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Tuesday Mar 20, 2018

Health Care Costs Soar, But Does U.S. Get What It Pays For?

"Money, it's a gas. Grab that cash with both hands and make a stash."
-- Pink Floyd

During the past few weeks, I have been spending time digging into the issues associated with the costs of health care. Although this work has been a staple of my job for two decades, my most recent interest is driven by a book I am reading, a recent article published in JAMA(jamanetwork.com), and a study released by my friend Niall Brennan and his colleagues at the Health Care Cost Institute(www.healthcostinstitute.org)  (HCCI).

[pill bottle and pills in shape of dollar sign]

Let's start with the book, An American Sickness(www.anamericansickness.com) by Elisabeth L. Rosenthal, M.D.(www.anamericansickness.com) The book is fascinating and well worth reading. (I receive no royalties). Rosenthal outlines the "10 Economic Rules that seem to govern the Dysfunctional U.S. Medical Market(medium.com)." Two of these rules are what spurred my recent foray into this cost issue. Rosenthal asserts the following:

  • "There are no standards for billing. There's money to be made in billing for anything and everything."
  • "Prices will rise to whatever the market will bear."

The first statement is, at least to me personally, a reaffirmation of the known deficiencies of our episodic-based, fee-for-service system. Payment for individual services drives the delivery of a greater number of individual services. The second statement is horrifying and, if true, would have a devastating impact on individuals, families, businesses and our economy.

The issue of health care cost has been and remains a central part of the national health care debate. For most of the past 20 years, the country has focused most of our attention on the cost of health care coverage (insurance) for individuals, families, businesses and government programs. What we haven't done is focus on the cost of individual health care services. This may be changing. There appears to be an appetite and growing interest in addressing the cost of health care services as we head into the 2018 congressional elections and the 2020 presidential election.

The recently published 2016 Health Care Cost and Utilization Report(www.healthcostinstitute.org) from HCCI points to reasons for growing concern. Here are four key takeaways:

  1. Total spending per person is growing faster than in prior years.
        a. Per capita spending grew 4.6 percent in 2016 and 4.1 percent in 2015. This represents significant increases from 2012-2014 when spending growth was less than 3 percent annually.
        b. In 2016, per person spending for a commercially insured individual reached $5,407. This broke down as follows: $1,049 on inpatient services, $1,821 on professional services, $1,507 on outpatient services and $1,030 on prescription drugs.

  2. Spending growth in each year from 2012 to 2016 was almost entirely due to price increases.
        a. The report points to large increases in prices for administered drugs, emergency room visits and surgical hospital admissions.
        b. Prescription drug prices increased 24.9 percent.    

    3. Utilization of most health care services remained unchanged or declined.
        a. Utilization of most services declined except for prescription drugs. Utilization of inpatient services had the largest decline, with admission rates decreasing 12.9 percent.

    4. Consumer out-of-pocket (OOP) spending per person increased, but it grew slower than total spending.
        a. OOP spending, per person in 2016, was $848.
        b. OOP spending grew 12 percent from 2012 to 2016. The trend is pointing to increasing OOP spending.

The HCCI report points to one truly alarming trend. Utilization of primary care is decreasing, and utilization of specialists is increasing at alarming rates. According to the report, from 2012 to 2016 "there was a 6 percent decrease in the spending on office visits to primary care physicians. The decline in spending on PCP office visits over the study period was driven by the 18 percent decline in the use of these visits. In contrast, the increased utilization of specialist visits contributed to a 31 percent spending increase for those visits."

The report raises several reasons for why this may be occurring -- shift of PCP from fee-for-service to alternative payment models such as ACOs, etc. A second possibility is hospitals and health systems are driving greater utilization to their higher-cost specialist and emergency rooms.

The decline in primary care visits, coupled by the dramatic increase in utilization of specialists and emergency departments represents an opportunity, but, as mentioned is alarming. A recent blog post in Health Affairs(www.healthaffairs.org) did a great job of capturing why this trend, if it were to continue, is so harmful for patients and the health care system. The blog notes, "The cost-effectiveness of primary care is well documented, going back to Barbara Starfield, who demonstrated that health care systems which have more comprehensive primary care improve population health at lower costs and with greater equity.” The authors go on to state, “yet the HCCI analysis seems to document a striking collective resistance to attend to this evidence."

Wonk Hard

The above is a quick overview of spending in the U.S. health care system. So how does the United States compare to other countries? Are we getting value for the investment we are making in health care? A recent article in JAMA entitled Health Care Spending in the United States and Other High-Income Countries(jamanetwork.com) points out some known, yet startling, statistics. The authors looked at health care spending in the United States and 10 other high-income countries (Germany, Japan, Australia, etc.).

It is important to note that all of the countries, except the United States have "an automatic or compulsory enrollment process. Private insurance as the primary form of insurance is highest in the United States at 55.3 percent, followed by Germany at 10.8 percent. The majority of the countries do not have private insurance as the primary form of insurance."

Here are some key data points that are probably familiar. The United States spends $9,403 per capita on health care. The mean of the 11 countries in the study was $5,419. The U.S. spends 17.8 percent of its GDP on health care. The mean for the 11 countries was 11.5 percent. The United States had the lowest percentage of the population older than 65 years at 14.5 percent of population compared to a mean of 18.2 percent. The U.S. had the highest rate of poverty with 24 percent of the population below the poverty line, followed by Japan at 22 percent and Canada at 21 percent. Spending does not equate to better outcomes. The U.S. falls below the mean in every category evaluated in the study.

In closing, this sentence in the JAMA article was fascinating. "All systems had relatively similar levels of public spending as a percentage of GDP (defined as spending from government and/or social or compulsory insurance funds), with the United States spending at about the mean level (8.3 percent) of all the countries, although, unlike the other countries, this spending covered only about 37 percent of the population."

Posted at 08:00AM Mar 20, 2018 by Shawn Martin

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Stephanie Quinn, AAFP Senior Vice President of Advocacy, Practice Advancement and Policy.

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The opinions and views expressed here are those of the authors and do not necessarily represent or reflect the opinions and views of the American Academy of Family Physicians. This blog is not intended to provide medical, financial, or legal advice. All comments are moderated and will be removed if they violate our Terms of Use.