Broken Record – Healthcare Costs are High
My esteemed colleague Pierce McNally came into my office the other day to share a new article on the cost of healthcare. It seems we uncover them almost daily. As he left he said, “at the risk of sounding like a broken record, affordability of healthcare is eating away at this nation.” And with that he was gone.
Pierce may be a little dramatic at times, but he is not wrong. I could fill this blog page with charts and graphs and statistics about healthcare spending but really there are just a few stats that capture what’s really going on:
- Healthcare amounts to at least $2.5 trillion out of a $14 trillion a year U.S. economy.
- Health spending constitutes 18% of the GDP; up from 14% in the year 2000 and 5% in 1960.
- The U.S. spends twice as much on healthcare per capita, and 50 percent more as a share of GDP as other industrialized nations.
According to KaiserEDU, there are three main drivers in healthcare spending.
- Technology and prescription drugs
- Rise in chronic diseases
- Administrative costs
The first two are obvious and are the two cost drivers that seem to get the most attention. According to The Institute of Medicine, however, at least 30% of every dollar spent is going to waste through unnecessary administrative overhead as well as other factors. Viewed as 30% of the $2.5 trillion spent on healthcare really gives proper perspective on just how wasteful our system is – almost $1 trillion worth!
Our healthcare system in this country, as it is currently structured, has almost no option other than to be horribly inefficient. It is designed with so many unnecessary layers and intermediaries, so much paper that must be manually shuffled. It seems to be a system that values complexity, inconsistent rules, delays, and above all, chaos. Last month we covered these inefficiencies in detail. (Read more)
Is the Affordable Care Act the answer to these rising costs? After all, there’s much hullabaloo about the cost containment measures in the new law. Possibly, but only partially. The ACA will increase transparency in costs, improve competition and strive to reduce inefficiencies through technology. Health insurance exchanges in each state will facilitate a competitive marketplace. A very recent Kaiser Family Foundation report indicates that Americans are saving billions already under the ACA. (Read more) It’s all great news.
There’s more though. The reality is that we must do a better job of managing expectations and better align those expectations with the costs associated with providing the best, latest, greatest treatments and drugs. We have been trained to believe that the newest is the best, when in fact it might just be the most expensive.
The truth is that many times the latest wonder drug may not deliver that much of an improvement over existing drugs or treatments. If a new drug costs 300% more than the existing drugs does and only delivers a 25% better treatment outcome, should we always default as a system to wanting and paying for the latest and greatest? The question for our policymakers is whether this huge amount of money – essentially paid for by healthcare consumers in the form of high prices for drugs and procedures – would be better spent on existing treatment for various diseases? Or should there be a middle ground?
Mindsets are hard to change and the change cannot be legislated. It’s taken the U.S. years to get to where we are now and there will be no great transformation over night. It has to start somewhere and it’s our hope that our policymakers will recognize some of the other, not so obvious, cost drivers in our current healthcare system. It would be my hope and I’m sure Pierce’s as well, that we aren’t having this exact same conversation five years from now. Otherwise we will have long since surpassed being a broken record and moved on to just being talking heads.