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Thread: Cost drivers of health care

  1. #1
    World's End Supernova
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    Cost drivers of health care

    I recently listened to a couple of This American Life episodes that provide an excellent overview of the cost drivers in the US health care system. As a starting point, see this chart.



    By a mile, we pay more for pretty much everything, and this is a big reason that our overall healthcare costs are the highest on the planet. As a bonus, I've highlighted Switzerland in purple. Aside from the U.S., they probably have the biggest free-market component to their healthcare system in the rich world, and guess what? They come in second or third on all but one of the procedures. You may draw your own conclusions.
    Ah, but why? I give you episodes 391 and 392.

    On the demand and provider side
    • One-third of spending is on unnecessary items. Yes, 33%.
    • The US system is decentralized and provides wildly varying standards of care, even from nearby city to city. The hysterectomy rate in one city was so high, for no statistically observable reason, that it was predicted 80% of women would get one eventually.
    • The number of providers in an area correlates rather well with the services consumed, regardless of statistical need.
    • The system is fee-for-service, not fee-for-outcome, so providers have a strong incentive to provide more often and more expensive services.
    • Customer understanding of return-on-investment is spotty at best, resulting in demand for trendy, marginal or negative value things like unnecessary CAT scans. Things like huge marketing campaigns for marginal or negative value prostate cancer screenings don't help.

    On the insurance side, or, sympathy for the devil
    • Did you know there was a big round of recent hospital and provider system consolidation? As a result, insurance companies often have little negotiation power vs. these big consoliated systems.
    • The way the negotiations work out is that the biggest insurance company players get good rates. Everyone else pays sky-high rates because hey, the providers don't need your tiny number of customers.
    • There is near-zero pricing transparency. All deals are individually negotiated between insurers and providers. Doctors often have no idea what things cost.
    • Did you know that pharmaceuticals introduced those coupons and discount cards as a pushback against the insurance company co-pay system? The co-pays are there to keep you and your doctors from getting the more-expensive, no-difference non-generic versions; the cards are the drug company returning fire to get your costs back down so you'll spend more of the insurer's money.
    • In the 1990s HMOs actually controlled costs without lowering health. The health care share of GDP was flat through the 1990s, with no detectable result on overall health. No, really. In retrospect this explains why it fell off the political radar.

  2. #2
    Mad Chester
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    So can we go back to the 90's system?
    I seem to remember things working pretty well back then, wha happen?

  3. #3
    Hustle
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    Interesting chart, and I have no doubt about the overall poiint (US pays too much for health care), but some of those data points are head scratchers.

    1. The discrepancy for CT imaging is wide, but the data points overlap for MRI. MRIs are more expensive (and lucrative), and MRI interpretation is performed almost always by the same doctors as the CT imaging. The same doctors that are charging too much for CT are then charging market value for MRI?

    2. CT Abdomen and CT pelvis have different results I think that's passing strange since the test is almost always ordered as "CT of the abdomen and pelvis." I'd expect the disparity on those two procedures to be the same.

    3. Cataract surgery is the one area where the US isn't the outlier. Why is that? Conversely, why is it so much more expensive to have cataract surgery in Switzerland than in the US?

    4. The original source attributes data to Kaiser Permanente, which has the majority of its members in California (i.e. everything is more expensive). I wish somebody would do the same analysis with Medicare data, which would include the whole country. Getting your hip replaced in Nebraska is much cheaper than in California.

  4. #4
    World's End Supernova
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    The 1990s system was unsustainable; insurance companies don't have enough popularity or market position to enforce cost controls. They also weren't really enforcing a return-on-investment approach as much as just chopping down everything that's expensive.

    Hired, I do wish more people would be delving into the nuts and bolts of the costs now that the insurance fight is over. Everything I can find is thin.

    Ah, another:



    Which can be summarized as "every service provided that touches a person with a degree", I guess?
    Last edited by Jason McCullough; 03-04-2012 at 08:38 PM.

  5. #5
    New Romantic
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    Quote Originally Posted by Hiredgoons View Post
    4. The original source attributes data to Kaiser Permanente, which has the majority of its members in California (i.e. everything is more expensive). I wish somebody would do the same analysis with Medicare data, which would include the whole country. Getting your hip replaced in Nebraska is much cheaper than in California.
    I doubt that's actual data from Kaiser Permanente's costs. It was compiled by them but I'm guessing they used other data sources (KP does a fair amount of activism on issues like this and compiles data for that purpose). KP's costs tend to be pretty good compared to the rest of the system.

