Reining in the healthcare inflation beast

by Jeremy Lim, Published TODAY, 7 Jan 2013

Planners examining healthcare inflation often wring their hands in utter despair. It seems that nothing can slow down medical inflation.

The Towers Watson survey last year reported medical trend rates of almost 10 per cent in 2011; in Singapore, this was 4.98 per cent net of general inflation in 2011 and expected to be 5.5 per cent in 2012.

Last year, the Government here announced a doubling of the healthcare budget over five years and this year's Budget is expected to continue this trend of increased healthcare funding.

Interestingly, many experts believe that healthcare inflation can be "tamed", and without compromising the clinical care provided to citizens.

Mr Peter Orszag, former Director of the United States Congressional Budget Office, in arguing the need to "bend the cost curve", famously asserted that as much as 30 per cent of healthcare costs could be averted with no adverse health impact.

What are the cost drivers and what can be done?

DEMOGRAPHY AND EPIDEMIOLOGY

At the population level, ageing and disease patterns play a large part in explaining rising costs.

Singapore is rapidly ageing as a country and we are not ageing well. Rates of chronic conditions like diabetes and high blood pressure increase with age and with worsening lifestyle habits. Singapore faces a double whammy: We are getting older and fatter.

In fact, NUS researchers projected in a recent analysis that by 2050, one million Singaporeans would be diabetic. While biologically, very little can be done about ageing, plenty can be done about worsening lifestyle habits and the "epidemic" of chronic diseases. Can we do something about major killers like cancer, heart disease and stroke? Yes, yes and yes.

The World Health Organization has estimated that at least 80 per cent of all heart disease, stroke and Type II diabetes, as well as 40 per cent of all cancer cases could be prevented by eliminating major risk factors like obesity and smoking.

Unfortunately, Singapore is not doing well on this front - diabetes rates have increased from 8.2 per cent to 11.3 per cent, obesity rates have jumped from 6.9 per cent to 10.8 per cent and the number of smokers has increased from 12.6 per cent to 14.3 per cent.

Those who bemoan these as part and parcel of modernisation should examine closely the story of North Karelia, Finland. With a population of only 180,000, North Karelia in 1972 had the dubious distinction of having the highest levels of cardiovascular disease in the world.

Fast-forward to today and after four decades of intense government and community efforts to reduce smoking rates, transform diets and make exercise a way of life, deaths from heart disease plummeted 82 per cent, life expectancy increased by seven years and the region is now a shining example for the world of what can be.

The economics? US$1.75 million (S$2.15 million) from 1971 to 1979 in programme costs and savings of US$6 million (US$2 million from averting heart attacks and US$4 million from reduced disability payouts).

Such transformations are rare and extremely challenging, which explains why North Karelia is renowned. But Singapore has to transform; there is just no other way to manage healthcare spending.

OVERUSE, UNDERUSE, MISUSE

At the service level, the same Towers Watson survey attributed rising costs to three key drivers - new technology, "overuse of care" and the "profit motives of providers".

New technology improving care is not a bad thing and as long as the benefits outweigh the increased costs and enhances our quality of life, surely society should be glad to spend more on healthcare. The challenge is deciding which new technologies are worth spending on and having the courage to say "no" to those that are not.

New York's Memorial Sloan-Kettering Cancer Center, probably the foremost cancer institute in the world today, was recently in the news for saying: "We are not going to give a phenomenally expensive new cancer drug to our patients." It went on to explain that the drug was almost double the price of the existing treatment and had not proven to be any better.

Sounds like a no-brainer? Not in America where Medicare, the national programme for seniors, is mandated to cover any drug that the FDA approves. And the FDA approves drugs based on their being "safe and effective", with no regard for their costs or their comparative effectiveness.

In England, the National Institute for Health and Clinical Excellence conducts rigorous cost-effectiveness analyses and rejects treatments that are too expensive for their benefits.

In Singapore, the Government restricts subsidies to "essential and cost-effective medical treatment of proven value" but insurers are by and large nonchalant.

DOCTORS AS COST DRIVERS

Former Ayer Rajah Member of Parliament Tan Cheng Bock argued in Parliament almost 30 years ago that doctors and not patients (especially in C-class wards) were responsible for much of healthcare expenditure.

While this "supplier-induced demand" was a key economic belief guiding health policy for many years, the truth today is not so straightforward. Defensive medicine is on the rise, many tests are ordered not for clinical reasons but merely to comply with pre-employment and insurance requirements - all contributing to "overuse".

That said, current doctors' compensation models are not helpful. In this already cost-escalating environment, doctors in Singapore are largely paid on a "fee-for-service" model where the more tests, the more procedures, the more medicine we order, the higher our income at the end of the month. Are we unethical? In the main, most certainly not, but we are human. Can a better system be designed so that patients, physicians and payers are better aligned?

PRICE OF FAILURE

Spiralling healthcare costs impact everyone both directly and indirectly, and need to be addressed.

Singapore, like the rest of the world, needs to transform to rein in the beast of uncontrolled healthcare costs, but we move from a position of remarkable financial health. In an era where most governments are desperately cutting spending, Singapore is trying to spend more!

A whole-of-government and whole-of-community relentless commitment to healthy living and preventive health, judicious adoption of technology and some sanity in the way we pay doctors - these will put us in good stead for the future.

Have no illusions, the consequences of failure are devastating. At the individual level, medical bankruptcies in Singapore are uncommon today; let's keep it that way. At the system level, rising healthcare costs divert scarce government resources: A dollar spent in healthcare is a dollar not spent elsewhere in education, housing and social services.

Dr Jeremy Lim has held senior executive positions in both public and private healthcare sectors. He is currently writing a book on the Singapore health system. This is the first of a series on health policies in Singapore.