They need to know what they will pay out-of-pocket for an episode of care, as well as information about the quality of care they will receive, so that their decisions can be based on value, not just cost.

In addition, consumers need incentives to use the information to make better health care choices. “Skin in the game” through greater control of their health care resources along with insurance reforms that support direct contracting with providers, will give consumers incentives to comparison shop for services and introduce competition that will push providers to maximize the value of their care. 

In order to preserve finite health care resources to mitigate the impact of the current coronavirus pandemic and be better prepared for the next health crisis, the U.S. health care system needs to address escalating prices and wasteful spending through consumer control and healthy competition. Doing so could avoid the need for the types of government regulation that have failed us in the past, and which did not leave us prepared for the last several months. 

John S. O’Shea, MD, MPA is a surgeon and author of the new Mercatus Center policy brief “Healthcare Transparency in the Age of COVID-19.”