The Price of Healthcare in America

Posted on June 25, 2015 | by Dr. Shim

With all the uproar in the government about healthcare, we must examine the costs directly experienced by the US population. What is the Price of Medical Care? There are 4 main areas that need funds to have medical care:

1. Physician’s fee

2. Diagnostic Testing costs

3. Pharmaceutical (medicines), and Medical Device costs

4. Hospital fee’s.

Everyone agrees the costs are high, but few know the breakdown for each of these components.

Most authoritative sources put the overall healthcare expediture for the USA at about 3.2 Trillion Dollars for 2015.

The breakdown is interesting.

1. Physician’s fees are estimated to be about 8 % of the total costs. That is about $256 Billion. There are about 800,000 active physicians in the USA. Take 8 % of 3.2 Trillion Dollars, and divide it by 800,000 physicians, and it give revenue to Physicians of $320,000 per physician. Considering most Physician overhead cost approaches 50%, it averages $160,000 in compensation for the average physician. While that is a lot of money, it is not millionaire status. Lately, there has been great transparency on what is paid to physicians, as Medicare now publishes payment information for physician’s fee’s online. (http://www.cms.gov/apps/physician-fee-schedule/license-agreement.aspx). Also, Medicare now publishes the fee’s paid to individual physicians. Once you have the Physician’s NPI number, you can look up his/her revenues paid from Medicare (Medicare provider link). At 8% of total costs, every US Physician can work for free, and you will still have a healthcare cost problem.

2. Diagnostic Testing costs include lab tests, x-rays, MRI’s, CT scans, etc. The numbers are harder to find, but most consider these costs to add up to about $950 Billion a year. There has been amazing technological advances in the diagnostic arena. Unfortunately, all those advances come at a cost, without a measurable improvement to the overall health of the US population.

3. Pharmaceutical Costs are now estimated to be about $1000 per US citizen. With a population of 320 million, that is about $ 320 Billion dollars. It is true that Drug prices in the USA are much more for the same drug in other countries. Some of that is secondary to governmental policies. I will not debate the merits of the costs of Research and Development in the USA versus other Countries. There should be a reward for taking the risk to develop new drugs. At the same time, many Governmental policies do artificially raise the price of drugs to the US population.

4. Hospital Costs are the greatest costs, with the least transparency to the consumer. The reason Hospital Costs go up every year is complicated. For one reason, we have shifted most of the low intensity, safer medical procedures away from the Hospital to the offices, and the outpatient Facilities such as the Surgery Center. Hospitals now only admit the very sick, and costly to recover patients. Safety issues, married with Regulations demand a round the clock staffing for emergencies, and expensive technologies. Standard of the Community demand heroic measures despite low survival statistics in certain scenario’s . Competing Hospital Systems duplicate high cost, technologically intense Medical Services in order to serve Contractural obligations, or obtain Contracts from the Payors. As of 2015, most estimate the annual Hospital Costs to be close to $1 trillion. Many of the Governmental Healthcare Policies are designed to unwind some the escalating costs associated with the high expenses of a Hospital. At the same time, the mantra of safety and regulation, coupled with efforts to manage potential litigation, has made cost containment a difficult task. Add the desire for the Newest Technology, and the task almost becomes impossible.

5. The other areas of Healthcare costs include Non Physician professional fees such as Physical Therapy, Massage, Dental Hygiene, Eyecare, Home Health, Home Oxygen, Skilled Nursing Care, etc. These numbers are also increasing on a yearly basis.

In the end, we are now at a point where the costs are starting to effect the USA’s competitiveness in the world. Healthcare costs are more than 17% of our GDP. That percentage is the highest of any industrialized nation. With so much sunk into provide health, we are diverting investments away from other aspects of our country such as infrastructure, education, research, military, etc. As a National priority, we need to find away to reduce our Healthcare costs. Even with what seems to be drastic measures in some states, US Healthcare costs are still projected to grow at 4-6% annually. We need to do the analytics, and find out the most cost effect way to deliver the care. An almost impossible task when so many interests have a financial stake in each and every aspect. Everyone wants cost savings for everyone, except their own department.

Unfortunately, to successfully decrease costs, the population does need to have a introspective discussion on what is, and is not necessary. Expensive technology needs to examine for its true merits in relationship to its true costs. As individuals, we may want all the medical heroics. As a Nation, we may no longer be able to afford it.