Counting Health Care Costs

Is control of health care costs possible?

A piechart from this article shows that constantly rising health care costs are mostly due to hospital care (31%). Physician services are the next largest item, comprising one-fifth of the national health spending. Prescription drugs, while accounting for only 10% of total expenditures, have been the fastest-growing segment along with new medical technologies that are often not cost-effective, and provide incremental improvement or just an illusion for consumers that they are better taken care of. Second major contributor to the increase in spending is chronic disease. It actually accounts for 75% of national health expenditures. One of the main reasons for increased disease prevalence is an increase in unhealthy lifestyles. Obesity-related illnesses accounted for 27 percent of the real health care expenditure increase between 1987 and 2001, of which increased obesity prevalence accounted for 12 percent. Non-obesity food-related illnesses are at fault too. Aging of the population also contributes (although rather minimally) to the high growth rate of health care spending. Administrative costs comprise 7% of health care expenditures (~2% Medicare program).

So the primary cost is unnecessary complexity. We need to change the culture of medicine, it's business model to improve the efficiency in delivering care and reduce the cost resulting from the wrong model.

An excellent blog in New York Times yet again explains the reasons on why health care costs so much. Great comments from the readers provide even more insight.

Here are a few excerpts we can't agree more:

"Health care is expensive because of the pervasive entitlement attitude" Joseph R. Antos, the William H. Taylor scholar in heath care and retirement policy at American Enterprise Institute.

"Insurers, pharmaceutical companies, device manufacturers, doctors and hospitals are all able to drive up prices with limited pushback" Jacob S. Hacker, the Stanley B. Resor professor of political science at Yale University.

"People often do not have control over medical expenses, the way they can control expenses when buying a car"
"Another reason normal market forces fail in the health care system is a lack of clear information. Purchasing health care is not like buying a car.", "the price tag is rarely even discussed", "people often do not have control over medical expenses",
David M. Herzenhorn

"The costs of medical care are a hodgepodge of different prices for different patients", "There is no rational process for selecting a cost-effective treatment", M Mackiernan

"How do I "negotiate" my fees when they are pre-set by my insurance company?", "I keep reading that doctors recommend unnecessary tests but how am I to know what's necessary? I'm not a doctor. I just want to feel better and that's why I go to the expert", E. Nowak

"Doctors and patients rarely know the costs and administrators do not want them to know.",

Andy

"Health insurance is not really insurance at all. It is more like a membership fee to a YMCA.", Marci Twain

"The most powerful way we can reduce medical costs is for people to stop getting medical care when non-medical health care will suffice.", Anonymous Commenter

"One element of the increasing cost is the vast overtesting that is performed in teaching hospitals.", "A large fraction of blood tests, procedures, and imaging are simply a waste, but there is no effort to put any brakes on the system.", David Freeman

"Please do not ever think a doctor writes a prescription because it is his best choice, it usually is written because he likes the pharmaceutical rep and she or he has treated the like a king.",
Mark Shryock

"New and fancy machines which offer marginal improvement in actual care but cost more.", PH

"What a mess. It makes me sick--a luxury I apparently cannot afford.", Elliot

"In essence the solution to cost control is in great part in the realm of industrial engineering. Lets get the industrial engineers on board and perhaps in charge.", Rafael Venegas

"The vast majority of xrays scans and tests performed are done to avoid malpractice. .. Americans are radiated so doctors can avoid the awful pressure of lawsuits and you pay for it..", Boly

"In some areas, like implantable medical devices, an increasing number of manufacturers contractually require hospitals to keep prices that hospitals pay secret from the surgeons who tell hospitals which products to buy.", Jeffrey Lerner

"The reason health care in the U.S. is so expensive is because all the players (doctors, lawyers, insurance companies, drug companies, medical equipment companies, patients, et al.) are abusing the system.", G. Stern

"I can't believe a five minute altrasound cost over 1,000 dollars", Linda

"Capitalist theory says that price is set at that point at which providers (suppliers) receive enough money to be induced to make the products and consumers (demanders) are willing to pay for that product. The problem is that the demand for health care is “relatively inelastic.”.. there is no limit on the will of the consumer to pay.", AF

Let me disagree with the last commenter, though. "Thank God", says AF, "I do not have to know the science behind to know the relative effectiveness rates of each type of treatment". A century ago nobody would imagine been able to make a phone call or operate a computer. May be people like to live too much. But better tools will be created to allow them make informed decisions to better their health and their lives at reasonable costs.


Aurametrix is developing decision support systems to help you evaluate personal health risks, decide on preventative measures, estimate cost/benefits of performing diagnostic tests. Better solutions for a healthier world.