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Why Are U.S. Health Costs so High?

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Why Are U.S. Health Costs so High?

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Prices for specific healthcare procedures are often dramatically higher in the United States than in other parts of the world--among the reasons for the great overall cost disparity in delivering care, reports The Washington Post. Before you say that its because of higher quality in the U.S., that's not really the case.

According to data from the International Federation of Health Plans, reported by the Washington Post, the United States pays more for 22 out of 23 medical devices and services than other developed countries. A U.S. hospital stay costs an average of $15,734 versus $1,825 in Spain and $5,004 in Germany, according to data from the National Journal notes.

"Other countries negotiate very aggressively with the providers and set rates that are much lower than we do," healthcare economist Gerard Anderson told the Post. If correct, this provides the evidence needed to dramatically re-align provider reimbursement as continues have risend dramatically over the last 15-20 years. Only recently due to the recession have health costs abated even marginally.

Those lesser cost increases showed that U.S. consumers had utilized less healthcare during the economic recession. Therefore, the costs were less not becasuse actual health care services saw reduced costs, but instead because people in hard economic times seek less care.

European observers noted that much of the U.S. healthcare system is profit-based, and that margins for pharmaceuticals and medical devices are bigger than in the nation's financial services sector. Much of Europe operates on a non-profit or publicly funded basis which inherently keep costs down according to this report.

"There's a lot of low-hanging fruit we can deal with before we get into regulating people's prices." Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University, told the Post. "Maybe, after we've cut waste for 10 years, we'll be ready to have a discussion over prices."

Analysis and Solutions

Do we have time to wait? My answer is an unequivocal no. We've talked about the cost problem since the early 1990's but have done very little to attack it. While attacking fraud, waste, and abuse are vitally important, not to mention tort reform, the real savings I believe will be in expanding lean processes across healthcare and implementing payment reform based on actual positive and definable health outcomes.

Lean Process Particulars

The present payment system is seriously flawed. Providers are rewarded for over utilization by being paid on a "piecework" formula. The more procedures physicians perform, the more they get paid. There is little consideration for quality of the product delivered or for the overall health outcomes. Probably the most glaring issue is the latter. In 2006, the U.S. ranked 31st in life expectancy and 36th in infant mortality when compared to other countries in the world. "If the U.S. had a payment system that rewarded health outcomes the delivery of care would radically shift to more emphasis on prevention and less on sickness care. There would be intense efforts to prevent hospitalizations as well as focus on educating patients about health risk and self-care", according to John Toussaint, CEO of the Center for Health Care Value.

Payment Reform Particulars

When you pay doctors for every procedure they do, there’s an incentive for unnecessary treatments. There’s a financial reward for fixing problems that better care might have prevented. And there’s no incentive for doctors to prevent complications.

On the other hand, few people want to go back to capitation — paying a single, annual fee for all of a patient’s care. That’s been criticized for leading to undertreatment.

So a middle road path to many involves paying a single, bundled fee for an “episode of care” such as a hip replacement or a few months of treatment for cancer or a chronic disease. Minnesota has made progress in this realm. A health-reform law that the state passed in 2008 created “baskets of care” for several conditions, including asthma and diabetes. The basic idea was for hospitals and doctors to define and price a package of care, so that patients and payers can see what they’re getting and comparison shop between providers.

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