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Why Does Health Care Cost So Much?

July/August 2008 |
The most significant reason Americans are drowning in health care debt may shock you: Americans are getting far too much unnecessary care.
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Sandy and Charlie Murphy never imagined that paying for health care could put everything they owned at risk.

In 2002 the Murphys and their two sons were living a comfortable middle-class life in Scottsdale, Arizona, where Charlie, now 59, worked as a manager for Charles Schwab and where Sandy, now 60, was a part-time child advocate for the state. Then, in rapid succession, Charlie got laid off; Sandy quit to care for a son with health problems; Charlie discovered that his new employer set a $100,000 cap on lifetime medical-claim payments, necessitating a secondary policy; and the Murphys found themselves struggling to pay for health care. In 2006 their medical costs came to $25,000, most of it to cover insurance premiums--more than their annual mortgage payments.

Why does basic health care cost so much? That’s a question you won’t hear much in the news, despite the fact that the topic of health care is front and center in this year’s presidential race. The issue of cost has understandably taken a back seat to our concerns about the 47 million Americans who have no health insurance. Millions more, like the Murphys, are underinsured--covered so thinly that a single catastrophic illness could wipe them out financially. Even Americans who are fully insured by an employer or Medicare are paying more out of pocket, largely because medical costs are skyrocketing. According to the Congressional Budget Office, in the past 30 years health care spending has risen 2 percent faster annually than the rest of the economy. In 2007 the total U.S. health care bill came to $2.3 trillion--more than we spent last year on food.

What do we get for all that money? Politicians are constantly telling us we have the best health care in the world, but that’s simply not the case. By every conceivable measure, the health of Americans lags behind the health of citizens in other developed countries. Our life expectancy is shorter than that of citizens in Canada, Japan, and all but one Western European country. We rank 43rd in the world in infant-mortality rates, behind Cuba, the Czech Republic, and the United Kingdom. We are no less disabled by disease than citizens of most developed nations, and our medical care is, with few exceptions, no better at helping us survive specific diseases. For instance, the mortality rate from prostate cancer in the United Kingdom is virtually the same as it is in the United States, despite the fact that the disease is treated far less aggressively in the U.K.

Why, then, is our health care so astronomically expensive? Let’s look at some of the conventional beliefs.

• We don’t ration care Unlike citizens in the U.K. and Canada, we don’t have to wait weeks for elective surgery or an MRI. But when researchers from the Johns Hopkins Bloomberg School of Public Health looked at the 15 procedures and tests that account for the majority of waiting lists in other countries, they found that they amounted to just 3 percent of costs in the United States, not nearly enough to explain the huge difference in spending.

• Malpractice is the culprit Doctors say their worries about lawsuits drive them to order costly tests and procedures that their patients do not actually need. Malpractice reform will help save money, but not as much as some people believe. The Congressional Budget Office estimates that while tort reforms could lower malpractice-insurance premiums for physicians by as much as 25 to 30 percent, the overall savings to our health care system would be a minuscule one-half percent.

• Inefficient insurance companies are to blame We devote nearly a third of our health care dollars to administrative costs—paper pushing, in effect. (Canada’s single-payer system, by contrast, is a model of efficiency, spending only about 16 percent of its health care dollars on administrative overhead.) If we could be as efficient as Canada, we could save $360 billion each year. That’s a lot of money, but it’s only about one seventh of our total health care spending.

• Consumers aren’t shopping wisely The moral-hazard argument says that because people don’t pay out of pocket, they use more-expensive health care than necessary. Moral hazard says we go to the doctor when we don’t really need to; we insist on getting a CT scan for a twisted ankle when ice and an Ace bandage will do. Experts will tell you that as many as one in four doctor’s-office visits are “social calls,” and nearly half of emergency room visits are for care that could have been handled in a nonemergency setting. But even this argument doesn’t explain why health care costs so much. That’s because 20 percent of patients account for 80 percent of spending, and that 20 percent is made up mostly of the chronically ill. These patients are often sick with multiple conditions—such as diabetes, heart disease, and high blood pressure—and more than half of the money we devote to caring for them is spent when they are in the hospital. People who are sick enough to be hospitalized are generally too ill to be insisting on certain tests or procedures.

