8 reasons why healthcare costs are rising

In early June, 2010, MedPage Today posted a survey question asking readers to identify the primary driver of rising healthcare costs.

More than 1,200 readers responded by answering: 24%, Increased insurance premiums; 22%, New technology; 22%, Malpractice costs; 12%, Drug costs; 3% Increased physician payment; Other — 16%.

I voted “Other.” This survey, like most, misses the main point. It is the decisions of patients and physicians that are the principal drivers of healthcare costs. This survey did not provide that answer to choose. Finger-pointing elsewhere by the responsible individual is typical.

These are the main drivers of healthcare costs:

1. Patients with insurance who consider medical care a “freebie” with no cost consequences.

2. Physicians who neither practice evidence-based medicine nor include costs in their decisions.

3. The absence of realistic cost transparency.

4. Decisions driven by the pervasive mystique of “defensive medicine,” which now dictates hugely expensive (and lucrative) “defensive practice standards.”

5. Hospitals that want to fill beds, especially ICU beds, and aggressively market the newest and most expensive technology, beautifully performing tests, and treatments that patients often do not need.

6. Insurance companies that primarily care about making money for their owners and senior executives.

7. Drug companies that successfully push use of their most expensive drugs.

8. The extraordinary success of “American Marketing” as a dominant cultural behavior.

Those eight powerful factors are the primary drivers and, unchecked, they will bankrupt our beloved America.

George Lundberg is a MedPage Today Editor-at-Large and former editor of the Journal of the American Medical Association.

Originally published in MedPage Today. Visit MedPageToday.com for more health policy news.

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  • Donald Green MD

    Dr. Lundberg has missed some factors and over-emphasized others. Viewing the problem from one perspective can be problematic in figuring out solutions.

    One by one:
    1. Most medical decisions are made by physicians usually in concert with their patients. Blaming the patient is bad PR and usually wrong.
    2. This is certainly desirable but will not make as much headway as expected.
    3. It is not cost transparency that is needed but the actual negotiations themselves. The dealmaking between insurers and providers has produced uneven unwarranted pricing and cost shifting plus huge bureaucracies by all parties to support this.
    4. Defensive medicine is always a hot topic but no real evidence it is a major factor in cost.
    5. Yes.
    6. Yes, they should be non-profit, i.e. no stockholders.
    7. Yes.
    8. Propaganda would be more like it. Words like socialism, rationing, etc. get bandied about with little connection to reality.

  • stargirl65

    Going back to 1.

    Patients want preciptions for over the counter medicines so insurance will pay for it.

    Patient that wants prescription for allegra even though zyrtec works better, but zyrtec is OTC and therefore they have to pay for it directly out of pocket.

    Patient with back pain or headache for one day that comes in and states, “I want an MRI” despite the fact they have a normal exam.

    Patients that have no health care and do not seek any care for years then get health care and bring in a list of things that have been wrong with them for years and want it all addressed and fixed today.

    Patients asking about medicines they have seen on TV for their problems and refusing cheaper OTC options for free. Patients refusing physical therapy since is involves time, effort, and multiple copays.

    Patients asking for yearly chest xrays though no study support their use, but they want it anyway.

    Patients asking for xrays for twisted ankles even though their exam says everything is ok because they just want to make sure.

    I could go on.

    • HJ

      You make an assumption that a majority of people behave this way. Patients that don’t behave this way, don’t come into your office.

      • stargirl65

        Actually a majority of my patients do NOT behave this way. But enough of them do behave this way that I believe it affects the overall costs of the healthcare system. Because if I have patients that do this, then I am sure other doctors also have a significant number of patients that also do this. But I realize this is only one part of the equation and am not stating that this is the only cause. It is clearly multifactorial. Plus I was responding to Donald Green MD and his statement under #1.

        • HJ

          “Actually a majority of my patients do NOT behave this way.”

          Why did you engage is patient bashing when it is just a few bad apples?

          Have you told these patients no to all those things so they don’t keep on asking? At that point, they can leave your practice or accept your decision. Enabling them to have behaviors that aggravate you seems kind of silly.

    • rezmed09

      You are right on track here. Amazing some providers and patients don’t see it this way.

      This is also part of defensive medicine. Maybe the doc won’t get sued, but
      docs don’t want to miss any diagnosis when another provider down the street (with less medical judgment) reflexively orders an MRI’s and CT’s
      Docs don’t like disappointing patients who want “the best” for themselves or their loved one. This is America and technology is king.

      • HJ

        docs don’t want to miss any diagnosis when another provider down the street (with less medical judgment) reflexively orders an MRI’s and CT’s

        You’re kidding, right. You go against your judgement because of someone down the street.

