A Confusing System

I have had several conversations with friends recently about the economics of health care in the United States. There are so many ways in which we find it impossible to understand how health care dollars are spent. The numbers are so staggering that we have trouble comprehending them. The National Health Expenditure Accounts are the official estimates of total health care spending in the United States. According to their figures, US health care spending reached $3.5 trillion. That is $10,739 per person. There is little question that we are spending more than other countries for health care. And the cost is projected to keep rising at a rate that far exceeds inflation. Experts estimate that U.S. health care spending will reach $5.7 trillion by 2026.

We don’t get what we want for the money, either. Our costs are higher than Canada, Switzerland, the United Kingdom, Netherlands, France, Australia, Belgium, Germany, Austria, Sweden and Japan. Our infant mortality rate is significantly higher than all of those countries. While the overall mortality rate has fallen in the U.S., it has not fallen as fast as in comparable countries. The U.S. mortality rate was close to average in the mid 1980’s, but we continue to fall behind the rest of the world.

Physician pay in the US is high compared to other countries and high compared to other professions in the US. In general, those who treat younger patients earn less than their colleagues who treat older patients. For example the average salary of a pediatric oncologist is more than $100,000 less than what is earned by an oncologist in general practice. On the other hand the lowest paid physicians earn six figures, which is a far cry from what their patients earn. Physician compensation has more to do with location than with specialty.

Despite those wages, there is a shortage of physicians. You might think that high wages and a shortage would produce greater numbers, but the number of physicians is tightly controlled. Less than half of the qualified students who apply to medical school are accepted. When pushed, some medical school administrators will admit that preserving physician income is one of the reasons for low acceptance rates.

The cost of doctors, however pales in comparison to other US medical costs. Medical clinics average over 10 times the cost of other commercial real estate costs. The cost of hospitals is even higher. And there is no end in sight for expansion of medical buildings. The size of patient exam and treatment rooms is growing exponentially. Medical buildings are constructed with multiple-story entrances and lobbies. They are the cathedrals of the 21st century.

And no one, inside our outside of the medical community understands pricing and billing for medical services. Hospitals are quick to point out that they provide care for which they are not compensated. Yet they continue to operate as nonprofit corporations. That means that in order to break even, they are charging other patients for the uncompensated care. Health insurance rates are based in part on the need for those with insurance to provide income to providers who give care without compensation.

Figuring out these finances is expensive. Hospital billing departments employ large numbers of registered nurses - people who are trained to provide patient care are required to engage in negotiating with insurance companies over compensation. Like the airlines, complex formulas are employed that result in no standardized fees. One patient may pay costs that are double or even triple what is paid by another. The actual amounts exchanged have more to do with the type insurance than with the service provided.

The cost of prescription medicine is not determined by the cost to develop the medicines or the costs of general research. Rather the cost is determined by what the market will pay. When people are desperate for medicine, they will pay high prices. Those holding patents on medicines claim that they have a right to charge whatever the market will bear.

Compared to other businesses, health care providers have extremely high costs for billing and collections. A hospital may send as many as a dozen paper bills to a patient before negotiations with insurers are complete and actual patient costs are known. It is not uncommon for the cost of billing for a particular procedure to exceed the hospital’s margin on the procedure. Thus the cost of billing becomes another cost that is passed on to consumers in the form of higher insurance premiums. There is no motivation for the institution to become more efficient or cost effective.

In this confusing jumble of prices and charges there is plenty of money to be made. Insurance companies complain, but continue to be profitable. Hospitals complain, but continue to expand. Physicians complain, but continue to purchase big houses and new cars. Pharmaceutical companies complain, but continue to rake in the profits.

I speak with physicians and hospital administrators and patients and nurses and technicians and none of them understand the pricing structure for medical procedures. Virtually all of them blame some other sector of the medical economy. Ask a physician why a particular procedure costs what it does, and chances are the physician doesn’t know.

The trend of paying more and more while receiving less and less seems to be set to continue in the US medical economy.

That humming noise you hear when standing in the parking lot of a hospital might not be only the sounds of mechanical systems of the building. It might be the sound of everyone complaining. There is more whining in health care than a lot of other professions. To a single parent, paying 65 or 70 percent of their income on rent, the sound of a physician complaining about low pay is not a pretty sound. Hospital administrators crying crocodile tears over medicare reimbursement rates doesn’t have much impact on those waiting in line for dinner at the rescue mission.

We are intelligent people. We ought to be able to figure this out. We don’t have to be the victims of this out of control system. Intelligent solutions are possible. To find them, we’ll have to learn to navigate the politics in a new fashion. We may even have to compromise in order to work with those with whom we disagree.

In the meantime, I’m trying to adopt a health lifestyle and live in such a way to avoid consuming more than my share of health care.

Copyright (c) 2019 by Ted E. Huffman. I wrote this. If you would like to share it, please direct your friends to my web site. If you'd like permission to copy, please send me an email. Thanks!