Seven Factors Driving Up Your Health Care Costs

By Julie Appleby
PBS NewsHour/Kaiser Health News, October 24, 2012

There is no one villain in the battle against rising health care costs. Currently, the United States spends more on health care services than any other country, exceeding $2.6 trillion, or about 18 percent of gross domestic product. Most years, medical spending rises faster than inflation and the economy as a whole. Many factors — and nearly everyone — contributes to those increases.

Here are seven ways you or your medical providers play a role, based on a recent report from the Bipartisan Policy Center, a think tank in Washington, D.C.

1. We pay our doctors, hospitals and other medical providers in ways that reward doing more, rather than being efficient.

2. We’re growing older, sicker and fatter.

3. We want new drugs, technologies, services and procedures.

4. We get tax breaks on buying health insurance — and the cost to patients of seeking care is often low.

5. We don’t have enough information to make decisions on which medical care is best for us.

6. Our hospitals and other providers are increasingly gaining market share and are better able to demand higher prices.

7. We have supply and demand problems, and legal issues that complicate efforts to slow spending.…

The Bipartisan Policy Center report on which this article was based:

What Is Driving U.S. Health Care Spending?
America’s Unsustainable Health Care Cost Growth…

Julie Appleby is a highly credible health care reporter who has done an excellent job of reporting the views expressed in this report released by the Bipartisan Policy Center, an organization founded by Bob Dole, George Mitchell, Howard Baker and Tom Daschle. As we shall see, when we look at these seven health care cost factors, “bipartisan” has now come to mean a right-wing position between the extreme conservative views held by most of today’s elected Republicans, and a moderate-right view held by the majority of Democrats. This corruption of bipartisanship has had a devastating impact on our efforts to achieve health care justice for all.

Let’s look at each of the seven factors supposedly driving up our health care costs, keeping in mind the fact that other industrialized nations have much more effective health care financing systems which are able to deliver care to everyone at an average of half what we spend. The numbers here refer to each item in the article.

1. It seems that almost everyone in the policy community believes the meme that our health care costs are too high because we pay for care based on fee-for-service – a system that rewards doctors and hospitals for providing a greater volume of more complex health care services and products. The primary flaw in this explanation is that many other nations also use fee-for-service yet are still able to control their total health care costs. The primary defect is not in the way we determine what health care is worth, but in the fundamental dysfunction of our health care financing system.

2. We are getting older, obesity is increasing, and more chronic conditions are diagnosed. However, with minor variations, the same supposed changes are happening in other nations as well, yet without the need to drive health care costs up as rapidly as we do. We still fall short on life expectancy when compared to other nations, so living more years has not been the problem. Obesity is a problem, as it is in other nations, but the answers lie more in public health measures encouraging better nutrition and more exercise, and less on care provided within our health care delivery system, except for preventive programs. Much of the reported increase in chronic disease is related to the emphasis on recording in more detail diagnoses which then permits higher billing for more complex conditions and also provides a basis for greater rewards under pay-for-performance and other so-called quality schemes. Refined diagnoses are possible for example when using much more inclusive laboratory criteria for the defining diabetes or hypercholesterolemia (just a touch of disease), or also by including osteoarthritis as a diagnosis in the elderly – a condition that has always been there but frequently not reported unless it was the primary presenting complaint. Our disease epidemic is more in augmented documentation than it is in exploding pathophysiology.

3. Almost everyone says that our newer expensive technologies and our plethora of expensive new drugs are major reasons for our high health care costs. Guess what. Other nations use the same technology and the same drugs, yet do not spend nearly as much as we do on health care. Some of the new technologies replace older technologies, and the actual costs (not prices) are often not higher. Also the breakthrough drugs of prior decades become the low-cost generics of today. Yes, advances do add to medical spending in all nations, but not nearly to the extent suggested by the policy community and politicians.

4. Many blame the tax benefits provided for employer-sponsored health plans as an incentive to purchase “Cadillac plans” that provide far more coverage than most people need. Yet actually our private plans have been shifting more costs to patients through higher deductibles and other cost sharing, while paring back on benefits and restricting access through measures such as limited provider networks and tiering of products and services. Again, other nations have not adopted these perverse barriers to care to the same extent that we have, yet they still provide care at a much lower level of spending. Contrary to popular lore, patient insensitivity to costs is not the primary reason why our health care spending is so high.

5. The lack of transparency is often blamed for our high costs. If patients only understood better all of their options and were better informed on the potential adverse consequences of their decisions, then they wouldn’t be demanding all of this unnecessary care. Those who make this claim are ignoring the fact that it now has been decades since we recognized that patients must provide their informed consent for health care. Doctors do explain the options and the potential problems of various diagnostic and therapeutic interventions. Paternalistic medicine has been largely replaced by the patients’ need to know. Better information is already resulting in greater value in our health care spending.

6. Consolidation amongst hospitals and physician groups has provided them with greater market leverage that results in higher prices. But where is this occurring? It is the private insurers that have been far less effective in negotiating savings with the providers. If you look up the S&P health care indices, commercial carriers (private insurers) have continued to increase health care spending at intolerable escalating rates, while the Medicare index has demonstrated that public agencies are much more effective than the private sector in keeping the rate increases down to more tolerable levels (bending the cost curve). Administrators of public health care financing programs are able to override the unfair advantage that market consolidation permits.

7. It is often said that our supply-side excesses result in excessive spending. Actually, as far as hospital beds and health care professionals, we do not have excesses when compared to other nations, except perhaps in certain resources such as imaging. We do have a maldistribution of resources, the worst being a disproportion between primary care professionals and specialist physicians. We need to reinforce our primary care infrastructure and reduce the overemphasis on some, but not all, of the specialized fields. The malpractice problem does need to be addressed through measures such as alternative dispute resolution, but the savings expected by reducing CYA medical management has often been overstated since we will always have low-yield testing, even if the malpractice threat goes away, since those tests potentially can result in important beneficial outcomes, even if less frequent. It’s just that the emphasis will be on protecting the patient rather than on protecting the doctor.

Following is the “Conclusion and Next Steps” from the report of the Bipartisan Policy Center (link above):

“The drivers of health care cost growth are complex and multi-faceted. Just as no single driver is responsible for our high and rising health care costs, no single policy solution will be adequate to meet this challenge. For this reason, the BPC Health Care Cost Containment Initiative plans to produce a comprehensive, bipartisan package of health care cost containment options that, if implemented together, could reduce system-wide health care costs, slow cost growth and improve the efficiency and quality of care in the United States.”

The Bipartisan Policy Center is politically influential and may well be a major player as Congress begins to embark on these right-wing “bipartisan” solutions to health care costs. The primary reason that this framing of the problems is considered right-wing is that it diverts our attention away from the real solutions as it attacks these problems in a way that will perpetuate our perverse, dysfunctional health care financing system – further reinforcing the private insurance industry that has been a major source of our problems, while using the underfunded and therefore inadequate Medicaid program as a safety net.

What we really need is no secret. We need an administratively efficient financing system that will reduce one of the largest sources of excess health care costs in the United States – the administrative waste of the fragmented multi-payer system which is heavily dependent on the inefficient private insurers, and the waste of the administrative burden that this system places on our hospitals and health care professionals. We need a public administration which would improve the allocation of our health care resources through regional planning, including improving and expanding our primary care infrastructure. Our public administrators can also use their power as a beneficent monopsony to get pricing right – improving cost effectiveness while promoting high quality, evidence-based medicine.

Julie Appleby has done a great job in distilling the contents of this Bipartisan Policy Center report. Now it’s our job to provide the proper perspective. She reports. We decide.