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MY TWO CENTS ON THE COST OF U.S. MEDICAL CARE 

This essay asks more questions than it answers, and prods its readers to ask themselves questions.  If it seems to be naïve, it probably represents widespread naïvete.  If I've missed some points, such as the cutting edge in some medical research areas that can lead to higher quality and lower costs, please let me know.  But most of all, I hope this article will motivate people to make US medical care costs a living consumer issue rather than something left to the those working in the field to straighten out by themselves.

One note that I hear sounded over and over again, from people in every economic situation, is “How can I get someone else to pay for my medical care?”   One thought I never hear expressed, on the other hand, is “How much should my medical care cost?” or, even more daring, “How much is my medical care (or what would be considered by most to be basic medical care) worth?”  One question most people never dare to ask their medical care providers is “What services can I expect to get at this visit and how much will each cost?”   Why do we always hear about the cost of medical care but never its price?

Talking Dollars and Cents

What is proper medical care worth?   Some people would argue that it’s priceless.   But how much is it right to charge people?   Due to the wonders of economy of scale, some old, health-preserving drugs are quite affordable.  On the other hand, is it right for gatekeepers to insist on several hundred dollars worth of visits and routine blood tests every year or six months to allow patients access to these drugs when they treat quite successfully stable, incurable chronic conditions? What is a reasonable price for a drug marketed for preventive purposes to otherwise healthy people with certain "risk factors" if they feel sicker taking it?   We all must be familiar by now with the issues raised by the expense of cancer chemotherapy and coronary bypass operations, which don’t lengthen life much but may provide some relief and/or buy some crucial time.   One telling quality measure is comparative:  many other countries with greater longevity and lower infant mortality rates have cheaper medical care per capita (1).

More medical insurance coverage doesn’t seem to be the answer.   The original idea of insurance was to have everyone pay in a little so that a few very unlucky people running into unpredictable problems would be spared financial ruin by being allowed to take out a lot.   Unfortunately, medical care in America cost about $7600 per capita in 2007 (2), and patterns of individual financial need (largely based on age and sex) are very predictable.   That makes it tough for insurance plans to cut our expenses down to something that would be affordable for everyone.   Of course, some of that expense is in medical and malpractice insurance premiums, and they need to be more expensive than actual treatment (or payouts in malpractice suits) for insurance companies to stay in business.   Having the government cover persistently high expenses in a single-payer system would have to mean much higher taxes for many people, especially those used to having almost complete employer-based medical insurance coverage.

What Happened to the Free Market in Medical Care?

We are used to thinking about medical problems and medical care as personal issues, but they’re also basic business issues.   One thing that has historically made America a great country is its free market system and its informed consumers.  We do comparative shopping.  We trade opinions.   We’ve put together non-profit consumer groups that represent us.  We’ve even gotten our government to go to bat for us in our fight for quality products and services at reasonable prices – to a large extent, anyway.   We can often get these organizations to work harder by calling problems in this area to their attention, especially if we document them properly.  Sometimes we put our social awareness and personal ideals first and boycott businesses for reasons unrelated to the way they meet our personal needs.  But sometimes we develop blind spots and wake up one day to discover that we have lost control as consumers; the medical care industry is perhaps the most extreme example.

Under normal conditions, we rely on market forces to set prices: there is competition, and those who offer the best tradeoff between quality and price make the most money, although there is always the danger of an eventual monopoly.   But the professions have had traditional protections against this.   In fact, services in general present more challenges to the consumer than goods do, not the least because of lower quality expectations.  This is especially important because physicians have been given great legal authority over us:  the government does not allow us to obtain many kinds of medication or medical devices without their cooperation.   And now the number of competing medical care provider organizations is dropping drastically: even in a large city, a handful of medical centers which tightly control physician behavior may dominate business, bringing up prices and lowering responsiveness to consumer needs.

This is not to say that our current system favors medical care providers in every way.  It's probably safe to say that there is a general consensus that relying entirely on litigation to assure patients’ rights isn’t working.  What about a system that measures the improvement in quality of life that patients experience as the result of their treatment?   It seems common sense to have a system where prospective patients can get some idea of what different doctors and hospitals are like and how much their services cost, and make their choices on that basis.  It’s sometimes hard to get a handle on the basic standards that medical care provider professions set for their members and how well they meet them, but wouldn’t we like to have that information available?  Isn’t that what a free market really about?

What about Medical Equipment Costs? 

