This report originally appeared in the December 2009 issue of DOTmed Business News

The recent HIGPA conference provided an intriguing forum for pending healthcare legislation and a wide range of cost issues, most of which all GPOs have attacked now for many years. But even with recent reports that cite GPOs saving health care $36 and $64 billion annually, health care costs continue to escalate to the point of endangering the American economy.

After years of fighting to reduce costs, why does such effort appear futile in the grand scheme of things? Even as GPOs broaden their scope, reaching well-past commodity bidding and into every nook and cranny of hospital spending, the rising tide of costs remains unabated. I was not surprised to hear, again, how we need to attack PPI, those dogged physician preferred items that have resisted the cost reduction efforts of the last 30 years. Perhaps the debate needs to broaden to understand the core issues in American health care.

And maybe the answer lies in the phrase itself, those "physician preferred items." One doubts that we would face a crisis if there were "physician preferred shoes," for example. The difference is simply that physicians buy, with their own money, their shoes, while someone else buys implants they install.

An article most instructive appeared in the September issue of The Atlantic , in which David Goldhill writes passionately about the perverse incentives that plague us. His article, How American Healthcare Killed My Father, argues that our system is not worth preserving and the reform contemplated will not fix it. Although he evaluates the culprits in our byzantine health care system, he reserves special focus on the damage caused by "moral hazard-the tendency we all have to change our behavior, becoming spendthrifts and otherwise taking less care with our decisions, when someone else is covering the costs."

How can we better understand the futility GPOs and hospitals face with procedures and brand selections? Take a look at implants, for example, since the surgeons are not the buyers and the patients are not the customers. To test the absence of a free market, ask a total hip replacement patient which brand he chose and at which price he negotiated. You can discern from the blank stare the core problem in health care.

Goldhill argues that moral hazard, which dulls a patient's sensitivity to prices, coupled with the natural advantage afforded our well-trained physicians, produces the perverse incentive for physicians to generate demand - a demand that, generally, is paid for by a third party.

This ever-increasing demand simply overwhelms and sidesteps those heroic efforts of thousands of well-meaning professionals trying every day to reduce prices. Until our system is not just tweaked, adjusted, and re-regulated... but finally overhauled....our costs, regardless of component prices, will continue to threaten our country's financial health. Washington doesn't get it.

More Industry Headlines