THE COST DISEASE OR WHY HEALTHCARE COSTS DON’T FALL?

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Computers get cheaper but healthcare doesn’t, observes William J. Baumol, professor emeritus at Princeton University.

His book “The Cost Disease” (Yale University Press 2012) builds on this argument that he first put forward about 50 years ago with his collaborator, William Bowen.

He remarks that labour-saving productivity improvements have reduced the cost of making products. However in the personal services business such as healthcare, productivity improvement and cost reductions occur very slowly.

As a result, the costs of healthcare increases at a faster rate than the rate of inflation.

The U.S. data supports the thesis of “The Cost Disease”.  Between 1978 and 2008, CPI grew by rates between 4 and 5%.  During this period, hospital costs increased nearly 300%.  Cost increases of this magnitude represent a threat to the quality and quantity of care for the masses.

The rates of increases in healthcare costs for Canada, Germany, the US, Japan, the UK and Netherlands are comparable. They all show signs of “The Cost Disease”.

The fact that “The Cost Disease” exists in many countries points to the basic underlying problem- the nature of the provision of labour-intensive services.

These services require direct, face to face interaction between care provider and patient. The nature of the work does not allow for dramatic increases in productivity.

In 1919, the doctor put his stethoscope on the man’s chest. In 2012, the doctor puts the same stethoscope on the man’s chest. No labour saving productivity here.

The remedy for “The Cost Disease” is to introduce dramatic improvements in productivity.

One example of the dramatic improvement in productivity with knowledge work and teams of specialists is the use of a real time internet enabled platform that allows for virtual collaboration, sharing work tasks and accessing the knowledge of the group.

When such a platform is used, there are dramatic improvements in efficiency of up to 70%.

So there might be answers to “The Cost Disease” problem, if our healthcare leaders drive the solutions in that direction.