Indeed, perhaps the most significant reason Americans are drowning in health care debt may shock you: Americans are getting far too much unnecessary care. Of our total $2.3 trillion health care bill last year, a whopping $500 billion to $700 billion was spent on treatments, tests, and hospitalizations that did nothing to improve our health. Even worse, new evidence suggests that too much health care may actually be killing us. According to estimates by Elliott Fisher, M.D., a noted Dartmouth researcher, unnecessary care leads to the deaths of as many as 30,000 Medicare recipients annually.

The Geography of Health Care

For many Americans the idea that doctors are giving us care we don’t need--and that may actually be harming us--may seem hard to believe. All too often, our interactions with the health care system make us feel that far from getting too much care, we’re getting barely enough. We wait weeks for an appointment, we’re rushed through the visit in ten minutes, and when we go to fill the prescription the doctor wrote, we’re told our insurance company won’t pay for it.

Indeed, one recent study found that due to inefficiencies and the lack of clear standards, patients had just a 50-50 chance of receiving flu shots, aspirin or beta-blockers (for those who had had a heart attack), antibiotics (for those with pneumonia), and other treatments that have been shown to improve health.

At the same time, a mountain of evidence suggests we also are getting care we don’t need. To understand the reasons, it helps to take a look at studies pioneered nearly 40 years ago by John E. Wennberg, M.D., director emeritus of Dartmouth’s Institute for Health Policy and Clinical Practice. As a young researcher at the University of Vermont, Wennberg discovered that there appeared to be little connection between the availability of medical services, the care that people needed, and what they actually got. For example, in Middlebury, a small town south of Burlington, fewer than 10 percent of children under the age of 16 had their tonsils removed. In Morrisville, about a two-hour drive away, nearly 70 percent of children had the procedure. Middlebury wasn’t suffering from a shortage of doctors or hospital beds, and their children weren’t getting fewer sore throats than the children of Morrisville. It turned out that the Morrisville doctors simply believed a more-aggressive approach was best, even though there was no scientific evidence to support that belief. Once Wennberg pointed that out to the Morrisville doctors, they began doing fewer tonsillectomies.

Since then, researchers at Dartmouth and other academic institutions have continued to find wide discrepancies in how much care patients receive in different parts of the country--and the differences can be stunning. For example, if you are a Medicare recipient and you have a heart attack in a region where doctors practice less aggressive care, like Salt Lake City, your care will cost Medicare about $23,500 over the course of a year. But if you have your heart attack in a place like Los Angeles, the bill will be closer to $30,000.

The wide gulf in spending between the two cities is not because of different prices. Sure, everything costs a bit more in Los Angeles, including nurses’ salaries and the laundering of hospital linens, but not enough to account for the extra amount Medicare pays for a heart attack. The reason the same patient’s care costs more there than in Salt Lake City is that doctors and hospitals in Los Angeles tend to give their patients more tests, procedures, and surgeries, and their patients tend to spend more days in the hospital.

But here’s the important part. All that extra care in L.A. doesn’t lead to better outcomes. As it turns out, heart attack patients who receive the most care actually die at slightly higher rates than those who receive less care.

How can more health care be harmful? Just ask Susan Urquhart, 66, an Ann Arbor, Michigan, woman who underwent a hysterectomy she now says was “the worst decision I’ve ever made in my life.” For several years her gynecologist had been urging her to undergo the procedure to treat uterine fibroid tumors, benign growths that can sometimes cause heavy bleeding.

“I had heavy bleeding--I’d had it for years,” says Urquhart. “But it wasn’t interfering with my life.” Even so, her gynecologist warned her that the fibroids were growing and said that the best treatment was to remove Urquhart’s uterus and ovaries. Despite Urquhart’s misgivings about undergoing a surgery for symptoms that did not seem terribly troublesome, she finally consented.

