Cost drivers of health care

Is this "per capita" or "per capita insured"?

The argument that insurance drives cost growth seems similar to the argument (which makes sense to me but I haven't seen any data on this) that availability of educational loans drives educational costs. Since incoming students see the cost of their education as both necessary and somewhat abstract, as long as they can get funding they'll pay whatever. Thus educational institutions are effectively leaving money on the table if they don't charge more.

Our system is horribly broken.

It is layered with redundant checks on spending which ultimately are extremely expensive. Then this cost is multiplied by wasteful spending done for liability reasons.

Honestly I don't know; I was deep in the weeds on this stuff two or three years ago, these days a bit less so. I believe it's per-capita though. I'm pretty sure most academic work shows rising costs as market failure, rather than just the typical supply/demand equilibrium.

http://en.wikipedia.org/wiki/Uwe_Reinhardt#cite_note-Frontline-0

24% is quoted figure on wiki from 2008 Frontline appearance, which hurts the argument further. Really though, quoting percentages without saying what they're a percentage of is bad form.

http://www.nber.org/aginghealth/2009no2/w14839.html << NBER summary

http://www.nber.org/papers/w14839 << NBER paper on the topic from 2009


Money shots from summary:

The summary is lengthy and informative, but the paper takes political reality as a starting point so most likely no talk of switching to single payer. 5$ to get it, I haven't yet because slogging through it would most likely be misery incarnate.

Here's an '08 JEP paper considering whether American health care is uniquely inefficient:

http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.22.4.27

Money shots from the conclusion (poorly formatted because I am lazy):

Next up, let's attack Uwe Reinhardt (no relation to my heroes Carmen Reinhart and Kenneth Rogoff, econ rock stars):

Hi, my name is Conflict of Interest Up In Dis Bitch, what's your name?


I could go on because there are plenty more papers to link, but if you think admin costs are still relevant at this point you are a dunderhead who can't do math gud or handle critical thinking n stuff. Feel free to check the JEP paper for a fat load of data right in your eyes, all magic'd up with graphs n econ stuff n shiz.

edit: http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2&mode=single

And I ought to link that, since it's about five more papers on the subject from the Spring 11 issue (tots forgot about it!)

It should be obvious when each doctor has their own staff, their own office, and their own equipment, and where they drive around in expensive cars and take Carribean vacations with their lawyer friends, where the drivers of health care costs are. Or when doctors "aren't taking any more clients". It's not "admin costs" per se, as in, how many man-hours are spent filing paperwork, it's how the entire for-profit system balkanizes each health care professional into a profit maximizing business, riding on the back of generous health care insurers, and increasingly leaving the under- or un-insured behind.

Huh, will you look at that.

Economist ran a story about falling medical prices in the States a few months ago. I'll hunt down the articles.

Here's a cool bit from Austin Frakt, in which he highlights a study showing that physical proximity to more expensive treatment options can drive healthcare costs.

Basically, if you happen to live close to a facility offering the proton beam treatment, that's what you get, even though it has no demonstrated advantages and is twice as expensive.

