Cost Disease and Emergency Medicine: Can We Do More With Less?

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Over the past two decades, U.S. emergency department (ED) visits have increased dramatically to greater than 140 million yearly, [1] resulting in more crowded EDs filled with increasingly complex, older patients. [2] The ED workforce has not grown at the same pace, and staffing shortages have become widespread, particularly in rural areas. [3]

More recently, an ongoing push by insurers and government towards value-based care has further complicated the practice of emergency medicine. As a result of these trends, emergency physicians are increasingly asked to produce more using similar or less resources. Some examples include being pushed to see more patients with fewer ancillary staff, to follow complex hospital policies, and to discharge patients with increasingly complex care plans.

We are told that these pressures are necessary: ED visits – and particularly hospital admissions – are not a good use of health care dollars, and our society cannot bear the burden of ever-rising health care costs. Yet often, limiting our use of resources to provide a larger amount of more complex care doesn’t seem justified by our everyday experience. However, it can sometimes be difficult to articulate exactly why we feel so strongly about this as emergency physicians.

The theories of one economist, who died earlier this year, may explain why cost-cutting pressures can be harmful, and why health care perhaps should take up a rising share of the overall economy. [4] William Baumol first described the theory of “cost disease” in the 1960s. He compared the market for factory workers, who through technology were constantly increasing their productivity, with the market for musicians, four of whom would always be required to perform in a string quartet. [5]

He pointed out that fields like health care and education are relatively limited in their ability to produce more using the same amount of labor. This is largely because their output requires the time and touch of a human being. By contrast, modern manufacturing offers many more opportunities for automation that can reduce the labor required to produce them: compared to ten years ago, far fewer workers are needed to manufacture smartphones, for example. As a result, workers in these fields have become increasingly skilled and can command higher wages because their production becomes more valuable.

Unlike the sectors with productivity growth, health care (and education) can scarcely reduce the number of workers required. Over time, essential sectors like health care and education will thus take up a larger share of the economy as the same or more employees demand greater wages (to prevent them from defecting to other sectors where they could make more). Because our society is willing to pay for social essentials even though they are not becoming cheaper, the swelling budgets of these essential sectors afflict the economy with “cost disease.”

An economy where half of all spending goes to health care may sound absurd, but projections suggest this may happen in the next hundred years. [6] Because medicine is by nature conservative in adopting innovations, and the population’s needs for care continue to grow, cost disease explains why this expansion may be necessary. Indeed, emergency care is a particularly apt example of a low productivity growth field.

First, undifferentiated patients require face time and human intuition that may never be automated. And second, some excess capacity is always needed to prepare for emergencies. For instance, staff training for a mass casualty event can neither be automated nor provide any immediate return, but our society still values and demands this preparation. As the technology sector’s ever-multiplying output cannibalizes its own jobs, our field’s constant appetite for labor will expand its share of the labor market.

Even though this cost disease is unavoidable, policymakers have nevertheless targeted growing medical expenses for cost cutting (the same has been true of education, where college tuition costs are rising even faster). This is in part because ED care is relatively expensive. Older studies assumed economies of scale and estimated the marginal cost of ED care at less than a hundred dollars [7] (in other words, the cost of one additional visit at an already established facility).

In contrast, Bamezai (2006) [8] suggested the actual marginal cost was several times that: roughly three to four hundred dollars. Perhaps more importantly, they also showed that no such economies of scale existed. This means that ED operations have substantial “variable” (per visit) costs that accumulate with each visit in addition to “fixed” costs of basic infrastructure required to run at ED. This more firmly places emergency care in Baumol’s framework as a cost that is inevitably destined to increase.

Cost concerns have also put direct pressure on rising emergency physician earnings, perhaps unfairly. Certainly our wages contribute greatly to variable costs, especially as more EDs no longer have spare capacity and pay for additional providers during peak hours to match patient demand. But efforts to reduce physician labor costs can have farther-reaching adverse effects, as when the best trainees are drawn to other medical fields or to the technology sector.

Moreover, administrative costs account for far more growth in American healthcare spending, especially compared with other developed nations. Ballooning overhead may also explain why, as practitioners, we scarcely notice any additional resources supporting our work, even as its overall costs increase. Even though it can be expensive, health care ultimately supports and fuels the whole economy. For instance, treating a technology executive’s myocardial infarction (or her father’s pneumonia) allows her to continue to be productive.

Ditto for education, as when this executive is willing to pay handsomely for a top-notch education for her children. Baumol’s key insight was that cutting these services hampers the most productive sectors much more than it might free capital to invest in them, Skimping on health care thus hinders the economy as a whole. As such, we should recognize superlative emergency care as an enabler and guardian of societal growth and prosperity.

