The High Cost of Staying Well

The U.S. gets poor bang for its medical buck.

The EarlySense system makes it easier for caregivers to monitor patients remotely.
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Exhale a sigh of relief at the climax of the reckless shutdown of our government. Shame on the United States. Now take another breath: Entitlement programs are on the verge of breaking the government bank. How much of the federal budget do you think they consume? Thirty percent? Forty? No, they're more than half of the federal budget. Major health care programs take the biggest bite. In 1992, they constituted 14 percent of all of our domestic spending; in 2012 they took 22 percent. In 2022, they are projected to represent 32 percent of all domestic spending, according to the Bipartisan Policy Center. Quite simply, this is unsustainable.

Americans are bewildered about why health care bills are so high. Certain kinds of cancer treatments run into the hundreds of thousands of dollars; an emergency room visit can exceed the cost of an automobile; dosages of the wonder drugs we're developing will run into thousands of dollars. In almost every industry, advances in technology drive cost down. Not so in medicine. Just think, we spend 20, 30, even 100 times as much on medical products and devices as what they would cost at Walmart.

This year alone, we are likely to spend over $2.8 trillion on health care. We spend more than twice as much on a per capita basis as other high-income countries such as England and France. Indeed, as an article in the Financial Times recently noted, the U.S. spends over 18 percent of its gross domestic product on health, compared to 12 percent by France, which comes next. Our system costs 100 percent more per capita than in Canada and 150 percent more than in the U.K. In exchange, you might expect to see longer life expectancy and lower infant mortality. Just the opposite. Fewer Americans live above the age of 70 and more American babies die at birth than in these other countries.

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Why do Americans get such a lousy bargain? For a start, our hospitals seem to charge extraordinary rates, as Steven Brill pointed out in his remarkable analysis for Time last spring. They have "chargemasters," the list price of hospital costs. Certain patients, primarily those who have private health insurance, get discounts on the list price. How come? Their insurance companies have leverage in negotiating with hospitals. They identify the hospital in their network of providers. Insured patients can get discounts that are 30 to 50 percent above low Medicare rates.

On the other hand, the tens of millions of patients who have no health insurance have to pay full price. That is what bolsters the dramatic profits at nonprofit hospitals. Brill pointed out that the country's roughly 3,000 nonprofit hospitals, which are exempt from income taxes, average operating profits that are higher than those at the 1,000 for-profit hospitals. They argue that wealthy uninsured people from overseas pay the higher rates, which enables them to serve the poor. It's a dubious rationale.

Then there are bizarre drivers of costs. One is the prevalence of high-tech tests. Brill cited research showing that "the use of CT scans in America's emergency rooms has more than quadrupled in recent decades" in the name of safer and better care. And that's true up to a point. But many instances have been documented where patients have gone on to suffer needless invasive techniques or exposure to radiation, for instance. In-house laboratories are another major source of hospital profits. Patients are sent for testing so hospitals can charge the captive consumer more.

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There's another impetus for testing: medical malpractice suits. Doctors are tempted to over-test so as not to be accused in malpractice litigation of omitting an allegedly important one. Hospitals and doctors often pay settlements to avoid being sued because it can be so difficult to successfully claim a "safe harbor defense," in which providers can make a case that their care was reasonable based on what was known.