What is the cause of excess costs in US healthcare? Take two

We’ve discussed it before, why are costs so much higher in US healthcare compared to other countries? The Washington Post has a pointless article which seems to answer with the tautology costs are high because healthcare in America costs more. How much more? Well, we spend nearly twice as much per capita as the next nearest country while failing to provide universal coverage:


In the WaPo article they make a big deal of the costs of individual procedures like MRI being over a thousand in the US compared to $280 in France, but this is a simplistic analysis, and I think it misses the point as most authors do when discussing this issue. The reason things costs more is because in order to subsidize the hidden costs of medical care, providers charge more for imaging and procedures. For instance, Atul Gawande, in his New Yorker piece “The Cost Conundrum” wonders why is it costs are higher to treat the same conditions in rural areas and in a major academic centers like UCLA than at a highly specialized private hospitals like the Mayo Clinic? I think the reason is it’s not nearly as expensive to administer and provide care for a select group of insured midwesterners at the Mayo than it is to provide care to the underserved in the poor areas of inner-cities and in poor rural locations.

When you are serving a poorer, under-insured population like you get in LA or Baltimore for that matter, the insured are charged more because EMTALA requires hospitals to treat all comers, regardless of insured status. Medical centers like UCLA or University of Maryland are the final common pathway for the sickest and poorest patients who, even if stabilized at smaller local hospitals, are immediately transferred to such centers. These patients are expensive to treat, often have more co-morbidities like HIV or drug use and mental illness, and there is no reimbursement guarantee for taking care of them even though it is our legal and ethical responsibility to do so.

Further, the cost of defensive medicine, which applies to this patient population as much as any other, ramps the costs of all hospital admissions and medical practice in general. It is also incredibly hard to quantify its contribution to the overall costs of care.

As a result, to pay for excessive care of the uninsured, all procedures, all tests, all imaging, and all hospitalizations cost more. Caring for inpatients and the uninsured is expensive, so the costs are transferred to the prices of outpatient elective care and procedures which are often administered in a fee-for-service model. Hospitals have an incentive to provide as much outpatient elective care as possible in order to offset these other costs and to generate revenue. The providers that perform procedures or expensive testing then become far more expensive to pay as they are the major revenue generators for the hospital (hence surgeon vs pediatrician pay). Especially because in order to generate more revenue they are paid based on how many procedures they perform. All the incentives are towards more utilization, more procedures, more revenue generation. This is the hidden tax of the uninsured.

In a way, we have universal healthcare already, but we pay for it in the most irresponsible and costly way possible. We wait for small problems to become emergent, treat them in the most expensive outpatient provider possible (the ER), and then when we can’t pay the bills for the uninsured, we transfer the balance by increasing the costs of the care of insured patients showing up for their cholecystectomies or back surgery. Tack on the costs of defensive medicine and the fear of being sued unless everything is done to cover your ass, and you have a recipe for extremely costly care.

Other factors figure into higher costs as well, including hugely higher costs of medicare administration since Bush privatized it, higher prescription drug costs since Bush passed medicare part D and prevented bargaining with drug companies, and our incredibly high ICU expenditures at the end of life. the McKinsey report on excess costs demonstrated most of these issues in 2008. This is not news. The US spends far more on medical administration, outpatient/ambulatory care (with hospital-based outpatient care increasing most rapidly in costs), drugs, doctors salaries, and end-of-life care than we should as a percentage of our GDP.

So what should we do about it? At every step we need dismantle the tendency towards increasing costs. Here are my suggestions:

We should have universal health care so that everyone can visit a physician early, take care of their problems while they are still manageable, and to provide cheap preventative care.

We need to strongly discourage overuse of the ER, as it is the most expensive form of ambulatory care and they are currently overburdened with treatment of non-emergency conditions.

We need to change the destructive medicare part D legislation to allow collective bargaining by Medicare for cheaper drug costs as they do in other countries or as they do in VA health system where drug costs are 50% less.

We have to end fee-for-service reimbursement systems that create incentives for hospitals to generate revenue by pushing more procedures, more tests, and more expensive utilization of resources. One thing that Atul Gawande got correct was that when physicians were salaried independent of their revenue-generation for the hospital, as at Mayo, costs go down. When incentives are created for physicians to generate more revenue for the hospital, physicians will generate more revenue for the hospital.

We have to pay physicians based on their amount of training. Surgeons will still win under this system, as they should, because their training is typically 4 years of medical school, 5-7 years of residency followed by 2 years of fellowship compared to 3-5 years for most internal medicine specialties. Paying for all that education is expensive. Further the opportunity costs of the lost income-generating years in training compared to comparable careers in law or business need to be paid back to physicians somehow. We dedicate hundreds of thousands of dollars to medical school, work 80 hour weeks for years as residents for a puny salary, and basically defer a decent income for an additional decade in order to gain skills to take care of patients. The quality of physicians will suffer, especially those that require longer training, if they are not paid commensurate with their personal investment in training. We could reasonably expect physicians to expect less compensation if their education costs are drastically reduced or eliminated, and if resident incomes can be improved relative to the amount of work they perform. Granted, this will never happen.

Finally, we have to fire the Republican morons who have decided any discussion of making end-of-life care more evidence-based means creating “death panels” to kill grandma. We need better science about about outcomes at end of life. We need to get better at knowing when care is futile and when it should be stopped for the benefit of the patient as well as health care resources. And as part of universal care everyone should discuss a living will and end-of-life decisions with their physicians. Initially the health care reform act included provisions to reimburse physicians for discussing living wills with their patients as a separate consultation. This, under the death panels stigma, was eliminated. I can think of few other acts of such far reaching harm for cheap political points in my lifetime. People need to make decisions about how they want to die before these decisions are out of their hands. They also need to understand what death looks like in the ICU. Most physicians would not chose this end for themselves. When physicians are called upon to do everything at the end of life the patient will likely end up with tubes in every orifice, central lines, ventilators, powerful drugs, and lots, and lots, of iatrogenic pain. It’s not the way I want my life to end, and I think if people understood that maximum intervention often generates suffering with no real benefit, they would be less likely to chose this path for their loved ones. Not that ICUs aren’t amazing places where a great deal can be done for many patients, but they also can be a place for needless suffering when the patient has little to no chance of meaningful recovery. It is heartbreaking that Republicans destroyed the well-meaning efforts to scientifically study these situations so physicians and patients could be better informed and equipped to make such end of life decisions.