What’s Driving High Healthcare Costs?

Princeton economist, Uwe Reinhardt, contributes regularly to The New York Times Economix Blog. Recently he wrote, in
Health Care Payers Push Back Against Costs“ that high U.S. healthcare costs are driven by several factors:

  • American’s over-use of high-cost/high-tech services owing to some American’s being over-insured.
  • High administrative costs (mostly in the health insurance area)
  • Higher prices paid by Americans for healthcare services and products

On this latter point – higher prices – he points to an imbalance of power between the buyers (and payers) vs. the suppliers of healthcare.

[...]higher prices are the product of a deliberate strategy, hashed out in our political bazaars between the supply side of health care and state and federal legislators, always to keep the payment side of our health system fragmented and relatively weak vis à vis the supply side of health care.

He also notes how difficult it is for patients to do price comparisons – “price opacity” he calls it. He saves his strongest reaction to the system of price discrimination found in healthcare today. Providers charge (and are paid) differently depending on who pays the bill. Insurance companies demand substantial discounts from hospitals, and Medicare reimbursements are significantly lower than provider costs.

Reinhardt warns providers to prepare for an era of increasing price information and comparisons, along with other purchasing initiatives.

To add my own commentary: Our public discourse on complex problems often veers towards finding the villain – the “bad guy.” Once identified that villain gets all of our intention, and if the political stars are aligned government legislation and regulation results. If healthcare costs are an inflated balloon, then pushing in on one portion will only cause the balloon to bulge out elsewhere. It would be a mistake to assume that our healthcare challenge would be fixed by just getting providers to reduce their prices.

More open price comparisons and a more straightforward pricing mechanism are two important elements in successful healthcare reform. With only some exceptions, providers (physicians, hospitals, drug companies, tech companies) are not looking for ways to extract more money from patients. They are taking steps to survive in a broken marketplace. Changing public attitudes about appropriate care, changing insurance to give patients more exposure to their decisions and choices, giving providers incentives to prescribe cost effective care, opening scope of practice laws to let well-trained but less expensive professionals provide some care, and maintaining vigilance over abuse of the patent and malpractice systems are all important steps to take.

Leave a Reply




You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>