Jessica Kuperavage, CRI’s newest intern, has some thoughts on what is making healthcare so expensive. The big problems is that people who pay little or nothing at all for health services are more likely to use them since there is no penalty for doing so. This is one reason why emergency rooms bill heavily for using their services: the idea is to cut down on people using the emergency room so the ER is saved for emergencies. Government involvement in healthcare also negatively affects the cost.
Why is Healthcare so Expensive? Understanding the Cost/Service Disconnect
One of the contributing reasons for the cost of medicine and medical services is the result of the fact that the people receiving the services – patients – are not directly paying for them, but are instead contributing a co-pay for a service that is largely paid by their insurance companies.
The disconnect between services and costs has consequences for the price and practice of medicine. Among them are the following: medical fees escalate, patient consumption of medical goods and services escalate, and medical innovation escalates.
Medical fees escalate: Insured patients and Medicaid/Medicare recipients often do not compare costs between medications and medical care providers. The information is difficult to obtain, and comparing costs is not a priority when immediate care is required. Furthermore, patients do not have the incentive to compare costs when a third party will cover a significant portion of the bill.
The lack of a medical free market, combined with direct to consumer pharmaceutical advertising and limited study data available to physicians, can also result in patients being prescribed medications that are expensive, but no more effective than treatments that are decades old and far cheaper. When the bulk of the cost is paid by a third party, such as an insurer, patients are less likely to consider whether a therapy is worth its cost.
Consumption escalates: Patients whose medical bills are paid primarily through insurance or governmental programs make more frequent trips to the doctor. While checkups are an important part of preventive care, more excessive use of medical services yields no patient benefit. According to a report in the Archives of Internal Medicine, the overuse of medical services accounts for as much as 30% of healthcare expenditures between 1978 and 2009. By definition, overuse is the application of screenings or treatments that have no positive health benefit or are more harmful to the patient than helpful.
Some types of screenings, while very common (and very expensive), have little or no positive effect on patient health. For instance, the U.S. Preventive Services Task Force recommends against screening for prostate cancer in men, stating that, due to the slow progression of the cancer and the serious side effects that frequently occur as a result of existing treatments, “many men are harmed as a result of prostate cancer screening and few, if any, benefit.” Prostate cancer rarely affects men’s quality of life or causes death, while treatment for prostate cancer can leave men incontinent and impotent.
While pressure for tests and medications can come from patients, physicians also become more likely to schedule additional health screenings as a means of preventing patient lawsuits. Although it may reduce malpractice claims, this practice is costly and frequently provides no benefit to the patient. Because patients do not pay most of the cost out-of-pocket, they comply with these recommendations for extraneous procedures.
Innovation escalates: Even if there was no inflation in health care costs as a result of reliance on insurance and governmental programs, many common therapies would be beyond the reach of consumers due to high costs. Insurance companies make MRIs and other expensive procedures accessible, and also make new procedures feasible for hospitals to provide to patients.
The influx of funds into health services also helps to drive further research, which can benefit patients. Medical and pharmaceutical research is lengthy, expensive, and only occasionally yields effective new treatments. Pharmaceutical companies offer pro bono expanded access programs, which provide experimental therapies to terminal patients who meet the FDA’s guidelines.
While some benefits occur, disconnecting cost from service causes many problems. Expanding governmental control over healthcare will exacerbate these.
Baicker, Katherine et al. “The Oregon Experiment: The Effects of Medicaid on Clinical Outcomes,” The New England Journal of Medicine, 368 (2013)
Boodman, Sandra G. “Concern is Growing that the Elderly Get too many Tests,” Kaiser Health News, 12 September 2011 http://www.kaiserhealthnews.org/stories/2011/september/13/overtesting.aspx
“FDA Expands Access to Investigational Drugs,” U.S. Food and Drug Administration, 2009 http://www.fda.gov/ForConsumers/ConsumerUpdates/ucm176845.htm
Goldacre, Ben, Bad Pharma: How Drug Companies Mislead Doctors and Harm Patients (New York: Faber and Faber, Inc, 2012)
Korenstein, Deborah, et al. “Overuse of Health Care Services in the United States: An Understudied Problem,” Archives of Internal Medicine, 172:2 (2012)
Moon, Marilyn, “Confronting the Rising Costs of Healthcare in Medicare and Medicaid,” Generations, 25:1 (2005)
Reidenberg, Marcus M. “PSA Screening for Prostate Cancer,” Weill Cornell Medical College, 11 February 2012 http://weill.cornell.edu/cert/patients/prostate_cancer_screening.html
“Screening for Prostate Cancer,” U.S. Preventive Services Task Force, May 2012 http://www.uspreventiveservicestaskforce.org/prostatecancerscreening.htm