That said, Baumol’s cost disease theory applies to us as emergency physicians only to the extent that innovation in our daily work is impossible or specifically where innovation cannot produce economies of scale. Certainly this is not entirely the case. Telemedicine could provide specialized care in remote areas and reduce transfers, perhaps by leveraging bedside ancillary providers. [9] Electronic health records (EHR) can be another driver of productivity growth. Any emergency physician who has ever been exasperated by their EHR infrastructure will recognize the urgency of a better user interface.

Arrangements that allow for information exchange between health systems may prove especially useful for emergency physicians needing immediate access to prior records. [10] Locating a prior Creatinine value or EKG should need only a single click, and the fact that multiple steps are often required (including perhaps a series of faxes or phone calls) affords tremendous room for growth. Local information exchanges that integrate into the EHR easily could also facilitate more appropriate follow-up after ED visits and streamline the whole medical sector.

The Kaiser Permanente health system has made important advances in a number of these areas. [11] In particular, continual coordination of care has minimized bounceback ED visits and readmissions. Kaiser’s role as both patient insurer and care provider uniquely motivates this cooperation, but the Centers for Medicare and Medicaid Services (CMS) is attempting to replicate these incentives through accountable care organizations (ACOs) and other payment models.

Moreover, a number of other alternative payment models beyond fee-for-service have been proposed to encourage alignment between providers and payers and improve the quality, and perhaps reduce the quantity, of emergency department care. [12] Yet even as these reforms take aim at distorted billing incentives, they also run a risk of increasing administrative complexity and costs rather than reducing them closer to other developed nations. Ideally, policy changes should restrain overhead costs, which may actually be amenable to innovation. If we remain open to technology that can more efficiently bill, audit, and evaluate our work, we may find more resources available for our basic day-today task of evaluating and treating patients.

Even as ED care becomes more efficient, it will always be expensive because it is important, complex, and always available. That is precisely why it is often impossible to provide in another setting. Cost- cutting efforts may be limited because acute care is a necessity, and Baumol’s cost disease explains why our budgets will, and should, grow. Broader understanding of these ideas can help us justify why our care is worth paying for and why it is actually harmful to ask for more with less.

REFERENCES

1. “Emergency Department Visits.” National Center for Health Statistics, May 3rd 2017. https://www.cdc.gov/nchs/fastats/emergency-department.htm

2. Hsia RY, Nath JB, Baker LC. California emergency department visit rates for medical conditions increased while visit rates for injuries fell, 2005-11. Health Aff (Millwood). 2015 Apr;34(4):621-6.

3. Ginde AA, Sullivan AF, Camargo CA Jr. National study of the emergency physician workforce, 2008. Ann Emerg Med. 2009 Sep;54(3):349-59.

4. “William Baumol, a great economist, died on May 4th” The Economist, May 11th 2017.

5. Baumol WJ, Bowen WG “On the Performing Arts: The Anatomy of Their Economic Problems.”The American Economic Review, vol. 55, no. 1/2, 1965, pp. 495–502.

6. “An incureable disease.” The Economist. Sep 29th 2012.

7. Williams RM. The costs of visits to emergency departments. N Engl J Med. 1996 Mar 7;334(10):642-6.

8. Bamezai A, Melnick G, Nawathe A. The cost of an emergency department visit and its relationship to emergency department volume. Ann Emerg Med. 2005 May;45(5):483-90.

9. Du Toit M, Malau-Aduli B, Vangaveti V, Sabesan S, Ray RA. Use of telehealth in the management of non-critical emergencies in rural or remote emergency departments: a systematic review. J Telemed Telecare. 2017 Jan1:1357633X17734239.

10. Washington V, DeSalvo K, Mostashari F, Blumenthal D. The HITECH Era and the Path Forward. N Engl J Med.2017 Sep 7;377(10):904-906.

11. Selevan J, Kindermann D, Pines JM, Fields WW. What Accountable Care Organizations Can Learn from Kaiser Permanente California’s Acute Care Strategy. Popul Health Manag. 2015 Aug;18(4):233-6.

12. Pines JM, McStay F, George M, Wiler JL, McClellan M. Aligning payment reform nd delivery innovation in emergency care. Am J Manag Care. 2016 Aug;22(8):515-8.

ABOUT THE AUTHORS

Kimon L.H. Ioannides, M.D. is a second-year Emergency Medicine resident at Temple University Hospital.

HEALTH POLICY SECTION EDITOR Dr. Pines is a practicing emergency physician and a Professor of Emergency Medicine and Health Policy at the George Washington University.

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