6 1/2 Reasons Why Healthcare Costs So MuchBack to the Blog »
October 13th, 2009
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1. Capitalism Lots of money flows to companies who innovate, and they need to make money on the powerful drugs, treatments, technologies and devices they invent. It’s what makes America America, it represents 17% of our economy and a lot of people feed their families and pay for tuition and eat in restaurants and go on vacation and feed the economy with these dollars.
2. Doctors Drive Demand -We do what our Doctors tell us, and for many reasons Doctors send us to get more tests and treatments than we ultimately need. In most cases they mean well-they just want to make sure they haven’t missed anything and the patient doesn’t get sicker, but in other cases they maybe worried about malpractice so they make doubly sure of the diagnosis or they may be greedy and they might own a piece of the imaging or surgery so they put more money in their pocket. In any case, Doctors hold the highest level of respect in our society and we rarely question their judgement and we usually do what their told. The extra tests and services cost a lot of money.
3. Government is Cheap Underpayments in Medicare (20% or more) and Medicaid (35% or more)guarantee that Hospitals and Doctors lose money on patients covered by government plans. So what do they do? They perform more services on Medicare and Medicaid patients while they have them to generate more money per patient and they charge non-Medicare and non-Medicaid patients with private insurance more to make up the shortfall. Doctors deserve to make money because they provide a service of great economic value (life saving, in some cases) and they have invested more in their education and training than any other profession. They’ve taken the risk and they deserve the reward, but Government plans will always underpay –they think they are saving money but in reality they drive up utilization and shift costs to the private sector and that costs all of us more.
4. Were Fat More than 50% of Americans are overweight, and heavier people get more chronic diseases and are just generally sicker than people who are not heavy. Sick people consume a lot more medical care, and that costs a lot of money. We eat fast food because it taste’s good, it’s easy, it’s convenient and it’s cheap. We don’t eat healthy because it’s a lot harder to find, it takes planning and imagination and discipline and it’s a lot more expensive. We don’t exercise because it’s hard, it takes time and it takes planning and discipline and energy and effort and we don’t have the energy because we’re just too fat and lazy. That makes us sick all the time and we consume a lot of medical services.
5. We Don’t Pay Enough That’s right–healthcare is too cheap for most of us. Our insurance plans pay for practically everything so we have no financial incentive to ask our doctors if we really need that extra test or that new brand name drug their prescribing. We rarely find out how much the services actually cost or how much the insurance carrier pays on our behalf–we just pay our co-pays and deductibles and make sure the insurance company pays the rest. Not to mention the fact that it’s cheaper to just get the treatment or the prescription than it is to eat healthy and exercise anyway.
6. Incomplete Information in the Market Efficient makets assume that all parties in the transaction have complete and unfettered access to all of the information that exists regarding the supply, demand and price of services they are trading in. In healthcare, there is a woefully incomplete information set regarding key factors in the transaction for services– namely price, competitive alternatives, substitute service and most importantly quality– and these conditions. Transparancy initiatives are still in their infancy stage and the adverse effect of market inefficiences will exist until such time that the key economic considerations are readily and accurately available to both consumers and suppliers of service.
6 1/2. It’s Still a Cottage Industry Or at least a modest neighborhood, and our highly fragmented delivery system in loaded with inefficiencies because of massive administrative silos, redundancies, miscommunications, errors and inconsistencies that generate widespread customer satisfaction problems. These problems have existed forever in the system because there is no central technology platform and no single point of ownership responsible for fixing the problem and no incentive for ensuring that the patient enjoys a high quality customer service experience. Bad service costs alot.
Posted by Bill in Current Economic Times, Healthcare Reform
Bill, nice article. I tend to find through conversation that most people will point the finger at the health insurers as the reason for high costs while many in the insurance industry will point to doctors due to defensive medicine (lots of tests) and malpractice insurance. In the end, it seems to be a big circle
How come many of these items do not make the headlines of stories dealing with reform? Most of the time the news agencies are reporting on pre-existing limitations, death panels and the public option. How would any of these hot topics “bend the curve of healthcare costs?”
Another area I feel is often overlooked is in prescription drugs. What’s being done in that arena to cut waste and curb costs? Here is an interesting take from the CEO of Medco, one of the largest Pharmacy Benefit Managers (PBM). http://bit.ly/z0Ima