We cannot get our healthcare costs under control. This is why.

Tales from the Alternate Universe is a blog by Health Cost Matters.  We explore health costs and discuss the way we compare, select and pay for health services.

In today’s blog, our first to introduce ourselves, we briefly outline the 8 underlying reasons why we believe health costs are so high.

No secret...

In the US, we have a crisis of cost and quality at both the individual, consumer level and at the national level.  According to the Centers for Medicare and Medicaid, spending for healthcare in was $3 trillion in 2014, or $9,523/person. 

Before we can begin to untangle the Gordian knot that we call the US healthcare delivery system, we need to understand the challenges and how we got here.  It doesn’t help that industry experts disagree on the many, varied reasons and fingers are pointed in every direction.  At Health Cost Matters we believe these problems are all intertwined.

Below we list what we believe to be the eight largest contributing factors that result in spiraling, out of control health costs:

1.      Hospital and other Medical Charges Often Increase Unchecked, Are Irrational and Not Reflective of Provider Cost or Services Rendered.

Investigative reporter Stephen Brill reported in his Time Magazine April 4, 2013 cover story (A Bitter Pill) that irrational and exorbitant hospital charges set the bar for eye-poppingly high reimbursement.  To sum up his reporting he quotes Gerard Anderson, a health care economist at the Johns Hopkins Bloomberg School of Public Health, “the obvious and only issue: All the prices are too damn high.”

2.      Competition Among Hospitals Increases Costs.

According to health economist Austin Frakt, “Put it together and it is hospitals’ underlying costs, driven by competition that determines how much hospitals are able to charge private insurers.”   In other words, competition among health providers actually drives prices up, not down.  The economic law of supply and demand in healthcare run opposite to that of other industries.  Hospitals compete with each other on the sophisticated technology and services they provide, not their charges.

3.      Medical Coding, Billing and Reimbursement Errors … and Then There’s Fraud, Waste and Abuse.

No one knows for sure, and error rates vary vastly within the healthcare industry, but billing/payment error rates reportedly range from 20% to 80% of all claims submitted for reimbursement.  Errors affect everyone: Provider billing errors and insurance payment errors result from inaccurate coding and reimbursement; Patients are sometimes overcharged by providers; And healthcare claims are sometimes underpaid by insurers.  Fraudulent, wasteful and abusive billing practices are designed to slip undetected for months or years and are often never caught.  The cost of ‘rework’ (i.e., time and resources required for auditing, researching and re-adjudicating erroneous billing and payment) is staggering. 

4.      Soaring Prescription Drugs Charges.

Researching this topic we can readily find scores of expert opinions and explanations why pharmaceutical costs in the US are so expensive and outstrip the costs for the same drugs abroad.  To name a few:  No price controls.  Monopoly or limited competition.  Inability of the government to negotiate lower prices. Cost of research, developing and bringing drugs to market. Lengthy patents.  Small markets for important and specialized drugs.  Fewer generics.  Advertising and marketing to providers and consumers.  There are many, many reasons for runaway drug costs, and almost no solutions that policy makers can agree upon.

5.      Lobbying on Behalf of the Medical-Insurance Complex.

The Center for Responsive Politics has reported that lobbyists for hospitals, pharmaceutical companies and HMOs “spend more than three times what the military-industrial complex spends in Washington.”  In 2015 alone, lobbying for this sector of our economy was almost $510 million.  Ask your Congressional representatives how much their campaigns receive annually from healthcare industry lobbyists. (To find your representative, go to www.whoismyrepresentative.com and enter your zip code.)

6.      The Healthcare Insuring and Brokering, Coding, Billing, Collecting, Auditing, Rework Infrastructure

The insuring and brokering, coding, billing, collecting, auditing, rework (etc.) infrastructure for purchasing and reimbursing health services employs an estimated million, and adds hundreds of billions of dollars to the cost of providing care.  While most individuals employed in this infrastructure do not participate in the actual provision of medical services, the short-term loss of these jobs and businesses on the US economy would be devastating.

7.      Payment for the Uninsured

According to a study by the Henry Kaiser Foundation, “Estimated providers’ uncompensated care for the uninsured in the U.S. health system at $85 billion in 2013.”  This number has certainly decreased since the number of uninsured has decreased.  Still, if you have insurance or pay taxes you participate in picking up this tab.

 8.      Consumers Typically Cannot or Do Not Need to Compare Quality or Cost

In our current system, the more services a provider bills for, generally, the more that provider gets paid. “Quality of care” and “quantity of care” are often totally unrelated, and are sometimes even diametrically opposed.  As ordinary consumers, most of us are unable to compare quality, and we rarely comparison shop for price, especially in an emergency.

How Do We Solve?

We believe solutions to this problem exist because failure is not an option.  For ourselves and our children’s future, we (the US) must find solutions. 

How can we begin to cure exorbitant health costs?  There is no one solution, it's a journey.  The first step is understanding what it is we’re trying to fix. 

We welcome feedback and ideas from readers and thought leaders from all sides that are reasoned and not politically dogmatic. 

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