Q&A: Why don't hospitals display rates?

Q: Why is our health care system really the costliest? Are our pharmaceutical companies so driven by profits, or is there such a significant impact by illegal users of our health care system that we are unable to curtail rising cost? What is really driving our high cost as opposed to systems elsewhere?

— Wade M. Hunt, Albuquerque, N.M.

Answered by internist and health policy expert Dr. Ashish Jha:  

A: The answer is not simple. There are many factors that lead to the fact that our health care system is the most expensive in the world.

First, we pay more for many things, such as physicians’ salaries and drugs, than most people in the world. So even if we used the same amount of services, our health care system will cost more.

But we also do a lot more here – more tests, more surgeries, more procedures – than nearly anywhere else in the world. You might ask if this is good or bad. In many ways it’s a good thing. Just ask anyone with chronic hip pain from osteoarthritis whether it was good to get a hip replacement.

We also, unfortunately, have a lot of unnecessary care, such as surgeries and tests that are not likely to benefit patients. While this is something that we would all like to eliminate, it would be hard to do so without rationing care.

This extra testing can result from doctors practicing defensive medicine to avoid malpractice suits. Studies have shown that this accounts for no more than 2 percent or 3 percent of health care costs, which amounts to about $40 billion to $60 billion. That is a lot of money, but it still doesn’t justify the notion that malpractice reform would have a dramatic effect on health care costs.

Another factor that drives up the price of health care is the fragmented payer system. The average doctor might be dealing with 15 different insurance companies, so he needs to hire people to take care of billing.

I’ve seen varying estimates on what these administrative costs are – some as high as 25 percent of the total health care costs. Probably a more realistic estimate is 7 percent to 10 percent. This is not trivial and it’s a place we might be able to save a lot of money.

As to your point about the high cost of drugs, drugs account for about 10 percent of all health care costs. Is this too much? Well, we live in a capitalist economy, and although it is tempting to try to reduce pharmaceutical companies’ profits, you might also reduce their incentives to develop new drugs.

The same thing applies to the salaries of doctors and nurses. If we aggressively cut them back, the best and the brightest of the next generation may not choose to go into medicine. Training takes many years and there is a lot of debt accumulated in the process.

As for the impact of illegal aliens on the cost of health care – this is a red herring. The amount of services used by them is trivial. If they were blocked from using services, you wouldn’t see any change.

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