    • http://paynehertz.blogspot.com Payne Hertz

      There has not been a single test, prescription or procedure ordered in the last 60 years or more of modern medicine that didn’t have the approval of a doctor. Not a single one of your patients can get anything they ask for without your approval, so you are 100 percent as responsible as they are. Even more so, as you are expected to have the medical expertise to know what is right for your patients, and not just prescribe things because it is convenient for you.

      Society gave doctors gatekeeper power in the expectation that they would use it responsibly, and not as a source of personal enrichment providing quack remedies and useless tests to every patient who asks (or doesn’t ask) for them .

      I read recently there are over 41 million prescriptions for antibiotics written every year for colds in America at a cost of over $1 billion, not counting the costs of the office visits. Whose fault is that, the uninformed or gullible patient who follows his doctor’s orders without question or the doctors who ought to know better?

  • Dr.J

    You neglected the faustian bargain that our colleagues make when seduced by self referral in all of its forms.

    • stargirl65

      Agree. This goes with the “everything looks like a nail to a hammer”. Those that own expensive equipment that they have to pay for tend to order more testing that involves that equipment whether truly indicated or not. If they think they can get paid, they will order the test.

  • http://www.hcpnational.com Wiliam Dyer

    I agree with all the comments but the biggest driver of healthcare cost is the federal government. We are under a constant effort to tax all our income as the federal government takes more and more. If you are a provider or a hospital the most unhealthy, and therefore the best source of revenue, are the poor and the old. The majority of your revenue will come from Medicaid and Medicare. The government has run both programs stupidly. They create areas where they will over pay for some services and greatly under pay others. Overnight with one stroke of a pen a hospital or a provider can lose 20% of their revenue. So how do you make this shortfall ? You inflate your prices, and do more services, to those who are on individual or group health plans?
    This is the hidden healthcare tax we are all paying in health insurance premiums. This is why anyone who thinks the healthcare reform will improve anything is kidding themselves. In fact it will do the opposite. The federal government is to blame for most of the insane costs in healthcare. The other mentioned in this blog do drive the cost, but the gas is the cost shifting caused by the Feds stupidity and corruption

  • KP Internist

    I think a greater reason why costs is rising is the lack of efficiency in the delivery of the care. Duplication of services, testing, the drive to force patient to get care only in the traditional doctor office visit and the refusal to depend on specialty care over primary care. There is no incentive in most institution to deliver care more efficiently. Unfortunately, more efficient means reduced revenue.

  • Leon DeWitt

    There’s only one true way to control costs and that’s, consumer driven healthcare. If the cost starts coming out of the consumer’s pocket, you will see real healthcare cost reduction.

    There’s a new Seattle area company called LyfeBank that puts the consumer in control and gets employers out of the health insurance business. With innovative products like LyfeVault Visa cards and multiple employer-funded accounts the consumer now makes the decisions. Check it out.

  • http://www.ncpa.org/healthcare/ Devon Herrick, PhD National Center for Policy Analysis

    Something you alluded to but did not explain in detail is the over-use of third-party payment. Granted, you mentioned that patients care little about cost because they consider health care a “freebie”. You also mentioned physicians do not weigh costs in their decision-making process. But it goes much deeper than that. Because physicians are reimbursed by third-parties, they are not free to explore the use of innovative services outside rigid CPT codes and expect to get reimbursed for them. Because hospitals don’t compete in the normal sense of the word (i.e. do not compete on price), they are not constantly looking incremental ways to improve quality and efficiency – mostly because hospitals are paid regardless. Also because of third-party payment (and strong medical trade associations), the practice of medicine is highly regulated – limiting the ability of hospitals, doctors and other care providers to experiment with different care models.

  • tex

    Some of the reasons above are likely really contributing to the rise in health care cost in the US. Has anyone figured out why the Canadian and United Kingdom systems are going bankrupt? Is it just utilization increasing beyond funding? Is it the rising cost of drugs or technology? Is it an aging, longer living society with chronic health problems driving up cost? These countries don’t have the malpractice issues we have here, so that’s out, and along with it defensive medicine. The patients there can’t demand anything so that’s out. What’s left? How about an ineffiecient government running the business? [which we are getting closer to ]? What do ya’ll think?

    • Leon

      Tex, that’s to simple. We have to make healthcare as confusing as possible, not simple. How else will all those creating the confusion make money?

  • HJ

    “How about an ineffiecient government running the business? [which we are getting closer to ]? What do ya’ll think?”

    And private insurance is more efficient?

    n engl j med 349;8

    “The existence of global budgets in Canada has
    eliminated most billing and minimized internal cost
    accounting, since charges do not need to be attributed
    to individual patients and insurers. Yet fragmentation
    itself cannot explain the upswing in administrative
    costs in the United States since 1969, when
    costs resembled those in Canada. This growth coincided
    with the expansion of managed care and
    market-based competition, which fostered the
    adoption of complex accounting and auditing practices
    long standard in the business world….

