Does More Primary Care Increase Healthcare Costs Instead of Lowering Them?

Health care reformers often argue that increasing patients’ access to doctors (especially primary care doctors) can actually lower health care costs in the long run, as these doctors can help diagnose and manage conditions before they lead to more expensive treatments and hospitalizations.  But a new paper by economists Robert Kaestner and Anthony T. Lo Sasso disputes that theory. Here’s the abstract:

By exploiting a unique health insurance benefit design, we provide novel evidence on the causal association between outpatient and inpatient care. Our results indicate that greater outpatient spending was associated with more hospital admissions: a $100 increase in outpatient spending was associated with a 2.7% increase in the probability of having an inpatient event and a 4.6% increase in inpatient spending among enrollees in our sample. Moreover, we present evidence that the increase in hospital admissions associated with greater outpatient spending was for conditions in which it is plausible to argue that the physician and patient could exercise discretion.

The authors further conclude that “the implication of these findings is that expanding health insurance, as recent federal reform (Patient Protection and Affordable Care Act) proposes, will be cost increasing.”

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  1. frankenduf says:

    perhaps they should contact the CBO, which has documented how much is saved by expanding coverage as compared to non-coverage- 2 important points here is to: 1- shunt uncovered citizens away from ER visits to MD visits- ER visits are much more expensive; and 2- shunt uncovered citizens to preventative care, which optimally does not include an MD (clinics with nurses or other professionals)- MDs are overpaid and so any mass increase to them preventative or no will be overpriced

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    • J1 says:

      Are ER visits really more expensive? This seems more like a situation where it’s extremely expensive to treat the first patient, but pretty cheap for subsequent patients. We’re going to operate ERs, so we’ve already committed to the huge fixed expense involved; is the marginal cost of treating an additional patient really that high? It doesn’t necessarily require additional staff or facilities.

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      • Joe J says:

        The economics of hospitals is a book in itself, and of ERs is a set of books, though it should be put in the comedy section.
        ERs have a high rate of nonpayment. Which is born by those who do pay.

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      • J1 says:

        ERs certainly have more exposure to non-paying customers given the legal requirement that they treat everyone who comes through the door, but that doesn’t necessarily mean they aren’t still a cheaper means of treatment overall. Also, if everyone was insured they would look even better economically. I really don’t know whether they’re cheaper or not, but the analyses I’ve seen assume the cost of operations is spread across all patients equally, and I don’t think that’s a valid assumption.

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      • Mike says:

        J1 – But ER’s are more expensive. They’re by far one of the most expensive mechanisms to provide medical care. It’s also one of the most inefficient delivery mechanisms. There’s a whole litany of reasons. But it can really be summed up like this: EDs are staffed, supplied and maintained (24×7) for every possible emergent condition. That means you’re paying a lot extra if you’re showing up for non-emergent situations.

        It’s kind of like shopping for electronics at one of those airport stores. I doubt those stores are ever cheaper than buying the same thing from Amazon. So if you could plan a little better, you’d save money. But like the ED, those stores provide a service. They provide a convenience. They clearly serve a purpose; I have bought earphones from one of those stores before when I forgot mine on the counter. But you pay a lot for it.

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  2. Todd DeYoung says:

    It seems that in order to come to their conclusion you’d also need to look at the costs of inpatient stays driven by early intervention vs those driven by emergency.

    Is this addressed beyond the abstract?

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  3. Travis says:

    Interesting study, however our company has found the opposite to be true for our managed care members. While our model is specific to Medicare, we have found that investing in the primary care practice and building quality initiatives for those physicians has led to direct savings and reduced hospital admissions. In fact, we can’t understand why more health plans do not build their delivery model around a strong primary care practice.

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    • Enter your name... says:

      The age of the population might matter. People in their 70s and 80s might make different choices than people in their 30s and 40s when it comes to “discretionary” surgery like most knee surgery.

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  4. Clancy says:

    Healthcare costs still fall in this model, but the “volume” of care rises which makes the spending higher. This still seems like a desirable outcome to me.

