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The Cost of Healthcare in the USA

The Cost of Healthcare in the USA

Healthcare expenses in the United States exceeds  17% of GDP and over $2.8 trillion in 2012. Yet the Physician fee component of that expense is only 8%.   In this debate over how to  control expenses,  most of the focus seems to be on curbing the Physician fee.   WHY?  Should we not focus on the other 92%?

The truth is the Physicians (8%) do have an effect on the testing,  therapies,  and procedures performed on the patients.     What if the 8% can help reduce the expenses of the  92%?  How would we design that system? Everyone agrees there is over utilization of  testing,  therapies and procedures without any known improvement of overall population health.  How can we get the physicians to reduce the demand of the patients for unnecessary testing,  therapies and procedures?

What would be a better system to achieve less waste?

The answers to these questions have tremendous ramifications on the USA as a whole.  The rules of economics do not go away.  In the past,  there was the proverbial debate over Guns and Butter.   To summarize,  and simplify,  there is a limited amount of resources.  Society must chose to how to use these resources to serving the people.  The debate is over providing services for welfare,  versus providing security and military power.  Of course,  there is an assumption that there are not external corruption issues that also siphon off the resources,  but that is another story.  The bottomline is excess expenditure on Healthcare can place our National infrastructure, and security at risk.

In the past,  before there was any attempt at government assistance to the population,  people had to fend for themselves.  There was not as much money for healthcare.  Physicians has much more modest incomes,  as few can afford their services.  Also,  the vast majority of  treatments were for infections.  The discovery of penicillin was argueably the most important medical discovery of the 20th century.  Our medical technologies were very modest compared to what we have now.  Prior to the 1960’s,  there was no ICU’s, open heart surgery,  joint replacements,  CT scans,  and MRI’s.   Cancer treatments were modest.  Yes,  life expectancy was also only 69.7  in 1960.  Without looking callous,  the reality is healthcare costs were much smaller,  as there were few medical options,  and few lived very long.


Fast forward to now, and the life expectancy table show it to be 78.7 by 2010. In the 1960’s,  medicare was created,  expenditure on medical research and treatments exploded.  A whole Medical industry including Hospital Chains,  Pharmaceuticals,  Medical Device Companies were developed.  People now have tremendous medical options,  and because of the nature on how the treatments are offered,  can get into a situation where testing and treatments are over utilized.  To explain,  most Healthcare is an employee benefit, or a government sponsored program.  While the individual still has responsibilities for some of the costs,  the majority of the costs tend to be covered by the previous two entities ( a few pay for all their Healthcare,  but that is rare).  Depending on the structure of the Health plan,  there are disincentives to use the healthcare because of a high deductible expense.  The problem is once the deductible is met,  there is then a tendency to over utilize the healthcare services as the deductible has been met.   Also,  at least in the past,  there was an incentive for providers (Physicians,  Hospitals,  Pharmaceuticals,  etc) to provide extra services,  as it improved the finances of the entity.    There is a disconnect on the costs of these treatments to the patients because of the insurance benefit,  or the government sponsored programs.  Clearly,  there is a potential for abuse.  To make it simple,  if the purchaser of the service is also the educated patient,  I doubt that many of these non essential medical treatments would be performed.

So how do we address this Guns and Butter debate in Healthcare?


Somehow,  we must reestablish the concept of Value,  from the perspective of the patient.  That is very difficult to do,  as there is no transparency on the costs of most Healthcare expenditures.  To clarify,  it is almost impossible for a Hospital to tell you the costs of a hospitalization.  The list price is almost never paid.  There are fee schedules depending on the payer.  There is a different price if you have a government plan,  or a Private health Plan,  or an Auto insurance plan.   Within each of these types of  plans,  there are sub catagories with different fee’s.  This is also a very simplistic explanation to a very complex issue.

In the Physician’s office,  to the Patient,  it is not clear what is and is not a cost associated with the Physician’s visit.   While there is a co-pay or fee for the Physician’s services,  it may not be clear that tests ordered,  therapy,  medications,  etc. also have associated costs and co-payments.  Many of my patients are irritated and confused by the costs.  Some assume that the Physician must be getting a portion of those additional fee’s.  A more cost transparent system will allow patients to make better value calculations.  Once the patient knows the whole costs,  it may be easier to decide not to pursue certain elective procedures.  Also,  once the true costs are exposed,  patients can calculate whether the benefit of the procedure is worth the fee.



For the most part,  the USA has a capitalistic orientation to business.  That capitalism has driven tremendous innovation, and have provide value to the consumers.   The problem in Healthcare is the monetary value to these capitalistic companies is in innovation,  and solutions to problems.  While that is great,  the more efficient use of resources is in PREVENTION of development of these problems.   To make it simple,  if you are a Cancer treatment company,  your company would go bankrupt if there is no more Cancer.   In my opinion,  there is no monetary incentive to promote prevention.  Somehow,  we need to promote healthy behaviors such as weight reduction,  exercise,  smoke cessation,  alcohol moderation,  etc.   Somehow,  we need business entities incentivized to promote healthy behavior.  It also requires a population to take responsibility for its own health.  Currently,  there is very little penalty for unhealthy behavior,  as our current Healthcare still provides care for your deleterious behavior.   Again, not to be callous,  but should Society pay for your treatments for drug abuse,  alcohol induced liver disease,  and smoking induced cancers?   When Society has plenty of resources,  perhaps so.  When Society is having a real Guns and Butter debate,  perhaps not.



This will be a totally separate Blog (next one,  I hope).  Many of our Healthcare Expenses are secondary to a lack of trust.  Many medical conditions take a bit of time and patience as the body naturally heals the process.  At least in Musculoskeletal issues,  time can be the great healer.  In a mistrusting environment,  few people will be patient enough to wait to see if there is improvement.  That means more testing,  more evaluations,  more retesting as unrelated abnormalities may be discovered.  It becomes very costly,  and yet,  there is little incentive to rein in these costs.   Our Legal Members of our Society have thrived in this environment of mistrust.   This next statement may get me in lots of hot water with my medical colleagues,  but we too have prospered by this environment of mistrust.   Each time a person does not trust the system,  there are additional evaluations,  additional tests,  and additional costs.  One entities costs,  is another entities revenue.  I am not picking on my radiology colleagues,  but the Defensive Medicine that everyone talks about,  has been an extremely valuable revenue stream to the radiologists.  Afterall,  they draw revenue from reading all the tests.  In a similar vein,  fear of litigation prompts additional interventions,  with additional revenue to Surgeons,  specialists,  and even Primary Care Physicians.  If we spin this back,  and the patient is truly bearing all the costs for all these tests,  and treatments,  then a Trusting relationship with their Physician will result in less expense,  less angst,  and likely better satisfaction.    It will be less cost,  which is the goal.  But we must all understand the ramifications for less cost.  IT MEANS LESS REVENUE for a SYSTEM BUILT TO PROVIDE SERVICES,  not PROMOTE HEALTH.

Last modified: January 5, 2018

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