‘Shrinkflation’ hits healthcare

Alexis Kayser (Email) – 2 days ago

Healthcare is kind of like cereal, according to a Nov. 13 LinkedIn article by Robert Pearl, MD.

Dr. Pearl — the former executive director and CEO of the Permanente Medical Group, and current co-host of the podcast “Fixing Healthcare” — alleged that the healthcare industry is engaging in similar practices as packaged-good companies. Rather than continuing to raise costs, food companies started providing less product for the same price and hoping consumers would not notice: hence the air-filled chip bags and cereal boxes.

This “shrinkflation” — the practice of reducing a product’s size but retaining its same price — is also a problem in healthcare, according to Dr. Pearl. Medical spending in the U.S. took up 6.9% of the country’s GDP in 1970 but skyrocketed to 17.2% by 2010. During that time period, life expectancy continued to improve alongside increased spending. But now, healthcare outcomes have plateaued; medical spending still consumes about 17% of the GDP, but the life expectancy has gone down from 78.7 years in 2010 to 77.3 years in 2020.

“With the passage of the Affordable Care Act of 2010, healthcare policy experts hoped expansions in health insurance coverage would lead to better clinical outcomes, resulting in fewer heart attacks, strokes and cancers. Their assumption was that fewer life-threatening medical problems would bring down medical costs,” Dr. Pearl wrote. “That’s not what happened. Although the rate of healthcare inflation did, indeed, slow to match GDP growth, the cost decreases weren’t from higher-quality medical care, drug breakthroughs or a healthier citizenry. Instead, it was driven by skimping.”

High deductible health plans are one example of “skimping,” which ultimately worsens health outcomes, per Dr. Pearl.

“Insurers and businesses argue that high-deductible plans force employees to have more ‘skin in the game,’ incentivizing them to make wiser healthcare choices,” he wrote. “But instead of promoting smarter decisions, these plans have made care so expensive that many patients avoid getting the medical assistance they need.”

In addition, Medicare has drastically reduced the amount it will pay for inpatient services; but since hospitals pay the same for clinicians and medicine regardless of reimbursement, private insurers and uninsured patients now pay double or triple Medicare rates to make up the difference, according to Dr. Pearl.

Prior authorization is another method of “skimping,” which, in its attempt to lower costs by deterring physicians from recommending costly tests and procedures, deters patients who do not want to wait for treatment.

“The truth is that our healthcare system is grossly inefficient and financially unsustainable. Until someone or something disrupts that system, replacing it with a more effective alternative, we will see more and more skimping as our nation struggles to restrain medical costs,” Dr. Pearl wrote. “And that will be dangerous for America’s health.”