And if your coffee shop has a cappuccino maker you'll sell a lot of cappuccinos.

~~~it is a mystery~~~

I couldn't find the articles I was looking for, but I did find a blog entry on the subject that covers it perfectly:

http://www.economist.com/blogs/democracyinamerica/2012/01/health-spending

tl;dr healthcare has been headed for convergence with GDP growth for years now.

Good stuff. Thanks for taking the time.

It does seem to boggle the mind though. If you look at the number of employees involved in administration of health care:
1. Doctor's staff
2. Hospital staff
3. Insurance staff
4. Managed care organizations

The sheer number of administrative office personnel seems to be a huge drain on the industry. Which makes me wonder how are they defining "administration costs" versus how I am defining it for myself?

"I see how they are saying that what I think is not true, but I still think it's true because blareararaaeragh"

I linked a shitload of papers that all say the same thing: admin costs are not the driver. Even quoted the conclusions where they said admin costs are not the driver. If this confuses you well then maybe you should read the papers and find out why admin costs are not the driver.

I will.
I assumed you already had though and could answer my follow up question. I thought maybe the most obvious answer would be that what is technically called "administration costs" within the medical industry, and what I might consider "admin costs" might be two very different things. Do they define what does and does not fall within that category?

I have no idea, but I'm assuming they're not morons.

Machine don't pay for itself is my view on it. There's a depreciation study I remember reading that I really need to find again regarding use of MRI's when they're newly installed vs when they're paid off.

End of life care (typically the most expensive care) isn't covered in that article. You know that's gonna balloon in the coming years.

It is in the graph above about long-term decline in Medicare growth.

Atlantic - The Many Legal Barriers Standing in the Way of Health Care Reform

Health care cost comparisons:

Sweden (social, 9% GDP)
Canada ( social, 9% GDP )
Netherlands (state mandated purchase of private health insurance, 8% GDP)
Australia ( social, 6% GDP)
USA (private, 15%+ GDP)

Swedish healthcare costs or $3319 per person
Canadian healthcare costs or $3899 per person
US healthcare costs or $7291 per person

My point in bringing up the cappuccino maker was, uh, exactly that Brandon. Of course they're going to push whatever it does, they didn't buy it to sit on top and make elephant sounds.

End of care life is covered in most of the articles we linked.

Listen, I cooked up a giant meal of data and wrote you all a summary. I'm not going to pre-chew it and spit it into your mouth too. You are going to have to pull up your pants, look inside, hit ctrl + f, and search for the definition of the term yourself. Take your pick which study and give it a shot.

I realize that probably reads very harshly, but frankly I think it's important to make people do a little leg work and get used to the idea of finding things out for themselves rather than just trusting whatever I say. I could be, and often am, wrong. So are bloggers. Verify.

I completely agree. However, the two types of therapy are a lot different than when one is ordering a triple red eye over a straight coffee (in that the barista has no ethical duty and that the red eye has a lot better shot at jazzing you up than the more expensive prostate cancer therapy has of curing your cancer than the cheaper solution). Said another way: One is going to the place with the espresso machine and ordering the coffee drink or a straight coffee; a professional in the field of medicine with an ethical duty is sending someone to the more expensive therapy that apparently doesn't do any better than the cheaper therapy.

I didn't see it in that specific article, but to the broader point: the post WWII baby boom generation is getting of the age where they're going to start dying in some of the (generally) chronic ways that most older people generally die of. There's a lot of them, and (again generally) they're going to be covered by Medicare in some form. While we have been (and it looks like we'll probably continue to be) able to get per patient costs down, the sheer numbers are going to cause that trend line Jason linked to go up.

They have an ethical duty to ensure good quality of care, not cheap care. If outcomes are the same with either machine, and the payment difference is not any different for the patient, there is no ethical difference.

Besides, all those machines getting bought and used means someone somewhere is making money developing and improving them. That will likely lead to efficiency gains in the near term and innovations in the medium long.

EOL care seems like a minor issue. I realize it gobbles up the lion's share of any individual's health expenditures, but A) we're already seeing a sea change in cultural attitudes to EOL and the rise of hospice and DNR (or even euthanasia, although much rarer) as standard, with focus on QOL rather than length and B) the fraction pf the population requiring expensive EOL care on any given day or even year is not super significant, and is not expected to grow significantly. Frankly I think it's yet another in a long list of common sense things that aren't true.

How can that be true? Someone pays that cost, and it will show up in premiums, no?

If the health outcome is the same either way, does the doctor give a shit? Satisfies 'first do no harm' in my eyes.