Physicians, hospitals, and the pharmaceutical industry has gotten a lot of scrutiny in recent years, but not much is heard about the stubbornly high cost of medical devices, imaging equipment and procedures.  Economy of scale, that great reducer of technology costs, has unusually little influence here.  I used to joke not too long ago that had the computer industry progressed the way these medical instruments did, 1) computers would still be huge, 2) we would have to wait in line to use them, 3) we would be billed for the rationed time allowed, 4) we would submit paperwork to a large staff that would translate it into code over hours or days and 5) each program run would cost at least several hundred dollars.  Actually, it was almost that bad at the beginning of my programming career a few decades ago.   But over that length of time, we have continued to use the same basic products and processes to do the day-to-day work of medicine.  We still get the same blood and urine tests (although prohibitively expensive DNA analyses have entered the picture), the same type of clunky X-rays, the same EKGs, the same primitive-looking ultrasounds the screens of which look like 60s-era malfunctioning TV sets; even MRIs have been around without change for at least 25 years.  Yes, we added some methods like CT scans but none of these are cheap.  In sum, we are stuck with a bunch of first-generation inventions (and the necessarily expensive, highly trained technicians and radiologists needed to operate them and interpret their output) that pump up the GDP and the stock market nicely each year but don’t improve our standard of living

One thing that keeps the total costs of patient use of such hospital equipment low is that physicians' reluctance to stick patients with an unaffordable bill.  But the fewer times a piece of equipment is used, the higher the price per usage has to be to pay for the initial investment in the equipment.  So everyone loses!

What happens when a second-generation medical device is introduced?  The reaction from some influential segments of society can be surprisingly hostile.  Three writers associated with the Center for Public Integrity  attacked the digital mammogram as a form of "political pressure" to force Medicare to pay more for mammograms (4).  How much is this extra cost?  They estimate it to be $350,000,000 over 2003-2008, or less than 20 cents per year per American citizen.  Suppose this new technology, which uses the same image-processing principles that photographers use to improve defective photos with software, reduces the overall cost of breast cancer treatment with an increase in quality?  Yet these authors claim that two studies (one unnamed, the other a 2008 paper in Annals of Internal Medicine) prove that digital mammography is "no better than film among women 65 or older with fatty breasts" (although presumably other types of women did benefit, including some qualifying for Medicare) and that the U.S. Preventive Services Task Force "found there is insufficient evidence to assess the benefits or harms of digital mammography, regardless of a woman's age."  Does the lack of "sufficient evidence" mean the same as the presence of sufficient condemning evidence?  If these two studies are the only ones done on this new technology, a technology that has perhaps been around less time than it takes to determine for certain the outcome of a case of breast cancer, is this enough information?  But the bottom line, the authors conclude, is this: digital mammography compared with its film counterpart "does not save any more lives per dollar spent."  This of course begs these questions: does it save more lives, and if it does, is this extra tiny diagnostic expense such a hardship?

The tide is turning a little.  We have more home tests, such as those for blood sugar levels and pregnancy.  But there do seem to be some breakthroughs on the horizon, such as breath tests, perhaps in lieu of blood and urine tests.  But this development has been coming remarkably slowly: as far back as 1971, Linus Pauling measured more than 200 chemicals in exhaled human breath, and the Breathalyzer was invented in 1953 (3).  In some other areas, steady product change has not been accompanied by affordable cost:  although hearing aids have become smaller and more inconspicuous over time, they now cost from $1000 to $4000, probably largely dependent on effectiveness (5).

Building Sprees: A Big New Medical Expense

Lately, medical centers having been building many new specialized hospitals, e.g., for women or children, cancer treatment or expensive imaging, and the cost is sharply increasing: According to one analyst, "Helped by low interest rates, hospitals have splurged on new projects and spent heavily on the latest technology," yet inflation has been driving up construction costs (measured by cost per square foot) by 20% annually (6).  Of course, as previously noted, technology costs are not coming down.  An increasing number of medical centers pass on the cost to patients by charging them an extra fee, but the amount is not revealed to the patient until after the visit.  Patients sometimes ask, "Why am I being charged an emergency room fee for an outpatient visit?" 

Why Our (For-Profit) Medical Insurance System Does More Harm than Good

For-profit medical Insurance doesn't really make sense in terms of market forces.  Let's consider, in contrast, the grocery store business.   There are lots of different kinds of food products and brand variation among them; every store seems to handle produce differently.  You can choose between a full-service or self-service checkout.  You can use a big cart, a little one, or a basket, and you don't have to commit yourself to one of these choices each time.  You can read nutrition information and ingredients on canned, bottled or bagged products.  Grocery stores work hard to figure out popularity of foods not just across customers, but for each individual, and motivate these customers to help them do this with reward discounts.   You can walk in, look around, and leave if you can't find anything you want.  But you'll keep coming to one because you need food continually.  This isn't even everything they do!   And many of these stores are profitable in spite of their apparent generosity.  No question about: market forces make the grocery store business in general a thriving one.

Can you picture a for-profit medical insurance company that offers that type of service?   It's really hard to see anything analogous to the grocery store business.  And why is this?   There's an actual exchange at a grocery store.  It gives you food; you give it money.  On the other hand, you hope to get money from the medical insurance company (unless you're that rare bird who never sees the doctor) while it aims to get money from you.   That's what you'd call a "conflict of interest" if that expression hadn't acquired a specifically legal connotation.  Also, doesn't it seem odd that customers are competing for company's service, rather than the companies competing for customers?

