Medical Device Daily Executive Editor

SAN FRANCISCO – Noted economist Alain Enthoven is a big supporter of medical technology, saying that what we as a people in the U.S. get from medical technology "is well worth what we pay for it."

But he warned members of the industry gathered at the Hyatt at Fisherman's Wharf for this week's Frost & Sullivan Medical Devices Executive Summit: "You need to know that the people are having a difficult time paying for it," and that those difficulties have the strong potential of leading to government price controls as a means of controlling runaway healthcare costs.

Enthoven, a PhD and emeritus professor of economics at Stanford University (Palo Alto, California), cited the paradox of healthcare midway through the first decade of the new century.

"These are tremendously exciting times for medical technology in the U.S.," he said. "Wonderful treatments and cures that greatly improve both the length and the quality of life are becoming available."

But despite those advances – many of them products of the companies represented in his audience – complaints about the U.S. healthcare system abound, Enthoven said.

While acknowledging the "wonderful advances" brought forth by the med-tech industry, he said soaring healthcare costs "are exceeding annual increases in compensation . . . forcing cutbacks in retiree healthcare [and] driving up the numbers of uninsured."

And that's just in the private sector. On the public-sector side, he said that the federal government is paying about 60% of the total U.S. healthcare cost of some $1.3 trillion annually, or a number approaching $1 trillion, a burden shouldered by taxpayers.

And what are they getting for that astronomical level of spending?

Well, in the case of many, not much. Enthoven cited the Institute of Medicine (IOM; Washington) report indicating that upwards of 98,000 Americans die each year from medical errors and another from the Rand Corp. (Santa Monica, California) that people are getting "about half the recommended care."

As for the uninsured, Enthoven said that number currently is at about 45 million and growing by leaps and bounds, with perhaps another 50 million uninsured expected to be added to those rolls over the next few years.

He critiqued both the incentives – or disincentives, if you will – against cutting healthcare spending and the organization of the healthcare delivery system.

"Employers mostly offer no choice of delivery system," Enthoven said, "so people are stuck with costly care, [with] a system that rests on inflationary foundations." The "dominant incentives," he added, "are to do more and more costly care."

Ripping the fee-for-service (FFS) model for "[paying] you less if you find a way to do less" and fostering "a culture of entitlement," he said: "We need a kind of Industrial Revolution . . . accountable delivery systems, accountable for the health status and cost for defined population."

If not, Enthoven said that the Fortune 500 companies, labor unions, small businesses and people in general will "rise up" over the costs or unavailability of healthcare coverage and demand government control of costs.

What's wrong with that?

For one thing, he said, it would "make all of healthcare a political pawn, even more so than it is now."

What's more, it would result in the government setting millions of prices "in the absence of relevant and necessary knowledge about local market conditions [and] doing it with arbitrary formulae and politics."

In his view, even worse is that such a move "would perpetuate fee for service. There will be huge pressures on the government to cut costs, to cut [physician] fees and hospital payments," because "that is what Congress understands."

Such moves "would block the opportunity to evolve better system, as envisioned by the Institute of Medicine."

He told an attentive, standing-room-only audience: "Really, we could and should do so much better."

Responding to the IOM challenge, he said, "we should seek to evolve to a decentralized healthcare system made up of competing integrated delivery systems that accept responsibility for the quality and per-capita cost of the care they provide."

With greater accountability, fueled in part by ongoing improvements in healthcare systems' ability to measure quality, "consumers would have an informed, responsible, multiple choice of delivery system."

Among the strengths such systems could offer, Enthoven said, would be the ability to reduce care that has no benefit, and, importantly to his Tuesday audience, "evaluate and target new technology." They also, he noted, "could focus on disease prevention," rather than myopically on treatment.

The goal, Enthoven said, "must be fundamental change in underlying incentives – from being "cost-unconscious" under the fee-for-service model to "universal cost consciousness."

He decried what he termed "the myth that people don't like managed care," saying that "when given the choice, most people will choose value for money." By way of example, he noted that at Stanford this year, faculty and staff were offered six different choices in healthcare plans and that 75% of them chose HMOs based on the group physician practice model. At not-so-friendly rival the University of California, the HMO figure is 80%.

What is needed to make the decentralized delivery system model work and avert a turn to government controls, Enthoven said, "is for all employers to offer choices and make fixed-dollar defined contributions."

He said the basic principles are no mystery: "Let all consumers have informed, responsible choice among competing delivery systems, and I think the healthcare system will migrate toward producing more value for the money."

Medical device companies should favor this outcome of a decentralized/private market, Enthoven said, "because it is [a market] that pays on value."

And, he elaborated, "if you develop products that really enhances value – such as reducing costs – customers will pay for that value."