Why are health care costs so high? Pt. I

Good evening everybody and welcome to In the News.  Glad you could be with us again today.  We got something a little special planned for you today.  We are going to be doing a special 2 part series on health care.  Some of you may remember that we did a similar two part special on health care last summer. That dealt with the Supreme Court Decision on the Health Care law.  This is going to be similar but we’re going to be looking at health care from a bit of a different angle this time.

Specifically we’re going to be talking about health care costs.  You know a lot of the time when we talk about health care we get caught up in talking about aspects like access to health care.  And coverage.  Who has it and who doesn’t.  Who should pay for the costs of health care and who shouldn’t. 

The cost of health care in the US is the highest in the world.  We spend more on health care per person than any other country in the world.  But the one question we never seem to answer is, why? Why are our costs so high?  What can be done about it? 

There was an excellent piece written by Steven Brill in Time Magazine a few weeks ago that explores this very issue.  It is quite eye opening.  And at times maddening.  If you haven’t read it, I strongly suggest that you look it up.  You’ll find a link to the piece in the show notes for this episode.  I know that Time sometimes charges for their online content but you may consider signing up to get a look at this article.  They have temporary access for a few dollars if you don’t wish to subscribe for a full year which is what I did, so it makes it a little more affordable.

The article basically takes you inside the world of hospital billing and talks about the sources of the problem of high health care costs.  What the sources of the high costs really are.

The US spends about $2.4 trillion on health care every year.  That’s $1 out of every $6 dollars spent in this country goes toward some type of health care.  We’re talking hospital visits, doctor’s visits, medication, equipment etc.  It’s about 17% of the entire US economy.  Within the next 25 years, it’s expected to reach 25% of the US economy.  On average we spend about $8,000 per person on health care in the US.  By way of comparison, comparable economies like the UK and Japan spend about $3,000-$3,500 per person.

Now, why is our healthcare spending so high?  Well, there are few reasons.  One is our aging population.  About 10,000 baby boomers retire each day.  And the ranks of our retirees grow, more and more health care is needed.  There are also lots of new procedures and medications available. So those that need health care are availing themselves of those new procedures as well.  We’re also living much longer these days.  So that means more use of health care. 

But the main reason our costs are so high is that our prices are just plain higher.  In a survey conducted in 2011, the International Federation of Health Plans, which is a trade group of Health Insurers, compared prices across 25 different countries for a variety of procedures.  And in 22 out of 23 cases it was found that in the US, we pay more than in any other developed country.  And in most cases, a lot more. 

Coronary bypass surgery will cost you about $67,000 in the US for example.  In the next most expensive country, Canada, it will cost you $40,000.  Normal delivery of a baby in the US will run you almost $3,400 dollars.  The second most expensive country, Australia, it will run you about $1,700.  The cost of the average hospital stay in the US will run you about $15,000.  In Germany, the next most expensive country, that number is $5,000.

So why are these prices so high?  You might think it’s because our health care system is the best in the world.  And so that’s why it’s more expensive.  But that’s not necessarily the case.  Our system gets results that aren’t much better than that of our counterparts.  And in some cases they’re worse.  Life expectancy in the US for example is about 78 years.  In the UK it’s 80.  In Japan it’s 83.  The infant mortality rate is 6.5 for every 1,000 births in the US.  In the UK it’s 4.6.  In Japan, it’s 2.4.

So if better results are not the reason, what is?  Well this Time article examines hospital bills in detail and finds instances of extremely high markups, double billing, and excessive testing.  The article finds that most hospitals routinely charge two, three and sometimes even 400% above cost for tests and procedures. 

The prices come from what’s known in hospitals as the Chargemaster list.  Now the Chargemaster is a kind of master price list for all of the services a hospital uses.  Every hospital has one.  The problem is the prices are exorbitant and have no basis in reality whatsoever.  Some examples are charging $1.50 per pill for a generic version of Tylenol, which you can find online for $1.49 for a package of 100 pills.  Test strips for diabetes, for $18 each.  When on Amazon, for example, you can a find box of 50 for $27 or $.55 each.  Seventy-seven dollars for a box of gauze pads.  Online price: less than $10 per box.  This Chargemaster list is used by hospitals to create their bills.  And it affects patients in many ways

If you have no insurance, the prices on your bill come straight from the Chargemaster list.  So it’s not uncommon to run up a hospital bill of $20,000 for an emergency room visit.   If you don’t have insurance, you are liable for that amount.

Even if you do have insurance the high prices affect you as well.  Even though insurance companies have quite a bit of bargaining power, increasingly hospitals are proving to be the more dominant force in the market.  Sometimes they’re the only game in town so to speak, the largest health care provider in the community.  And so it’s a situation where the hospital has more leverage in the price negotiation than the insurance company has.  And they then use that leverage to negotiate prices. 

Now insurance companies still have some negotiating power because of their purchasing power.  But the prices on the Chargemaster list are the starting points for that negotiation.  And so even if an insurance company gets a 20 or 30% discount on that $77 box of gauze pads, it’s still not a very good deal.  Another way it affects individuals with insurance, is that even if you have insurance, most policies have annual or lifetime payout limits.  So even if you are covered for $80,000 to $100,000 per year, it’s not uncommon to find yourself coming up fast on your limit.  Especially if you suffer a catastrophic illness, such as cancer diagnosis.  Any portion of the bill that your insurance does not cover, you’re liable for.  A related issue to the exorbitant costs is what appears to be double and sometimes even triple billing for hospital services. 

For example a patient will be charged for a stay in the intensive care unit.  Then they’re charged for a kit used in the Intensive Care Unit to administer a procedure such as a transfusion.  They’re then charged for each individual tool or supply within that kit.  That’s triple billing. 

So not only are hospitals charging exorbitant rates, they’re charging those rates multiple times for the same patient on the same visit.  There’s also overbilling when it comes to the time of doctors.  There’s this phenomenon of having multiple doctors, besides the primary care doctor, checking on the same patient.  All of these other doctors of course bill the hospital for their time.  My own experience corroborates this.  But it seemed like they were not even communicating with each other.  That struck me as a little strange.  I guess now I know why.

Another issue is the issue of excessive testing.  Out of an abundance of caution, hospitals perform a variety of tests that may not even be necessary.  CT scans, for example, are handed out in the ER like candy according to some doctors.  Some doctors agree that while CT scans are very thorough, they are most of the time unnecessary.  Doctors can just as easily give more standard tests first and then proceed to the more advanced CT scan if something appears out of the ordinary.

Now there’s a profit motive to the advanced test, but there is also another motive, and that is protection against malpractice suits.  If doctors order many tests, and the most advanced ones available, it will serve as great defense against potential lawsuits.  The mantra being, you won’t get sued for doing too much.

So those are the issues involved with the high prices of health care.  In part 2 of our special we’re going to discuss possible solutions for us as individuals and also as a society to help bring these prices down to more reasonable levels.

Well that’s our show for this evening.  Thanks for being with us everyone.  Remember to keep your comments coming into comments@itnshow.com.  That’s comments@itnshow.com.  And remember to keep up with us on Facebook and Twitter @itnshow.  That’s itnshow, one word.  Thanks again for being with us everyone.  Until next time, good night.