Edit: Look at generic vs name drugs. Doctors will prescribe you the generic or the name, whichever you want, so long as both have the same health outcome. Money is not their responsibility. They want to get paid, and billings do matter, but only a shithead who wants to chance malpractice (career deaaaaath) will pick expensive and worse outcome if a better outcome is available.

Well, perhaps not, but maybe I misread your intent as you said, the payment difference is not any different for the patient. I assumed you were referring to the way insurance tends to obscure the true costs of healthcare. If you weren't, what were you referring to? As long as it doesn't leave the patient destitute?

I guess the way you phrased it indicated to me that you considered a cost difference a factor in whether the action was ethical, then claimed that there was no cost difference for the patient, hence it's ethical.

Edit: I get that is your belief, it just didn't seem to square with what you wrote which left me confused. No worries.

Of medical assistants who get paid $8-12/hr, one of the lowest paid post-grad professions extant.

Often a leased strip mall unit the exact same size as a Supercuts or Subway.

Hardly. Virtually all expensive equipment is leased from the manufacturer with a stiff monthly payment.

Oh no a person went to school for 10 straight years after high school and incurred $250,000 in debt no way should that person get to be paid a better-than-average annual income. You have no idea what you're talking about.

Anyway.

Reimbursement from medical insurers is a near-crap shoot. You bill to the insurer for services rendered and hope enough of it is reimbursed to cover your overhead. Medicare is among the best on this account, of course they do strict annual audits of any doctors they accept. The rest reimburse no better than 50% of billed services on average. Fifty fucking percent. Imagine a guy puts your pool in and he bills you for $25o,000 and you say that's nice, I'll pay you $10o,000 for it, and no he can't do shit about that. That's what being a medical insurance company feels like, pretty good doesn't it? And if you caught the part where a pool should cost 10% of the numbers I quoted, congratulations, you are catching my drift.

Fuck medical coverage in this country, fuck it straight to hell.

You completely misunderstand me, though i'm sure i made my post inflammatory. It's the fact that doctors have 250k in debt, that they have to have several full time staff, and that they themselves have to be "justly" compensated, that is a huge factor in driving up health care costs. If instead we had a more centralized system where similar doctors could share equipment, space and staff, and where they could get degrees without being forced to take some significant fraction of a million dollars in loans, and where doctors could expect to live comfortably but not necessarily richly.

And where insurance wasn't for profit, ect. I see the whole medical system as being broken at almost every step of the way.

Most in my town make much more than that and have full benefits (Benefits: Medical Insurance, Life Insurance, Dental Insurance, Vision Insurance, Paid Vacation, Paid Sick Days, Paid Holidays, Short Term Disability, Long Term Disability, 401K/403b Plan)
Most specialist have their offices either in the local hospitals or adjacent to them. Most internists are the same.
Depends on the machine and the practitioner. My family physician says she rents. My GI says he has bought and paid for.
$250k debt isnt that bad. Especially for the average specialist who is earning in excess of $250k per year. As of 2006 two of the top ten highest paying jobs in the US were surgeons.


As for the whole admin cost stuff:

The NBER summary discussed ESI, but had very little to say on the overall cost of medical care in the US and how much was attributable to administration.

The money quote from that article is actually this-

A) We are at 31% and almost twice as much per capita as the next closest compared OECD coountry France.

B) These administrative "costs" dont even include the the vast office personal of hospitals and physicians groups. This is exactly what I feared above. They have an overly restrictive definition and its doesnt take in to account then entirety of the administrative burden. Yet even with that restrictive definition we far outstrip our closest competitor in terms of administrative costs.

Given what I have found in your own sources I dont feel this to be the case. Nor do I appreciate the personal slights here in the D&D forum. You are welcome to take it to the Santorum forum if you wish to persist in that manner, but I wont be joining you there.

Additionally I have found the following articles on the subject insightful.

Ezra Klein's recent article.
http://voices.washingtonpost.com/ezra-klein/2009/07/administrative_costs_in_health.html
Where he actually describes the problems with trying to compare "administrative costs" from one study to the next as they arent using the same definitions.

And that's just the administrative cost for insurance again leaving out all the administrative costs in other areas.

He does concluded:

Which goes along with what I started with; administrative costs arent the largest problem facing rising medical costs, but is an area where we could see substantial savings and as he said it "would be a good thing."

Oh and Mankiw and Krugman seem to think discussions of administrative costs or burdens are important enough to get into public flame wars over. I wouldnt call them dunderheads either.
http://gregmankiw.blogspot.com/2009/07/does-medicare-have-lower-administrative.html
http://krugman.blogs.nytimes.com/2009/07/06/administrative-costs/

