Here’s Why U.S. Healthcare Is So Expensive – Re-Posted

2020.02.26 Entrance_to_VacaValley_Hospital_and_Emergency_Room

U.S. healthcare needs to be resuscitated

Here’s Why U.S. Healthcare Is So Expensive by Steve Parker M.D. – Re-posted with permission at FixUSHealthcare.blog

The U.S. has a presidential and other federal elections later this year. So we’ll be hearing more talk about healthcare reform. Mostly talk, not much action. Healthcare is an issue because it soaks up 18% of GDP (Gross Domestic Product). Many of us think that’s way too much and we can’t afford it anymore. Most other fully developed Western nations spend 9–11% of GDP on healthcare. Are we in the U.S. getting our money’s worth? Probably not, if you look at things like longevity, infant mortality rates, and overall disease burden.

When I aim to cure a disease, it helps immensely if I know the cause of the disease. That determines the treatment plan. If we want to fix over-spending on healthcare, we need to know the causes. With the right treatment plan, we might get healthcare costs down to 5% of GDP.

On the other hand, perhaps we in the U.S. love spending 18% of GDP on healthcare. It provides a lot of jobs. I personally make a very nice living with it. Nowhere near the $7.7 million/year of the average NBA player or $2.7 million/year for the average NFL player. At least I know I’m saving lives and alleviating suffering.

Here are the causes of overly-expensive healthcare:

  • Lack of price transparency
  • Third-party payer between patient and provider (they must be paid). Third party may not care about cost; just pass it on via premiums, or insulate themselves via high deductibles.
  • Defensive Medicine: excessive testing and consultations, malpractice insurance premiums, time away from patient care
  • Excessive regulation
  • Government essentially mandates Emergency Department care regardless of ability to pay
  • Excessive administrative costs (bureaucracy) of a byzantine system: providers’ office, healthcare insurance, hospital administration, regulators
  • Lobbying protects insurers, doctors, hospitals, Big Pharma at the expense of consumers
  • Low or no deductibles (no skin in the game)
  • Little incentive for patient to get or stay healthy
  • Government and insurers pay lousy docs the same fee as good doctors, so no incentive for great care or innovation. If you want to improve healthcare, you must financially reward competent and successful competitors.
  • Providers are incentivized to provide services: provide more services, earn more pay
  • Greed
  • Insurance mandates
  • Government price controls (Medicare and Medicaid)
  • Inadequate competition among providers
  • Un-enforced anti-trust and consumer protection laws
  • Excessive drug costs
  • Over-utilization of specialist care instead of primary care
  • Laws prevent importation of drugs by patients or providers from cheaper markets
  • Insurance companies prohibited from selling across state lines?
  • Pharmacy Benefits Management Co’s
  • Insurance pays for too much, instead of only catastrophic care?
  • Waste and fraud?
  • Monopolies or near-monopolies (e.g., dominant hospital systems, insurance companies)?

If I’ve missed anything, please leave it in a comment below or email me at steveparkermd[at]gmail[dot]com.

Steve Parker, M.D.

PS: Below are some interesting links I found while researching this post.

From Investopedia in 2019:

“Even with all this money being spent on healthcare, the World Health Organization ranked the U.S. 37th in healthcare systems, and The Commonwealth Fund placed the U.S. last among the top 11 industrialized countries in overall healthcare.”

 From CNBC.com March 2018:

“The real difference between the American health care system and systems abroad is pricing.”

From JAMA Network March 2018:

“The United States spent approximately twice as much as other high-income countries on medical care, yet utilization rates in the United States were largely similar to those in other nations. Prices of labor and goods, including pharmaceuticals, and administrative costs appeared to be the major drivers of the difference in overall cost between the United States and other high-income countries.”

Yale Insights 2016 report focusing on hospitals:

“This study tells us that insurance premiums are so high because healthcare provider prices are incredibly high. The way to rein in the cost of healthcare services is by targeting the massive variation in providers’ prices. We can do that by making prices more transparent, making these markets more dynamic, and really blunting the monopoly power that a lot of large healthcare providers have, which has allowed them to raise prices.” Interviewee says the hospital industry is 8% of GDP.