Within weeks after the procedure, she discovered that the side effects of the surgery were far worse than the symptoms caused by her fibroids. Plunged instantly into menopause by the removal of her ovaries, Urquhart had trouble sleeping and began suffering hot flashes and drenching night sweats. Next, she began having trouble with bladder control, a common symptom among women who undergo a hysterectomy. And then her sex drive evaporated. Worst of all, Urquhart’s procedure may not have been necessary in the first place. In one recent study, a panel of gynecologists reviewed the records of 497 women who were told to have a hysterectomy. In 367 cases--70 percent--the panel found that the surgery was not needed. And recommendations, in force since the early 1990s, that gynecologists try less-invasive treatments first have had little effect on the number of surgeries being performed around the country. To this day, according to Ernst G. Bartsich, M.D., clinical associate professor of obstetrics and gynecology at Weill Cornell Medical College in Manhattan, one in three women has had a hysterectomy by age 60, and one in two by age 65.

Unnecessary hysterectomies are but one example of how overtreatment can do more harm than good. Patients undergo back surgery for pain in the absence of evidence that the surgery works. They contract lethal infections while in the hospital for elective procedures. They suffer strokes when they undergo a surgery that, ironically, is intended to prevent stroke. And each year they undergo millions of tests--MRIs, CT scans, blood tests--that do little to help doctors diagnose disease.

So Why Do Doctors Do It?

Many physicians believe that demanding patients are the reason they are delivering so much unnecessary care. Patients insist on getting a prescription for a drug they saw advertised on TV, or on getting an unnecessary and pricey imaging test, such as a CT scan. Doctors comply for fear the patient will leave them for another physician, or because explaining why a drug or a test is unnecessary takes too much time. As one pediatric specialist told me, he’d rather send a child for an unnecessary imaging scan than fight with the kid’s parents, who will only think he’s incompetent because they know their child needs a scan.

Other doctors insist that malpractice suits are the culprit when it comes to rising costs. Though malpractice-insurance premiums and payouts constitute only a tiny fraction of our national health care bill, the fear of being sued causes physicians to order unnecessary tests, send patients to specialists, and sometimes even do needless procedures.

Why? Because doctors believe patients will be less likely to go to a lawyer if they think the doctor did everything possible--even when doing so doesn’t help the patient or causes harm, as in Susan Urquhart’s case. Statistics back this up. The top reason for malpractice payouts involves the failure on the doctor’s part to diagnose a disease.

Online and in person, doctors talk openly about this defensive medicine. “We practice defensive medicine so often, every day, all the time, we aren’t even aware we are doing it,” says Robert P. Lindeman, M.D., a Natick, Massachusetts, pediatrician.

Shawn D. Newlands, M.D., a professor of otolaryngology at the University of Texas Medical Branch in Galveston, says, “You have a patient who comes in with hearing loss. It might be an acoustic neuroma, a very rare [slow-growing] tumor.” Some doctors order an MRI for every patient who walks in the door complaining of hearing loss, says Newlands. But a more rational approach is to explain to the patient that there is only a small chance of a tumor. The doctor should say, “Let’s check your hearing in six months.” But many doctors don’t do that, says Newlands, because they worry the patient will go to a physician down the street, who will find a tumor, and the patient will turn around and sue the doctor who suggested waiting. He says, “It’s cheaper for the doctor to abuse the system and order an MRI for every patient with hearing loss.”

Two other hidden forces are pushing overtreatment. One is the local supply of medical resources. In many parts of the country there are more specialists and more hospital beds than necessary, and the doctors in those regions tend to practice more-aggressive care, hospitalizing patients unnecessarily and referring their patients to other specialists, who then perform more unneeded procedures and tests. The other hidden spur toward overtreatment occurs in the way our health care system is set up. Sometimes, providers deliver unneeded care because they get paid more when they do more. Most of our caregivers are still paid through a system known as fee for service. They are reimbursed for each office visit, each day a patient spends in the hospital, and each test or surgery performed. This means that health care providers have every incentive to give patients more care, not better care.

