Why Are Medical Costs So High In The U.S.A.?
Medical costs are soaring every year, but the focus of the discussion seems to be on covering these medical costs rather than bringing them down. In the meantime, Americans spend more on healthcare than any other advanced county. The Washington Post reported that in 2009 Americans spent $7,960 per person next to Canada at $4,808, Germany at $4,218 and France at $3,978. The U.S. spends 20% of the gross domestic product on health care while other countries only spend half that amount. Despite these higher medical costs, we do not have better outcomes than these peer countries. Studies show that we don't go to the doctor more often, and we don't get sick more often - so why are we paying so much more for our healthcare? Put simply, the major cause of high medical costs is that we pay doctors, hospitals and pharmaceutical companies significantly more than most other countries do.
Higher Hospital Costs
Steve Brill's expose in Time Magazine examined eight hospital bills line by line. What he found was shocking. The prices that hospitals charge for services and products are inconsistent and exorbitant. These prices are set by an internal price list called a "chargemaster". The chargemaster prices are completely arbitrary and don't have any relationship to what the article really costs. For example, at one hospital the charge for a single accu-check diabetes test strip was $18.00. You can buy a box of these same test strips on Amazon for $27 (55 cents a piece). If you don't have any health insurance, then you have to pay the hugely inflated price. If you have insurance, then you'll pay less. Insurance companies negotiate the price with hospitals, and the rate that the chargemaster has set will be reduced by varying rates, perhaps reducing the cost by as much as 75%. However, even at a 75% reduction, the rate will still be much higher than it should be. (The test strip would cost $4.50, still a huge mark-up). The chargemaster rates affect what the hospital charges for medical equipment, drugs, diagnostic tests - anything that the hospital uses for your health care, and there is a huge mark up on all of these items. You would think that there would be legislation to prevent this gouging of the public, but our congress is heavily influenced by lobbyists. The American Hospital Association spent a whopping $1,859,041 on lobbyists in 2012.
See Steve Brill's video on Why Health Care Costs So Much
Higher Physician Fees
A study by Miriam J. Laugensen and Sherry A. Glied reported that among primary care doctors, those in the United States had the highest annual pretax earnings after expenses — an average of $186,582 in 2008 — while those in Australia and France had the lowest earnings, $92,844 and $95,585. Specialty doctors had an even larger gap, with an average of $442,450 next to Britain at $324,138, with all other countries coming in at less than $210,000. They concluded that these high costs were strictly due to higher fees, not to higher practice costs, higher volume of services or tuition expenses.
Higher Pharmaceutical Pricing
The Organization for Economic Cooperation and Development (OECD) reported that in 2007 U.S. pharmaceutical prices were at least 60% higher than those in five large European Countries. Pharmaceutical manufacturers state that costs are so high because of the high cost of developing new drugs. That argument may not really hold up. since data shows that pharmaceuticals spend as much on advertising as they do on development. Keep in mind also that many of these new drugs may not be especially innovative. A good percentage are “me-too” drugs, where a new drug simply imitates an already existing lucrative drug. The pharmaceutical industry is the most profitable in the world, and has thousands of lobbyists in Washington to protect their interests. They certainly seem to be doing a great job in making the United States consumer pay exorbitantly high drug costs.
Higher Administrative Costs
In “The Paper Work of Medicine: Understanding International Medical Costs”, it's reported that for every office-based physician in the United States, there are 2.2 administrative personnel, more than the number of nurses, clinical assistants, and technical staff put together. Duke University Hospital has 900 hospital beds and 1,300 billing clerks.
The United States has 25 percent more healthcare administrators than the United Kingdom, 165 percent more than the Netherlands, and 215 percent more than Germany . What are they doing? There is much time spent on credentialing (receiving permission to practice in a particular hospital, or participate in a particular health care plan). Verifying insurance information, billing and payment collection take up a large percentage of time.
Overuse Of Diagnostic Tests
The overuse of diagnostic tests has been estimated to cost as much as $250 billion a year – about 10% of the total cost of health care in the country. Many feel that this could be an effect of physicians practicing defensive medicine because of the threat of malpractice suits. The New England Journal of Medicine reported that “among physicians in low-risk specialties, 36% were projected to face their first claim by the age of 45 years, as compared with 88% of - physicians in high-risk specialties. By the age of 65 years, 75% of physicians in low-risk specialties and 99% of those in high-risk specialties were projected to face a claim”. Although there's been no proven correlation between malpractice suits and defensive medicine, it's logical to assume that there is one.
We need to find solutions to these problems, and quickly. It is projected by CMS that national healthcare costs will grow to $13,708 a year per person by 2020. Some possible solutions that I've seen offered include restricting the mark-up that hospitals can tack onto products and services, encouraging the use of primary physicians over specialists, allowing drugs to be imported from other countries, adopting uniform billing and payment procedures, and reforming the tort system to prevent frivolous law suits. The Affordable Care Act has provisions in it to encourage wellness, such as the annual Wellness Visit, smoking cessation programs, and discounted premiums for participants in wellness programs. It has provisions for streamlining administrative costs through the use of electronic record keeping. The ACA also introduces a new 15 member Independent Medicare Payment Advisory Board. Their task is to study ways to contain Medicare costs and offer solutions that reduce the growth rate of medicare costs while maintaining or enhancing beneficiary access to quality care. Contrary to many critics of this board, they are not allowed to offer solutions that ration health care, restrict benefits, raise beneficiary cost sharing or raise premiums. Hopefully they will come up with solutions that will not only contain Medicare costs, but will also serve as a model for the entire health care industry to bring costs down to a reasonable rate.
© 2012 Margaret Perrottet