Anyway, that's what causes the following problems, none of which should be unfamiliar:  1) People with good medical insurance don't care about cost because prices are invisible to them, and may wind up letting themselves be overtreated, while those with minimal or no insurance get cheap drugs and short, cursory visits.  2) Medical insurance profits by making premiums big and payments small.  3) Medical insurance administrative overhead is very expensive, since it involves much analysis and changing of policies, all to maximize the money they get and minimize the money they pay.  4) Filing of insurance claims by physician's office employees is expensive.  5) Those who need medical care the most are the least likely to get it, since one needs to be in good physical health to qualify.  In sum, medical insurance is a merit system as currently practiced in the US, with healthy people and employees of large organizations being considered most meritorious.  But incentives alone don't produce health or employment with the "right" employer, and when untreated infectious disease and disability spread among those considered least "deserving" of medical care, the rest of us can suffer as a result.

What About the Very Sick and the Poor?

There will always be some people who won't be able to pay their bills because of the intrinsic nature of capitalism: some people will lose in the competition.   Others will have very serious, unpredictable medical problems which are generally fixable in the long-term by doctors with special skills, but the labor costs are inevitably extremely high: consider victims of some major accidents or violent attacks, babies born with some kinds of malformed hearts, blood poisoning, mysterious hemorrhages to name a few.  These people need help from others, but the payback is substantial for both the individual and society.  This is the classic idea of the safety net.  It seems both rational and compassionate to protect these people from financial ruin; perhaps the government is the most economical source of help in these special cases.

A grayer area is that represented by conventional, expensive but typically ineffective medical treatment or that that works only briefly.  When is treatment for advanced cancer, for instance, little better than gambling?  How many coronary bypass operations should an individual be allotted?   How many poor children go without immunizations or eyeglasses or routine treatment for infections to pay for one of these operations?   How many are poor because a parent is too sick to work but can't afford the necessary diagnostic work or treatment (or is deemed to be unable to pay and unable to mount a legal battle by a doctor who cuts corners?)  We assume it doesn't work that way, but maybe it does.

Those other causes of inequality of medical treatment you probably haven't thought of

Even if you are a compliant patient and responsible in paying your medical bills, you still might get worse care from your physician than someone else of similar character, thanks to the lavish information available to your physician via the new information systems and information you yourself unwittingly provide.   Malpractice lawsuits, a subset of personal injury suits, are always on physician's minds, but now that they can assess your net worth, they can come up with a pretty good estimate of how much they might suffer from making mistakes in your diagnoses and treatments.  If you're older and especially if you're retired or disabled, you're going to be able to collect less money than a young person in a lucrative field.  (7) If your spouse shows little or no interest in your medical problems, that may indicate little potential for a civil trial full of passionate, persuasive testimony to your physician.  But I should warn physicians not to be overconfident in these cases: the spouse may find the potentially lucrative wrongful death and its accompanying award in court the preferred outcome.

Where Do We Go from Here?

We need to start thinking like consumers when it comes to medical care.   We need to define quality comprehensively and in objective detail.  We need to think of how much certain services are worth to us and figure out how much they should cost in terms of skill and effort involved.  We need to become better informed about professional standards.  But we also have to demand innovation in products and processes.   We can only go so far by demanding that those who serve us work harder for less money.  Real national wealth is largely a function of technological innovation and economy of scale, and medical care is ripe for a revolution in that department.

So where are our major scientific and engineering brains directing their efforts these days?   Chemists are developing new drugs and new tests (mainly blood tests) to perform old purposes.  Physicists are refining complicated, expensive imaging equipment.   Biologists, mainly pharmacologists, are testing candidate drugs to determine their safety and appropriate doses.  There is a lot of research aimed at developing expensive new therapies, e.g., growing organs and finding applications for stem cells in desperately ill people: again, we are looking at big price tags.  Maybe this is why we're not seeing economy-of-scale leadership from private industry.   These days, the innovative ideas seem to be coming from places like the US Environmental Protection Agency and the US National Institute for Occupational Safety and Health (3).

I hope that a lot of science students out there are thinking along these lines and hoping to work on breakthrough inventions that will increase our national medical wealth.

 References

1.  Bureau of Labor Education, U. of Maine (2001) The US Healthcare System: The best in the world or just the most expensive?    

2. National Coalition on Healthcare, "Health Insurance Costs"  

3.  Ehrenberg, R."Every breath you take tells of all your aches," Science News 174, 5(2008).

4.  Eaton, J., E. Lucas, & D. Donald (2011) "The mammogram hustle."  Retrieved March 6, 2011 from http://www.newsweek.com/2011/01/30/the-mammogram-hustle.html

5.  Holder, D., “Hearing aids shrink as they get more powerful,” p. 5D, The News & Observer, July 10, 2008

6.  Moore, R. (2011), Hospitals struggle with soaring building costs.  Retrieved March 6, 2011 from http://www.bizjournals.com/birmingham/stories/2006/08/28/focus3.html?page=1&b=1156737600^1336841  

7. Perlmutter and Schuelke (2011) "What is the typical personal injury settlement when someone gets hurt?"  http://www.civtrial.com/auto/what-is-the-typical-personal-injury-settlement-when-someone-gets-hurt/

Copyright © 2008-2011 by Dorothy E. Pugh.  All rights reserved. 

 

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