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Feature

Facing up to the Healthcare Conundrum

Posted on: 01 Sep 04

Summary

Over the last 100 years, tremendous advances have been made in terms of healthcare, but this has also led to greater expectations in terms of the service that people expect to receive and a dilemma for governments in controlling the resulting, growing healthcare expenditure.

Over the last 100 years, tremendous advances have been made in healthcare, but this has also led to greater expectations in terms of the service that people expect to receive and a dilemma for governments in controlling the resulting, growing healthcare expenditure.

 

Caught offguard

The rise in healthcare expenditure appears to have caught many people off guard and the methods that governments have used to curb spending have often been controversial. Patients have become more demanding in the quality of healthcare they wish to see provided and they routinely seek access to the latest medical technologies. However, the uncertain economic situation combined with a growing elderly population and falling birth rates places a strain on funding for public healthcare.

 

The difficult situation that industrialised countries face is highlighted by events in Japan. The World Health Organization has estimated that by 2020, more than one quarter of the Japanese population will be classed as elderly, and that a high proportion of these will be over 80 years of age (1). Figures from the Organization for Economic Cooperation and Development (OECD) state that the over-65 age group accounts for 40-50% of healthcare spending in industrialised nations and that their per capita healthcare costs are three to five times higher than those under 65 (2). This trend means that in the future the working Japanese population must support a growing number of elderly people, but this is not a straightforward solution because over the next twenty years many of those currently working will themselves retire. Japan’s birth rate is falling and therefore as the elderly population grows the number of potential workers whose tax contributions can help support them will decline. Growing demand for healthcare coupled with a decreasing ability to pay for it could lead to a healthcare crisis. The Japanese government has implemented a number of cost containment measures, but it will need a more radical approach, as these policies will not address the underlying problems it faces in providing its citizens with modern, high quality healthcare.

 

A complex problem

Policies such as cost containment measures may slow spending in certain areas, but they can cause resentment amongst those patients affected by restrictions in these areas of healthcare and as they focus on the short-term they can lead to other problems in the longterm. A range of measures are being used in different countries to control healthcare spending, but none of these approaches have been accepted as a universal solution.

 

Cost containment measures also have the additional problem of providing less incentives for companies in the healthcare sector to invest in new technologies. For instance, pharmaceutical companies highlight the growing risks and costs associated with bringing a new drug to market and feel that the high prices of their products are justified. Furthermore, many of these treatments aim to modify the diseases being targeted rather than treating only the symptoms and thus they can remove the need for expensive, lengthy stays in hospital. These companies argue that the initial high cost of treatments lead to substantial longer term savings when they are used appropriately. They believe that placing restrictions on healthcare expenditure will stifle innovation and that patients will effectively lose out.

 

Opponents of this view believe that such companies are already achieving high levels of profit and thus must drop their prices in order not to add to the healthcare spending crisis. They cite figures showing that drug spending is accounting for a greater proportion of total healthcare expenditure than ever before. In response, pharmaceutical companies point out that although it is seen as a target for cuts, spending on new drugs still only represents a small proportion of total healthcare spending. These viewpoints reflect how these two groups are interpreting the information available in different ways and illustrate how complex the problem is.

 

In the USA, The Centers for Medicare & Medicaid Services (CMS) found that between 1990 and 2000 spending on pharmaceuticals increased by more than 200% (3). However, they suggested that in the future would stabilise at about 10% per year. Furthermore, pharmaceuticals accounted for only 9.4% of the total US$1.3 trillion spent on healthcare in 2000 (3). This suggests that the problem of how to deal with rising healthcare expenditure for a growing population goes beyond simply tackling the expenditure on pharmaceuticals. Although there will be continued pressure on pharmaceutical companies to justify their prices in line with social objectives, other non-pharmaceutical elements involved in healthcare expenditure need to be tackled.

Outlook

There is no doubt that healthcare spending is set to rise and that better approaches are needed to ensure that it does not spiral out of control. However, the experience of most countries has shown that continued investment in healthcare can result in dramatic improvements for the population. Therefore, healthcare providers need to focus on the most cost effective solutions, but place these in the context of an efficient service with clear and well-established goals. Furthermore, they need to involve the public to take a greater interest in their health and persuade companies that the healthcare policies they implement do not preclude them from being commercially successful.

References

  1. Oxley H and Jacobzone S (2001). Healthcare expenditure : a future in question. OECD Observer. 9 December 2001. http://www.oecdobserver.org/
  2. Kermani F and McGuire S (2003). Japan’s ageing challenge. Transpharma. Volume 1 (2): 34-37. http://www.chiltern.com/press/Articles/TP02Japan.pdf
  3. Schumock GT and M. Walton SM (2003). Expenditures for prescription drugs: too much or not enough? Healthcare Financial Management. October 2003.

Dr Faiz Kermani

Last updated on: 27/08/2010 11:40:18

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