Sand: the issue isn't the absolute costs of administration, it's whether admin costs are driving overall cost growth. Our admin costs suck (big surprise, our whole system sucks), but there is much less evidence that they're driving cost growth.

If they aren't, then you can take admin costs to zero and be back to where we are today in under five years.

I never said they were the prime driver. From the get go I said they were one of (among other) big expenses, and shouldnt be ignored. Additionally they are much much larger than any other OECD country and again that doesnt even take into account administrative costs in hospitals or physician practices.

In fact ignoring them undermines the advantages of a single payer health care system. By moving to a single payer system, with one billing structure, you eliminate many redundancies and cut health care costs by a great deal.

I get what you're saying and you are right, there are savings to be had here and we should absolutely 100% look into achieving them. I just wanted to make it clear that there is a major difference between a one-time reduction in costs and a reduction in the rate of cost growth. It's not at all clear to me that administrative costs have anything to do with the latter. which is what we have to deal with if we want to not have some horribad outcome.

Ezra Klein has a post today reminding us: the reason US healthcare is so expensive is that healthcare providers are getting paid.

Lots of times (including in this thread) when I point out that containing healthcare cost growth is going to involve doctors and whatnot taking a haircut I get a lot of pushback. Ezra's post is a reminder that - as unpleasant as it is and as much as we like our doctors - that's simply reality.

This is fun: the US government spends more per-capita on health care than the Canadian government, even though the US government only covers a fraction of its population while Canada covers everyone.

The standard response to that is that the USA has a lot of open, empty area with few residents.

Which, you know, ignores that Canada is the second largest country in the world and has the population of California spread across it.

For anyone who thinks a market based approach to health care would work just think about this simple fact: the pricing mechanism in health care is broken. There is no price transparency. The "price" you see on a bill is routinely 300% to 500% of what the provider will ultimately accept. When providers bill an individual a ridiculous sum and then "generously" offer to reduie it down to 60% or even 40% of the billed price, they are ripping the individual off. In most cases, those providers would have accepted 20% to 35% of the billed amount from an insurance company. Of course, providers do lose out when consumers go BK, but since health costs are the #1 cause of BK, its a vicious cycle.

And before the conservatives start whining about goverment intervention causing this: that's bullcrap. I am now at the 20 year mark in worker's comp, and with 17.5 of those years spent representing work comp insurance companies, with about half the claims costs going to medical care. So I know *a lot* about medical pricing, and it's a fucking swamp. Providers hide, tweak, manipulate and generally exploit every loophope possible to maximize billing, not just to the nasty ole government but also to good god-fearing wealh-creating corporations. They are equal-opportunity rip-off artists. And although I use perjorative terms b/c I've seen the very worst possible abuses over my 17+ years in WC defense, I don't really expect any different. Providers are profit-driven entities, and the insurance companies whom they bill are profit-driven entities so of course both sides are going to engage in an infinite Blood War over prices*. Even though I represent insurance companies, I have multidinous stories of the stupidity, greed and general penuriousness of my clients. The pricing mechanism in health care is so broken, both sides are both perpetrators and victims of the mess.

The real problem is, that price war is typically not-transparent and consumers have no way to seeing what's going on and also don't feel the direct impact of it. And even if the price war was right in front of the consumer, almost none of us would have the expertise to actually engage in the dispute substantively. It all comes down to the fact that the heatlh care market has inherent imperfections in the form of a lack of sufficient expertise by most consumers to be informed decisions makers along with the fact that some of the most expensive health care decisions come during moments of crisis when the patients and families are not in a state to be rational decision makers. And the most visible sign of this ongoing debacle of market imperfection and market failure is the laughable charade of medical pricing in the US.



*Do I get bonus points for a Planescape: Torment reference? I"m replaying it with the hi-res patch and it's blowing its showier, flashier, more recent competition out of the water.

Pretty much. Even Free Market worshipers can agree that the market cannot function in an environment where the consumer is unable to obtain any accurate information on price comparison.

When I first worked medical IT, I thought it would be awesome if they'd just all come together and make one billing code standard and we could cut through some of this. As I worked there longer, I came to the conclusion that this wasn't happening on purpose.

Sharpe good post. Unfortunately in the US nobody is ready to talk about providers as a problem. Everyone hates insurance companies, but everyone likes doctors.

As the wise man said, it does take two to tango.