Healthcare Spending to Remain High

Unnecessary care, fraud and high administrative costs are among factors.

From the LA Times

With all the squabbling about healthcare, there’s one fact on which all sides can agree: American medicine costs too much, especially when you consider what we’re getting for our money. And as experts look toward the future, they don’t see costs dropping dramatically any time soon.

“We spend more on healthcare than any other country in the world, and the quality is uneven at best and dangerous at worst,” said Anne Weiss, director of the Quality/Equality Health Care team with the Robert Wood Johnson Foundation in Princeton, N.J.

Americans spent $2.6 trillion on medical care in 2010, or about $8,233 per person. That’s more than any other country spends to keep its citizens healthy, dwarfing the per-person price tag of even the second-biggest spender on health, Switzerland, by nearly 60%.

The price of healthcare in the U.S. is generally expected to remain high. According to the Centers for Medicare and Medicaid Services, spending will climb to $4.6 trillion by 2020. If that happens, health spending will consume nearly 20% of our gross domestic product.

Curbing the rise in healthcare costs depends on our ability to gain control of the many forces causing them to climb today.

“Probably the most important thing in understanding why we keep spending more and more money on healthcare is technology and the way patients get treated,” said Sean Nicholson, a healthcare economist at Cornell University in Ithaca, N.Y. “Generally, the newer technologies tend to be more expensive than the things they replace.”

Technology has helped other industries lower costs by eliminating waste and increasing efficiencies, but it’s done the opposite in healthcare, said Michael Thompson, a principal in Price- waterhouseCoopers’ health and welfare practice in New York.

Although engineers keep building more powerful CT and MRI scanners, for example, there’s no evidence that more scans are helping to prevent disease.

Still, we’re using an awful lot of them. A study published in June in the Journal of the American Medical Assn. found that from 1996 to 2010, the number of ultrasounds conducted in the U.S. doubled, CT scans tripled and MRI scans nearly quadrupled.

Unnecessary medical care

We also pay for a lot of care that has a slim chance of actually working. The Institute of Medicine estimates that unnecessary medical care costs this country $210 billion each year.

“Right now, broad chemotherapy only works on 3% to 5% of the patients who get it,” said David Gollaher, president and chief executive of the California Healthcare Institute in San Diego. “That means that 95% of the people who are getting chemo are getting no benefit from it, but they are getting the toxicity, plus the expense.”

But that’s just part of the waste built into the system. The Institute of Medicine also estimates that the country loses $75 billion to fraud and $190 billion to excessive administrative costs every year. And missed opportunities for delivering preventive healthcare that could help reduce serious illness account for $55 billion in waste.

The way we pay providers is another major contributor to the high cost of American healthcare, both now and in the future. The more procedures doctors and hospitals provide, the more they get paid. It’s a recipe for runaway costs, Thompson said.

“As long as the incentives in the system reward paying for volume rather than value, we will constantly be fighting an uphill battle,” he said.

And healthcare wouldn’t be so expensive if we took better care of ourselves, said Helen Darling, president of the National Business Group on Health, a Washington, D.C., nonprofit that represents large employers on health policy issues.

“People do a lot of things themselves that they shouldn’t do that drive up costs,” she said. “The largest one historically has been smoking, but that’s now unfortunately been equaled by obesity.”

A spending slowdown

Current trends offer at least a glimmer of hope for the future. In 2009 and 2010, spending grew by 3.8% and 3.9% respectively, the smallest increases in more than 50 years, according to the Centers for Medicare and Medicaid Services.

The recession is one reason for the slowdown — people are less likely to seek healthcare services in a down economy. But there also seem to be more fundamental forces at work.

Costs have been slowing for the last decade, said Karen Davis, president of the Commonwealth Fund, a private healthcare foundation in New York City. Part of the credit goes to the fact that health information technology is helping doctors make better clinical decisions. Costs are also falling thanks to widespread efforts to reduce medical errors, Davis said.

Some provisions of the Patient Protection and Affordable Care Act are already getting credit for controlling costs. Among other things, the law has frozen payments to Medicare Advantage plans, closed the Medicare Part D “doughnut hole” and reduced payment increases for hospitals and other providers.