What is the cause of excess costs in US healthcare?

The question has come up again and again in our discussions on health care in the US and around the world, why does it cost so much more in the US when we get so much less?

The drug companies and their lobbyists are already out in force trying to make sure their pocketbooks aren’t hit by the inevitable reforms that are coming. In particular they insist drugs aren’t the problem in the US, it’s administrative costs! I would tend to disagree.

Based upon my experience working in the sytem, the main causes of excess costs I would hypothesize are the following (in order of importance):

  1. An excess of cost in administration far out of line with most countries around the world.
  2. Pharmaceutical costs – especially due to the effects of direct to consumer advertising (DTCA) encouraging use of more expensive, newer drugs (which is only allowed in the US), Medicare part D which forbids collective bargaining for lower drug prices, and a broken patent system that allows drug makers to patent and charge more for non-novel medications.
  3. The absence of a universal system that prevents risk-sharing, and causes the uninsured to avoid treatment until problems are more critical, and more expensive.
  4. Excessive reimbursement of physicians for procedural skills, rather than cost-saving physician roles such as primary care and family practice that emphasize early diagnosis and proper management of disease.
  5. Excesses of cost caused by “defensive medicine”. While torts themselves don’t cause a great deal of monetary damage, the culture they create is one of paranoia in physicians who make decisions with lawsuits in mind, rather than the interests of patients and society
  6. The excessive costs in ICU care, especially at the end of life, which may also be reduced by better EMRs with recording of living wills, and public information campaigns designed to inform people about the pain, invasiveness and futility of “doing everything” in the elderly.
  7. The absence of an electronic medical record that is universal which causes redundancy in testing as patients see new doctors who then order redundant tests because sharing of information is so inefficient.

But these may just be my biased views based on my own limited experience. Let’s see what the data show. The McKinsey Global Institute has generated a report on this, and has broken down the data according to the individual costs in our system, while comparing it to that of other countries.

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Nerds once again in control of government

And I breathe a sigh of relief. Working nights my schedule is a tad goofy, but I wake up today to see this guy describing the changes in the new budget:


This is Peter Orszag the new director of the Office of Management and Budget. He is a nerd and I instantly like him. I was not surprised to find he used to be a blogger.

It was especially refreshing because for too long our government has been run by this guy:

In particular I agree with their emphasis on health care as a necessary element for creating a viable modern economy. America has to compete with other countries that provide this for their workers, and we have a system that regularly ruins the finances of our citizens. I also agree with it as a moral necessity. Within the last week I’ve admitted several people for whom a hospitalization would result in significant financial stress. I talk about it with them, and they’re terrified. On the one hand, they need help. Sometimes their life depends on it. On the other hand, if they lack insurance a hospitalization can bankrupt them, and they’ll honestly admit, they avoided doing anything about their problems until they become life-threateningly severe because they are they can’t afford the help. This isn’t just stupid system, but immoral.

Additionally the need for reform of redundancy and costs in medicine would be a welcome reform. While the privacy issues with the electronic medical record are significant (I’d love if Chris would comment on this), the obvious need for it is undeniable. I can’t tell you how many times tests, expensive tests, are repeated because of incompatible records systems, delays in record transfer, and, frankly, the fact it’s sometimes just easier to duplicate the test than do the scut to find the answer. The emphasis on evidence based medicine, an attack on redundancy, and improvements in coverage will go a long way towards decreasing the terrible costs to insurers and the government, and terrible financial harm medical care can do to our countrymen. I am excited about seeing how this will be implemented, and relieved that once again we have people in charge who use words like “data” and “evidence” and seem that if there are problems generated by these reforms, they will be receptive to criticism.