3 reasons why health care costs are rising

Following a relatively routine doctor appointment, I received my bill for over $1,000. I rubbed my eyes, hoping to find an overlooked decimal point. I didn’t.

My experience is not unique. We have a problem in the U.S. We pay over $3 trillion annually for health care — about 18 percent of our GDP. No other developed nation spends more than 12 percent of its GDP for care. And our costs are rising.

A major Trump administration goal has been to “repeal and replace” Obamacare with a lower-cost strategy. As Americans face potential turbulence regarding health care delivery, we should educate ourselves so we can more accurately evaluate and advocate for improved policy.

Hoping to help others comprehend our health care system, I have synthesized my understanding of major factors driving U.S. medical costs.

1. Administrative costs

Administrative costs stem from duties that support medicine, including record keeping, billing, and coordination with insurers. The U.S. will spend over $300 billion for administrative tasks in 2018.

One large contributor to these costs originates from our complex health insurance network. Each insurer often holds different standards governing the care they cover.

For example, to cover an emphysema patient’s oxygen tank, one insurer may require respiratory testing within 30 days, while another may not. When I worked at a company supplying such tanks, five full-time employees tracked these differences and facilitated this information flow between providers and insurers.

Consider that virtually all U.S. health care providers play this administrative game, and you can see how costs accumulate. How do we address this problem?

We can gain insight from countries with lower administrative costs. Canada’s administrative spending is approximately half of America’s. One reason stems from Canada’s single-payer system where government offers insurance for all. This strategy reduces the costly complexity featured in the U.S.

The switch to single-payer insurance in the U.S. is potentially difficult and controversial. However, it’s possible to adopt some simplicity afforded by a single-payer while maintaining the insurance options that Americans cherish. For example, expanding the population covered by government insurance could decrease our system’s complexity. A recent Health Affairs article advocating Medicare expansion to those over 55 struck me as one possible approach.

In general, we should learn from other nations offering similar standards of care with lower administrative burdens.

2. Price transparency

Imagine adjacent McDonald’s and Burger King restaurants offering equally priced hamburgers. Now imagine McDonald’s raises its price by $10. McDonald’s customers would probably leave for Burger King’s cheaper option. Losing business, McDonald’s would likely lower its price back towards Burger King’s.

Price transparency supports the mechanism keeping the McDonald’s price low. Customers knew the hamburger’s cost and adjusted their behavior accordingly.

Medicine does not offer such transparency. Medical interventions differ in price based on factors such as location and insurer. Knee replacement fees, for example, can vary by $27,000 across California.

Unfortunately, it’s quite difficult for patients to assess a procedure’s cost before its performance. Patients lack information needed for economical decisions regarding treatment location. This situation interferes with supply-and-demand forces that yield optimal prices and helps explain higher rates in health care than free-market principles dictate.

We need greater price transparency. California recently introduced policy in this spirit requiring drug companies to disclose price increases for certain prescriptions. California’s action should inspire future policy.

Additional efforts targeting this issue exist. In her recent Vox article, Sarah Kliff asked readers to submit their bills for emergency facility fees — fees received upon emergency room treatment. Sarah seeks to better understand price variations to help patients make informed decisions. This project essentially aims to crowd-source price transparency and foreshadow goals for new policy.

3. Primary care utilization

Benjamin Franklin’s quote “an ounce of prevention is worth a pound of cure” aptly applies to medicine. Primary care providers (PCPs) play a pivotal role providing this prevention. PCPs encourage healthy behavior, monitor patients for health changes, and manage chronic conditions. By potentially catching diseases early when they are more treatable and less costly, PCPs can lower expenditures.

Indeed, people seeing a PCP on average suffer from fewer chronic diseases and enjoy lower health care fees. Such people are also more likely to avoid expensive emergency room and hospital visits.

PCPs play an enormous role keeping our society healthy. Approximately 40 percent of deaths originate at least partially from preventable causes. PCPs help patients practice healthier lifestyles with lower chances of affliction from such causes.

Greater PCP utilization can improve our society’s wellness while decreasing costs. Various medical organizational structures, such as patient-centered medical homes or accountable care organizations, are arising out of recognition for the importance of primary and preventative care. These care-delivery models hold potential to supply improved and affordable health.

Such systems should strive to apply research concerning patient behavior to motivate primary care utilization. A recent study published in Health Affairs found that small cash incentives of $25 increase PCP use in low-income people. Benjamin Franklin would agree — minor upfront investments in prevention could pay large dividends by mitigating health problems that grow costlier over time.

Conclusion

U.S. health care has many strengths. We arguably offer the most cutting-edge medicine in the world. However, our health care delivery is problematic.

We need to make our amazing care more accessible and affordable. Each person’s life is important; each person deserves outstanding care.

We are certainly entering exciting times in medicine. New treatment approaches, such as immune and gene therapy, are creating novel cures. However, these new drugs will not be cheap. The remarkable new cancer immunotherapy from Novartis, Kymriah, costs $475,000. We need a system that keeps pace with technological improvements to effectively supply these miracles.

Now is the time to address our health care issues. Americans should seek to understand the factors affecting our health care’s costs. We have the power to guide and implement successful policy supporting the utilization of medical care to its fullest potential.

Samuel Falkson is a cancer researcher and a 2017-2018 United States Fulbright Scholar to Israel in biochemistry.

Image credit: Shutterstock.com

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