Who's To Blame For Our Rising Healthcare Costs?

Preface:  Louis Goodman and Timothy Norbeck,  president and CEO, of the Physicians Foundation, wrote the following artilce in the April 2 issue of Forbes Magazine.  Readers might want to compare
their conclusions to mine, as expressed in today's Medinnovation blog post, "Who and What Drives Health Costs?"

"For many years and in countless articles, physicians have been the scapegoat for rising healthcare costs in the U.S. In fact, they have been blamed by many critics for the U.S. leading the world in healthcare expenditures.

A close examination of the data indicates that this blame is misplaced. Something else is revealed by digging deeper into the key components in healthcare spending: Technology, administrative expenses, hospital costs, lifestyle choice and chronic disease conditions have all had greater impacts on rising overall healthcare costs than physicians.

Some critics have suggested that physicians’ incomes and the fact that physicians direct most healthcare spending (80 percent is a frequently used number) are the real culprits in soaring healthcare costs. Yet despite this, physicians are not necessarily the principal beneficiaries of healthcare spending. The bulk of medical procedure payments go to hospitals and device manufactures. For example, in California, Medicare pays on average $18,000 for a total hip replacement – $16,336 to the hospital and $1,446 to the surgeon. This reimbursement disparity is certainly not limited to California, and is representative of a broader trend on a national level.

Moreover, doctors’ net take-home pay amounts to only about 10 percent of overall healthcare spending. Which if cut by 10 percent would save about $24 billion – a considerably modest savings when compared to the $360 billion spent annually for administrative costs as estimated by the Centers for Medicare & Medicaid Services (CMS), and the fact that 85 percent of excess administrative overhead can be attributed to the insurance system. Administrative costs for physicians are in the range of 25-30 percent of practice revenues and insurance-related costs are 15 percent of revenues, according to a National Academy of Social Insurance report for The Robert Wood Johnson Foundation.

Once the physician impact on healthcare costs is placed in proper perspective, the true role of other key factors can be examined more clearly.

The first area is technology. There is consensus among experts that technology is the most important driver of healthcare spending increases over time. Installing and implementing electronic health records is costly – often as much as $25,000 per doctor for a system and a monthly subscription fee on top of that – and requires significant resources.

A technical review panel convened to advise CMS on future healthcare costs trends concluded that about half of real health expenditure growth is attributable to medical technology. The Robert Wood Johnson Foundation goes on to say that advancing technology may have a particularly large impact on spending in the U.S. because of “few requirements that effectiveness be demonstrated before technologies are used broadly and concern that their application tends to go beyond those patients likely to benefit the most from them.

Administrative  expenses and hospital costs represent two additional areas of significant concern. Physicians are continually frustrated as they see increasing administrative regulations as significant burdens that take away from patient care, and they are deeply pessimistic as they struggle to sustain their practices. Seventy-seven percent of physicians feel negatively about the future of medicine, according to the Foundation’s survey of more than 13,500 physicians. Many independent practicing physicians are seeking employment at larger hospital systems to avoid administrative burdens. Forty percent of primary care physicians today who see patients at hospitals are employed by the hospital, which has doubled since 2000.

But hospitals may not be the solution for lowering healthcare costs in the United States.

Hospital costs during 2010 in the U.S. constituted $814 billion or 31.4 percent of all healthcare expenditures. Furthermore, the cost of care will only continue to rise as we shift into a consolidated healthcare system and programs like Medicare allow higher payments for services performed in hospitals as opposed to independent private practices. One widely reported example found a Nevada patient whose echocardiogram bill came to $373 before the physicians’ practice had been purchased by a hospital system and then increased to $1,605 after the merger.

Finally, another vital factor to consider is that of life style and chronic conditions. Chronic diseases are the most common and costly of all health problems, but they are also the most preventable. According to the CDC’s National Center for Chronic Disease Prevention and Health Promotion, our common, health-damaging but modifiable behaviors – tobacco use, insufficient physical activity, poor eating habits, and excessive alcohol use –are responsible for much of the illness, disability and premature death related to chronic disease. And people with three or more chronic disease conditions generally fall into the costliest one percent of patients who account for 20 percent of all healthcare spending in the U.S.

Moreover, there is a real issue of health disparities that exists in this country leading to higher healthcare costs. Between 2003 and 2006, the Joint Center for Political and Economic Studies estimated the total direct and indirect costs of health inequities affecting racial and ethnic minority populations, including lost wages and productivity – exceeded $1.2 trillion.

Clearly, to achieve true cost savings in our healthcare system, experts must look at all of these factors that are driving healthcare costs above the gross domestic product, population growth and inflation – and recognize that the literature and data simply do not point to physicians as a primary or even secondary cause of rising healthcare costs. Physicians have been a target of blame for many years, but the facts about what drives healthcare costs indicate otherwise."

Tweet:   Technology,  administrative,  hospital, lifestyles, and chronic diseases, not physician expense,  are driving health costs.