    Despite these imprecisions, the difference in the
    costs of health care administration between the
    United States and Canada is clearly large and growing.
    Is $294.3 billion annually for U.S. health care
    administration money well spent?”

  • Nancy

    You forgot rising prices caused by the growth of dominant provider systems that are able to extract monopoly prices. And a financing system that has us spending a much higher proportion of health care dollars on administrative expenses. And no price regulation (e.g. drug prices) which is one of the major approaches used in every system that controls costs more successfully than the US, which would be just about every other system.


    I am frustrated.

    I am at best Libertarian, at worst a neo-objectivist. I like the Idea of consumer driven health care. Where is makes me nuts is how it plays out today with decisions folks are making with their high deductible plans. They will follow some of my recommendations for work up ….but not the standard of care MRI to rule out MS or lymphoma because of cost. Now I find myself empiracally treating something without a good diagnosis because the patient and her husband want to do it on the cheap and see how it goes.

    Her symptoms may be improved by my treatment but the underlying cause (unknown) may be left to fester and kill this person.

    I don’t like being treated as a sushi menu of what the patient will comply with and they won’t comply with. All I can do is document “against medical advise” and hope for the best.

    • maribel

      Why are you blaming the patient for trying to be financially responsible? Would you rather he go through with tests he can’t afford and then not pay his bills? – plenty of people do that. Is that right? Sometimes a patient is forced to forego a recommended test if he respects his providers enough to pay them. Then you have the opposite problem of people on Medicaid or people who have met their deductible who demand tests o’ plenty cuz someone else is paying for it. Good thing the new healthcare law will fix all that.

    • Leon

      Dr. Paul, your frustration is understandable. Why is everybody in healthcare afraid of the “R” word? Almost everything in our lives is Rationed. We make countless rationing decisions in our lives, some good, some bad. The real issue is freedom. Those pesky “founders” put into the law that our creator gave us rights, one of which is “the pursuit of happiness” and if your patient decides against an MRI so she can buy a new set of golf clubs and is happy, that’s called freedom. Those same pesky founders thought when a government confiscates our property and tell us what to do, it was call tyranny. I choose freedom, even when we make some really dumb choices.

  • doctor

    One other point to consider. How much money is spent on advertising and public relations? You can’t watch the tv or listen to the radio without some hospital thumping their chest about how they are the best, and you’ll die if you don’t go to their hospital. How much money does this waste? Does this make the public less trusting and interfere with the doctor/patient relation? I suspect this never gets media attention because it’s the media that benefits.

  • Jim Manico

    Rationing of health care already exists. It is already divided by socioeconomic status (more money more care) regardless of how effective the treatment is likely to be. This is the most wasteful way to ration health care resources. We are shifting to a system where health care will somewhat be rationed by need and probability that the treatment will cure the injury or disease. This is a good and sensible thing.

  • http://www.TheReverseEngineers.com Bill Cote

    #1 Reason? Doctors don’t have the tools to cure their patients’ problems. So they keep coming back and back and back, spending way too much money to find help with their problems.

    Imagine going into a car dealer with your Check Engine Light on. Instead of probing to find the underlying cause of the problem, the mechanic checked your oil, rotated your tires and put some masking tape over the light and sent you on your way without getting to the root of the problem. Soon you’d have fleets of broken cars lining up for service at the dealer, coming back over and over and never getting fixed.

    This, unfortunately, is the best analogy I can come up with for our modern medical system. I’ve bounced around our dysfunctional healthcare system for the past decade, spending tens of thousands of dollars of my insurance’s money to try to cure my mysterious sleep disorder. I finally gave up on my regular M.D.s and like so many, turned to my local healthfood store, alternative practitioner and the Internet. Thankfully, it didn’t take long, and didn’t cost much to finally pinpoint the underlying cause of my problems so I could regain my health. When later approached with my findings, my doctors just shook their heads and said, “Great, keep doing what you’re doing,” and went about their business not healing other patients.

    (By the way, none of my dozen or so blood tests ever turned up anything even though I was in the worst shape of my life – not sure why M.D.’s value them so highly…)

    As I see it, the solution to our very ill healthcare system is to radically reform our medical schools and start researching these alternative medical approaches. We need to generate the peer-reviewed research to give doctors new tools that they can incorporate into their practice. The National Center for Complementary Medicine is on the case, but it’s getting a very late start and is massively under-funded.

    By the way, I work with a bunch of scientists who conduct peer-reviewed research and most of them share the same view of their own medical care and are searching out Naturopaths, so this view is more pervasive than doctors realize.

    So, to recap – saving money on medicine is simple – get to the root cause of the most common chronic health problems (IBS, thyroid issues, sleep disorders, depression, obesity, etc.) and actually start curing people, and voila! — our insurance bills plummet.

    Sleepless-no-more in St. Petersburg

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