PPS: Why not do everything you can to get and stay healthy, hopefully keeping you out of the Medical-Industrial Complex? If you need weight loss and exercise, I can help…

Fixing U.S. Healthcare Blog – Comments

Here are my further comments:

Dr. Parker provides a penetrating litany of factors contributing to exorbitant spending on healthcare in the U.S., which I have re-posted at FixUSHealthcare.blog.

As more of a “lumper” than “splitter,” I offer some additional comments to add perspective:

    1. JAMA studies comparing healthcare spending in the U.S. with that in other developed countries found that, except for two factors, those listed by Dr. Parker exist in nearly all those countries, and do indeed drive up spending in all of them. The two big American exceptions are: prices, administrative complexity. I review these studies at https://fixushealthcare.blog/2019/10/10/25-of-us-healthcare-spending-is-waste-study-finds and https://fixushealthcare.blog/2018/03/29/new-data-from-ama-journal-rekindles-calls-for-healthcare-reform . Prices in the U.S. are roughly double those in other countries. Administration is three to five times more costly in the U.S. These two factors – exorbitant prices and administrative complexity – set the U.S. apart from other countries and explain the bulk of spending differences between U.S. and the others.
    2. Two additional posts provide further analysis. First from the micro perspective (how healthcare corporations game the payment system to their own advantage) — https://fixushealthcare.blog/2018/07/03/healthcare-hits-a-pothole-and-how-to-fix-it. Second, from a macro perspective (how powerful interests rig the whole healthcare system) — https://fixushealthcare.blog/2019/08/15/nobel-economist-what-it-will-take-to-fix-u-s-healthcare .

I invite interested readers to review a recent summary at https://fixushealthcare.blog/2019/12/10/fixing-u-s-healthcare-annual-review-summary and a more recent “reality check” at https://fixushealthcare.blog/2020/02/18/healthcare-reform-the-perfect-or-politically-possible .

Thanks go to Dr. Parker for adding to the discourse on fixing U.S. healthcare!

Image Credit

Title:  Entrance to Vaca Valley Hospital and Emergency Room

By: RobinEMiller / CC BY-SA (https://creativecommons.org/licenses/by-sa/4.0)

URL:  https://upload.wikimedia.org/wikipedia/commons/1/15/Entrance_to_VacaValley_Hospital_and_Emergency_Room.tif

2 thoughts on “Here’s Why U.S. Healthcare Is So Expensive – Re-Posted

  1. Thank you for linking to my post on the causes of expensive healthcare in the U.S., Dr MacLean.
    To cure a patient, we have to figure out the cause of the illness.
    After thinking about healthcare reform for the last few months, I’m starting to think that the lack of price transparency is a major issue. You touched on this in some of your videos (I just watched all ten and recommend them to your readers). The Oregon Health Plan of 1994 also took prince into account when deciding what they would cover.
    -Steve

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  2. I agree with Dr. Steve Parker that lack of price transparency is “a major issue.” This factor and a host of others are discussed in Video Series Segment 6 – “Why is U.S. Healthcare So Expensive.” I also agree with Steve’s insight that using cost-benefit analysis, as was done in Oregon in 1994-2002, would put downward pressure on pricing, lest providers price themselves off the list of covered services. As an inveterate lumper-not-splitter I would point out that lack of price transparency is a “major” proximate cause of market and pricing failure, but not the root cause. Fix U.S. Healthcare blog has concluded that lack of price transparency is but one of the thousand little ways that the whole system has become rigged, sometimes by active greed and conscious gaming the system and sometimes by subtle unconscious yielding to perverse incentives even by us otherwise honest, ethical professionals. In other words, the root cause is powerful vested interests — the medical-industrial complex, including drug companies — that conspire to rig the system to artificially prop up prices. The root cause of relentless spending increases is those powerful interests, not the prices themselves. I invite readers to review my Annual Summary posted December 13, with additional links to more discussion, and my claim that only “the full faith and clout of the federal government responding to an informed grassroots movement” can face down those interests and motivate reform. The current political debate is over whether enacting a limited “public option” will give the grassroots, operating through government, sufficient clout to tackle price transparency and the other thousand little ways the financing system is rigged. Or would government need to (eventually) take charge of the entire financing system through a “single-payer” arrangement. Either way, Americans want to preserve competition, at least over efficiency and quality.

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