All too often--but what’s not well-known by the public--is that many physicians don’t even know what better care is. The prestigious Institute of Medicine recently published a report that estimates that only about half of what doctors do today is backed up by valid, scientific evidence. The rest? Many procedures and tests are based on medical tradition or on unproven and potentially faulty assumptions about how the body works.

Looking for Solutions

What all of this suggests is that efforts to rein in our health care costs will have to address the huge number of unnecessary tests, surgeries, doctor visits, and days in the hospital that are all helping to drive up our national medical bill. There are no easy solutions, but let’s look at some of the critical areas where a change in practices—and attitudes—is needed.

• Health information systems Though the technology exists to put all of our medical records online, few hospitals or health care systems in the country have invested in it. In most hospitals, paper records not only waste time but also lead to duplication of effort, creating more costly errors. An estimated 20 percent of tests and radiological scans are repeated simply because they can’t be located or can’t be transmitted from one doctor to another in a timely fashion.

• Shared decision making Doctors say they practice defensive medicine in part to avoid malpractice suits. But a better solution would be reforms that encourage doctors to spend the time needed to explain to patients the tradeoffs between potential treatments. Called shared decision making, this kind of interaction could provide more personalized medicine and would also reduce unnecessary care. Evidence suggests that patients who are truly informed about the risks and benefits of a treatment or a test are more satisfied with the choices they make and often less likely to want expensive invasive procedures. One challenge: Physicians would need protection from lawsuits brought by patients who had a bad result from a less-aggressive approach.

• Evidence-based research It is essential that we gather better scientific evidence for what works in medicine, what doesn’t, and for which patients—and get the word out to doctors. Take the example of spinal fusion to treat acute back pain. We spend more than $16 billion each year on spinal fusions, even though there has never been a rigorous government-funded clinical trial showing that the surgery is superior to other methods of relieving back pain.

• New ways of paying doctors and hospitals To avoid falling into the fee-for-service trap, many of the health care systems that offer the highest quality care have their doctors on salary. Doctors at the Mayo Clinic, for example, all work on salary. This idea is not popular with specialists, the doctors who earn the highest incomes, but many primary care physicians may be willing to try it. Offering decent salaries to primary care doctors would save money by encouraging them to spend the time needed to provide high-quality, low-cost care.

What You Can Do Now

Many of the reforms needed are out of the hands of the ordinary patient. But there are a few things you can do to protect your health as well as your pocketbook. Use these strategies to avoid getting care you don’t need—and probably wouldn’t want if you understood the risks involved.

1. Find a doctor who communicates Most of us need a primary care doctor who can clearly explain what ails us and the possible ways to treat it. If you have a physician who does this, stick with him or her. If your current doctor tends to rush you or doesn’t explain things well, tell him or her you need more time.

2. Coordinate your own care Talk to your primary care doctor about making sure he or she sees copies of your medical records from all your various doctors. Somebody besides you needs to know what all your physicians are doing—including all procedures, tests, and drugs they’ve prescribed. This is especially important if you are on multiple drugs or have a chronic condition, such as diabetes or an autoimmune disorder, that requires visits to multiple specialists.

3. Get the right specialist If you or a loved one is facing a serious illness, find yourself a palliative-care doctor. Physicians trained in this specialty have a particular expertise in the control of pain. They are also trained to coordinate the care among your various doctors.

4. Find out what difference a test or procedure makes Ask your doctor what he or she expects to learn from the test and whether the results will make a difference in your treatment.

5. Weigh the benefits and risks If a physician recommends a surgical procedure, ask what will happen if you decide not to do it—or if there is a less-invasive treatment option.

No one believes that reforming our national health care system will be easy. In fact, it is likely to be painful and will take many years to implement. But as the presidential campaigns move forward, our political candidates will have to address the rising cost of medicine, and if they’re honest with us, they will also discuss the problem of unnecessary care.


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