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  5. Mike says:

    I’m left with a so what?

    What I gather is the following: Increased outpatient spending leads to increase in inpatient visits.

    In fact, that’s more or less exactly what you’d expect. If you have more access to say, primary care, you’re more likely to also detect things that will require inpatient care.

    Now the real questions are:
    1. Was the resulting inpatient care (in total) less costly when does this route v. the emergency department route or detected later route?
    2. Did this affect actual access to healthcare in a meaningful way? One of the upsides to outpatient care (and primary care, generally) is that you can schedule it. This has it’s own value too. It has value from the provider side and from the patient side.

    Arguing that one aspect of care increased costs in another is almost entirely the wrong question.

    I take my car to the shop every 5k miles. Every once and awhile they find something more expensive to fix than an oil change. I don’t get mad that my increased spending on regular service meant that I had to leave my car at the shop once in awhile. Rather, I justify it because having something break down on the express way to work is much more costly even if I end up with my car in the shop in both cases.

    Extending the analogy, I’ll also note that sometimes they “find” something that may not manifest itself in an expressway breakdown (or perhaps at all during my ownership of the car), and I may end up paying to have it fixed anyway. I guess this means that my spending increased because I knew about it even if I may never have had an issue if it had gone unnoticed.

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  6. Billy D says:

    3 interesting things:

    1. The study involved a “high deductible” insurance plan, which should generally discourage preventitive visits compared to a low deductible plan. I believe this would actually make their findings understated.

    2. It was for a 6-year time period. I assume that most larger health issues that were “prevented” by preventitive visits would have otherwise arisen within that time period, but some issues (e.g. cancer) might have only shown up after the study period. This would seem to work in the opposite direction as #1 above.

    3. It was funded by the American Enterprise Institute. They have a certain pro-business/anti-regulation bias that makes you think they knew what they wanted the study to say before it was ever conducted. I’m not making any specific accusations about the study’s integrity, but we should keep their bias in mind.

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    • A. Chen says:

      With regards to your first point, high deductible plans often times have 100% coverage for preventative visits.

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  7. Nil says:

    I don’t think this result should be surprising. A trip to a primary care physician might be much cheaper than a trip to the ER, but you also have to account for all the people that opted to visit neither until they had an incentive to visit the primary care physician. Plus that expensive ER visit will typically only focus only on relieving the immediate issue and getting the patient out the door, while an outpatient doctor is likely to test & probe for other issues that can lead to further costs.

    While all the prevention and early intervention programs sound like they should save money, any savings tends to be very short term. If the prevention or early intervention program actually works to prolong the patients life then those savings are dwarfed by the huge increase in lifetime healthcare costs. They can certainly be worthwhile in terms of quality or quantity of life, but in strictly monetary terms any improvement that increases lifespan is bound to increase the total cost of lifetime care.

    The ultimate problem for lowering healthcare costs is that everybody dies from something. Treating the health issues that can be treated affordably just means that more people will live to develop different health problems that are more likely to be horribly expensive. From a purely financial perspective preventing heart disease or catching cancers earlier just means we will eventually have many more people suffering from dementia or having an expensive decade long decline with multiple organs slowly failing.

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  8. Jason Ward says:

    An important conclusion that can be drawn from the study which was (in my opinion irresponsibly) left out of the blog post is the following Doctors appear to be the causal factor of this increase rather than users of healthcare services.. In fact, the novel insurance feature that allowed that authors to ferret out this finding was a plan that made inpatient care potentially or actually MORE expensive for the patient. Standard economic theory would clearly predict this would lead to less inpatient care (the plan only allowed money paid into it to be used for outpatient services). This points clearly to the role of physicians in driving overtreatment and the study points this out using rather indirect language. Consumers of healthcare are by definition always under informed about the efficacy of treatment. The need is for more evidence based care decisions and adjustment of physicians’ incentives, not less access to healthcare coverage for the marginally insured.

    A better headline would have been “Do physician incentives serve to thwart plans designed to lower healthcare costs?”

    Jason Ward
    Econ student – The University of Illinois at Chicago

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