Lessons from Nations That Have Controlled Costs

Posted on Jan 10th, 2013 at 9:17am.

This year I facilitated a study tour for US leaders that focused on three countries: Denmark, Sweden, and Scotland. The question was “Why have these nations been able to control health care spending as a percent of GDP far better than the rest of us?” Some answers from the field (reinforced by the insights of Derek Feeley, NHS Scotland’s remarkable Chief Executive) would include:

1. Defined Budgets: An obvious feature of these nations is that there is a defined budget for each year for the health care system. In Denmark, this national budget is allocated to the regions, who in turn allocate it across the health and social care organizations, who in turn allocate it by department and function. While there is always the possibility of overspending the budget, there is also serious pressure not to do so. As Derek Feeley says, “Sure, I can overspend my budget. Once.” This system is familiar to staff and group model HMOs, but otherwise entirely foreign to the US business model for doctors and hospitals—until the advent of ACOs.

2. Willingness to Openly Face Cost as a Factor in Deciding What is Covered: The Danes make no apology for using guidelines and other instruments to prioritize and ration the care that is covered under the public system. An example is their recent decision to raise the BMI threshold for coverage of bariatric surgery, accompanied by a public conversation about the cost/quality tradeoffs inherent in this decision. Similarly, Jonkoping’s county council regularly debates “make or buy” decisions based on tradeoffs between convenience and cost. The English NHS’s NICE is akin to the guidelines groups in Denmark. This cultural feature, translated into guidelines commissions, evidence-based medicine councils, and other decision-making bodies, is a deep and powerful factor in cost control.

3. Local Control: Many decisions are made at the level of the counties and regions, (500,000 to 1.5 million people, typically) rather than at the whole nation level. And even the national scale in the case of Scotland and Denmark is only 5 million citizens. This allows for a healthy conversation that links the public’s desire for more and better services to their responsibility for paying for those services. In other words, the public is asked “do you want it badly enough to pay for it?”

4. Capacity Control and Facility Consolidation: These countries seem to be capable of making and executing difficult decisions such as centralization of tertiary and quaternary services, closing duplicative hospitals, and other politically chargedsteps necessary to rationalize capacity, technology, etc. They actually have more doctors per capita than the US, but provide neither unlimited playgrounds nor perverse incentives (see below) for these doctors.

5. Administrative Simplicity: Relative to the US, these single payer systems are typically not burdened with the administrative complexity and costs inherent in the US insurance system. Enough said.

6. Aligned Physician Incentives: Doctors in Sweden and Denmark, whether in private practices or employed in the public systems, are paid in a variety of models, but the predominant features are per capita payments (e.g. GPs in Sweden) and straight salary (most specialists.) There are some FFS elements especially in the private systems, but this is a relatively minor aspect of the overall incentive landscape. This mix of incentives (predominantly capitation and salary) combined with fixed work weeks around 40 or 42 hours, leads to some productivity issues, but effectively eliminates incentive-driven overuse overuse of lab tests, specialty consultations, imaging, or costly procedures. (Note: hospitals have no incentive to drive up volume either, under the budget system!)

7. Lower Prices: On a unit of service basis, primary care and specialty care doctors in Europe are paid less than in the US—by 15-40%. Which raises the question, “Can we afford to keep extending ‘the doc fix?’ “

8. Private Competition: in both Sweden and Denmark the public system is under pressure to provide good access. If patients can’t get into the public system quickly enough, they are allowed to access the private system (at public expense.)

9. Coordination and cooperation between health care delivery, social services, and public health. To a much greater extent than in the US, health and social services are working together, often under the direction of the same governing bodies and budgets. This is especially important in chronic disease, end of life care, and preventing admissions and readmissions.

10. Educated, health-conscious populations: Both Sweden and Denmark have invested greatly in public education, and encourage activity in their design of public transportation, buildings, etc. Obesity rates are low. Note: they don’t consider “screening” to be prevention, and typically have lower rates of screening for cancer and other conditions than the US!!

11. Innovation, Quality and Safety Improvement: Scotland provides a particularly powerful example, but all 3 of these nations have invested significant resources in quality improvement—particularly, in reducing rates of potentially avoidable complications, and removing waste from work. It’s not uniform, but QI seems to be a much more regular feature of “daily work” for doctors and nurses than it is in the US. In Sweden in particular, all staff members have two jobs: doing their work, and improving their work. It was refreshing to observe the extent of local initiative and creativity in improvement at the front lines. Many of the best innovations appear to be “wildflowers” that were allowed to grow and thrive without any obvious mandate from above.

12. Patient Self-Care: There appears to be a widespread encouragement of empowerment and ownership by patients and families, with some astonishing examples such as self-hemodialysis (now becoming the norm in many parts of Scandinavia!). This is the “IKEA Model” of care, in which you get to do your care for yourself, and it appears to lead to high levels of satisfaction, lower costs, and outstanding outcomes.

If the US’ primary policy focus is going to be cost control, we might consider this list of 12 factors, and ask two questions:

• Where are any of these factors in the Affordable Care Act? (A: Aside from investment in innovation, private competition, and reduction in rates of payment, there is little in the ACA that can match the power of real budgets, capacity control, incentives that at least don’t encourage overuse, and willingness to have tough conversations with the public about costs, rationing, and other taboo subjects. Much of all this “hard stuff” is supposed to happen magically within ACOs. Really?)

• Why are we in the US so enthralled by the private insurance model? Aside from a brief and painful period of “managed care” in the 1990’s, private insurers have never done anything significant to alter the cost or quality trajectory of US healthcare, but they have added enormous amounts of administrative waste and frustration. If Aetna, United, etc. add no value to the system, why did we preserve and expand their business model in the ACA? (A: I have none. The private insurance emperor has no clothes, as I see it.)


Jim, this is an excellent outline of the issues and questions we Americans need to address as we reform our health "system". Your observations reflect the same things I saw while living in England and working for the NHS (with the possible exception of "health conscious" populations. The Scandinavians certainly win that competition hands down!). Health reform seems to be another example of us knowing what needs to be done, but being unable to execute it for a variety of reasons. There is no doubt we need to face the cost issue now. The ACA is more about access (very important) with less focus on cost. We need to do more and it will require major cultural shifts on the part of Americans. Firstly, we need to be better educated about health, health care costs and how health care delivery works - many (maybe most) Americans don't understand how the economics work in health care. Secondly we have to be willing to accept a change in the current system. I quite liked NICE i n England, but look at the furor over "death panels"...we couldn't even have a dialogue about that. Thirdly we need a movement in this country involving leadership at all levels of government as well as those in the industry to help lead a cultural shift to dare I say, embrace change in health delivery. Have you ever thought about running for office?

Posted by Ann Bailey (Jan 10th, 2013 8:20am)

Jim--I agree with the need for innovation in healthcare services and quality. It is very important. We need innovation in every component of our complex ecosystem of healthcare. But too many people now think that this is the only area where we need innovation. So it becomes the only kind of innovation that is valued. I contend that new therapies and vaccines for many of the challenges our health system faces offer an opportunity to truly transform disease. I'd like to see you add this kind of innovation to the list of changes that decrease costs and improve health. Take the example of Alzheimer's disease. We are facing an impending tsunami of medical, economic and social problems as a result of the number of baby boomers who will have Alzheimer's disease. Having a health care system that performs 20% better in caring for these patients in hospitals, nursing homes, and at home is welcome, but is it really the solution to the problem? What I needed in addition are therapies that prevent or treat the disease. Even delaying the onset of the disease by 5 years across the population would have huge impact.

Posted by Michael Rosenblatt (Jan 18th, 2013 7:03am)

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