Decoding your Medical Bills….
A reader recently send me this graphic on the costs of healthcare, which is interesting in many ways.
Created by: Medical Billing and Coding Certification
Some of this diagram I agree with, and some I do not, or at least what is implied by the information contained therein. Overall, the diagram is correct – American’s can’t afford healthcare. At least not the kind we try to provide. However, I don’t feel that the diagram really addresses why Americans can’t afford healthcare in an accurate way.
The diagram starts with a comparison of health care costs, showing what we know, which is that we spend more on health care per capita than any other nation.
The diagram goes on to refute ideas that the high cost of healthcare are because of demographic issues – obesity, smoking, etc.. I completely agree.
Finally, we learn why healthcare costs are so high… and here is where I think the diagram gives only part of the story.
Hospitals are overcharging….. Well, hospitals in most cases are not terribly profitable organizations. They charge a lot, but their costs are enormous. Its true that American hospitals charge more than hospitals in other countries. They are also under a level of adminstrative pressure not felt in other countries. We have a healthcare system that does not provide care for the uninsured, which shifts the costs onto those who do have insurance, and creates obscene charges for those who had no or little insurance, yet have enough money to potentially be billed anyway. The diagram is correct that itemized bills from hospitals can list ridiculous charges for seemingly tiny items, but in truth the hospital is just finding a way to bill for the tremendous number of costs that they cannot recoup, such as staff, insurance, and free care.
Hospitals are wasteful…… I find this a little off. Hospitals spend a ridiculous amount of money on administration, but its hard to call compliance with government and legal regulation a wasteful expense. I’d rather say that the regulations that our country imposes on our healthcare system demands and enormous amount of resources, which in the end provides little to no benefit for patients. Our country chooses to tightly medicine for the benefit of patients, and to meet these regulations hospitals must spend a great deal of money.
For example, if one were to review a hospital chart from a patient hospitalized for 7 days, you would find over 1000 pieces of paper in that chart. If one wanted to know what happened medically, which is putatively the reason the chart exists, you would only need about 20 of those pieces of paper. The remaining 980 are composed of hyperdetailed records of nursing activities, medication administration, and protocol adherence. These records are there for two reasons – 1) to document that the hospital met all regulations regarding the care of the patient and 2) to document the care of the patient in an infinitely detailed way in case the hospital and/or physician is sued over the care of the patient, with questionable efficacy in that goal.
So are hospitals wasteful? Yes, but only in that they must spend a tremendous amount of money to meet ridiculous government edicts like HIPPA, and to pre-document every potential future court case. I’d call this a problem with government regulation and lack of a proper malpractice system more than an actual problem with hospitals.
Outpatient care costs are massive…. I don’t get this part at all. Is it better to treat a hernia in the inpatient setting? No. Our country has a strong system for outpatient surgery, which is a cost saving measure, not a cost growing one.
Doctors are overpaid…. I think you had an argument here in the 1980 when we have a fee for service system and doctors had a habit of billing tremendous amounts of money for their work. But not anymore. I can spend an entire hour of office time with a patient and get paid less than two hundred dollars from their insurer. After paying my greater than 50% overhead (partially because of ridiculous regulation), I’m getting paid less than a plumber. Furthermore, I live in the only country that does not heavily if not completely subsidize medical education. Current medical students are coming out of medical school with three hundred thousand dollars or more in debt. On pure economic theory, one should not spend more for an education than one can expect to make in a year practicing in that career. Put that way, we’re actually massively underpaid. The country needs more primary care physicians, but in many cases students graduate with so much debt that they are nearly forced into a higher paying specialty job. Either that, or train for eight years post-college and the live on Top Ramen. If doctors’ educations were routinely paid for by the government through a program of public service, we would see a startlingly different distribution of medical specialties.
Insurance companies are charging too much…. Its nice to beat up on the insurers, but ultimately they base charges on what it costs to provide care for their enrollees. And that cost is enormous. Most insurers actually lose money on medical care, paying out more than they actually collect. The way they make money is through investment on the money they keep in float. That’s actually how all types of insurance works in most situations.
So now that I have argued against many of these points, I must make my case for why healthcare is actually so expensive, and here it is.
We spend too much on healthcare because we have no incentives not to.
That’s it in a nutshell.
We have a capitalist health care system, which means that each party involved ultimately has a financial stake in providing a service. Drug companies develop wonderful new drugs because they can charge a lot for them. Equipment manufacturers develop amazing new surgical technologies because they can charge a lot for them. Hospitals acquire and operate expensive MRI machines because they can profit from doing that. And patients want all of these services at an unlimited level of access because they don’t have to pay for any of it. And that’s ultimately it.
The people pushing the product make money, but the money being made doesn’t come from the people consuming it. This situation will lead to unlimited consumption, pure and simple. Its doesn’t matter what we are talking about. If gasoline were entirely free, the appropriate economic behavior would be to run your blender on the stuff. But because it isn’t, we find a more efficient way to run the blender. But not with healthcare. Despite the graphics claims of medical bankruptcies, by and large healthcare decisions in this country are made entirely independent of the costs of that care. As long as healthcare benefits people, this system will lead to infinite cost healthcare.
Politicians like to talk about rationing healthcare as if it were some kind of evil plot, when actually its exactly what we need. In order to control healthcare costs, one has to start with the acceptance that we cannot afford to spend an infinite amount of money on any quanta of medical benefit. We have to decide what we’re willing to spend, and then figure out some just way to distribute the costs and benefits to the citizens of the country. We have to find a way to control the costs of new medical developments, while still promoting its development.
Personally, I support a hybrid socialist/private model of healthcare delivery. But for any of it to work, America is going to have to stop feeling entitled to every possible treatment for every possible disease. And we’re not there right now.