    Anyway, nothing new here really. It's been clear for years, IMO, that our largest problem is:
    The system is fee-for-service, not fee-for-outcome, so providers have a strong incentive to provide more often and more expensive services.
    For example, it's well known that spending in individual regions of the country varies wildy but that more spending actually correlates with worse outcomes.

    Here's a very simple way to look at it: your doctor makes more money if he treats you poorly and you have to come back for more treatment than if he does a bang-up job and never sees you again. It's not surprising that this leads to a pretty fucked up system (standard caveat for Hiredgoons: even though I'm sure most doctors don't intentionally abuse that fact). It's also not surprising that the most efficient and effective healthcare in our country tends to be centralized, non-profit and pay their doctors with a salary instead of paying per service.
    Last edited by StGabe; 03-05-2012 at 05:08 PM.

  6. #6
    World's End Supernova
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    A salary approach does sound like a good idea, though you might then have a problem with gaining people in certain specialties. Perhaps the salaries could be appropriate to the specialty or something.

    I just can't believe it was allowed to get to this point. Healthcare is such an important part of life that it's truly atrocious that this continues. I sometimes wonder if part of the problem is the psychology of healthcare. People don't want to think about it until/unless they are using it. That makes it a difficult political issue. We all have to deal with it at some point, but we all want to delay that point (well, most of us anyway). There is a similar difficulty in dealing with end of life issues/decisions. People hate to think about such things.

  7. #7
    New Romantic
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    Did you know that 1/3 of Japanese men have cataracts?

  8. #8
    New Romantic
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    The rest have Toyotas.

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    Social Worker ineffablebob's Avatar
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    If you let the free market drive a system, then you're going to naturally end up with a system that maximizes profit to those with the most control over it. The entities with the most control in our health care system are the insurers, since they control the purse strings of the providers, and most people buying insurance have little if any choice of insurer. Thus, the free market drives us to a system that maximizes insurer profits.

    This is why I'm a big fan of government intervention in health care. I'm not sure it's even possible to have a free-market system where the control lies with the patient, but I'm dead certain that providing such a system will require government to step in. Most likely it's simpler and more efficient to simply turn the whole thing over to the government, rather that trying to set up the right rules to make the free-market system work. Most of the developed world has figured this out.

  10. #10
    New Romantic
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    Quote Originally Posted by ineffablebob View Post
    If you let the free market drive a system, then you're going to naturally end up with a system that maximizes profit to those with the most control over it. The entities with the most control in our health care system are the insurers, since they control the purse strings of the providers, and most people buying insurance have little if any choice of insurer. Thus, the free market drives us to a system that maximizes insurer profits.

    This is why I'm a big fan of government intervention in health care. I'm not sure it's even possible to have a free-market system where the control lies with the patient, but I'm dead certain that providing such a system will require government to step in. Most likely it's simpler and more efficient to simply turn the whole thing over to the government, rather that trying to set up the right rules to make the free-market system work. Most of the developed world has figured this out.
    The argument being made here is that it's not only insurance but also the way we structure payment to doctors. Doctors make most of the decisions about amount of treatment and testing that patients will undergo and most doctors have a profit motive for prescribing more rather than less. This is in spite of the fact that, beyond a certain point, more treatment/testing actually correlates with worse outcomes.

    I sometimes wonder if part of the problem is the psychology of healthcare.
    I think it is. Part of it IMO is that a serious hurdle with healthcare is one's feeling of lack of control over a situation. Throwing more treatment/testing at a problem makes us feel like we have more control even if it doesn't actually help us get to a better outcome. So you have patients who want more control over their medical issues going to doctors who will make money if they prescribe more treatment and inefficient treatment is a natural consequence.

    I think this influences not only our day-to-day decisions but also informs a lot of misguided attitudes about alternative healthcare systems. I frequently hold up KP as a good example of effective healthcare but a lot of people hate the idea of an HMO because it means less person control over their medical problems. It turns out that they're getting worse outcomes with their PPO's but the PPO makes them feel better and so they don't care. It's those same attitudes, only more pronounced, that come up once you start talking about something like a single payer system. My feeling (but I have no data to support this) is that the average European is less insecure about these issues and more willing to trust a third party to make decisions about their health and that partially explains the better health/healthcare of Europe.
    Last edited by StGabe; 03-07-2012 at 02:01 PM.

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