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:
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Choosing a Medical Specialty II—the view from above

MarkH is going through the process of deciding what to what to do when he grows up. This is a much more difficult and important decision than many may realize. In order to understand the gravity of this process, I’ll have to refresh your memories a bit regarding medical education.

In the U.S., to apply for medical school, you must have completed a (usually) 4-year bachelor’s degree from a university. During the final year, you take what amounts to an entrance exam (the MCAT), and send out preliminary applications (often with fees). If the schools like your preliminary applications, they will send you secondary applications which are more lengthy and involve more fees. If they like your secondary application, you will be invited for interviews. For those of you who may not be familiar with U.S. geography, this place is big—really big. When I went on my interviews, I typically crossed two or three time zones. I took the red-eye out of SFO for Washington National, leaving around 11 p.m. and arriving around 7 a.m. The process is time-consuming and expensive.

After finishing the interview process, you may or may not receive invitations to matriculate. If you don’t get an offer, and you still want to become a doctor, you must repeat the entire process the next year. It is, needless to say, unwise to go through this process unless you’re pretty sure you’ll be happy with your decision to go to medical school.
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