Health care costs continue to rise, with no end in sight. But many people aren’t aware of what accounts for those costs and where the money goes. However, such awareness is key to finding ways to bring costs down.

Where does the money go?

Here are the major categories of health care costs in the U.S. as reported in 2007:

  • Hospitals: 32%
  • Health insurance administration and profits: 13%
  • Medications: 10%
  • Physician income: 9%
  • Physician expenses: 7%
  • Clinical laboratory services: 5%

Private health insurance

The overhead costs and profits of private health insurance is just one of the reasons for my disappointment that a health reform bill, now being considered in Congress, will likely have no type of public insurance option. In contrast to these large costs for private insurance, administrative overhead for Medicare is only about three percent. Of course, anyone who has tried to deal with private insurance companies can express plenty of other objections about them. It is evident that their total attention is to bottom line profit rather than to any real interest in providing for the health of their policy holders.

New medications and increasing longevity

Scientific advances have led to the availability of many new medications that may prolong life or at least reduce suffering. Medications are likely to become an even larger fraction of the health care budget because of their high development costs, the extraordinary effectiveness of some, and the increasing longevity of  individuals. Although many patients take these largely insurance-covered costs in stride, they still contribute significantly to the overall cost of health care.

Nonetheless, some savings are possible. If physicians were more aware of the costs of drugs, they might be able to prescribe equally effective, less costly alternatives. Physicians tend to prescribe the newest drug for high blood pressure, for example, even though it is more expensive and no more effective than earlier medications. Not infrequently a physician may acquiesce to a patient’s request to get a drug they have heard about in a television ad-for example, the highly touted Plavix which is far more expensive and not necessarily any better than aspirin in many situations.

Physician income reasonable

It seems reasonable to me that we physicians share about nine percent of the pie. Although physician incomes have not fallen, studies show that on average they need to spend more working time to maintain such incomes. However, what is not evident from the nine percent figure is the unfair discrepancy in reimbursements, which pay big bucks to specialists for procedures and far less to the internist or general practitioner who carries out the evaluation and long term management of patients. Interventive cardiologists may deny it, but it’s easy to understand how their income from an angioplasty procedure may lead them to recommend it even though angioplasty prolongs life no more than non-invasive medical treatment in people with stable coronary heart disease.

Physician expenses and insurance claims

Physician expenses include obvious things such as rent and salaries for a receptionist and nurse, but physicians also spent 10 to 15 percent of their gross income for billing and collection, preparing a variety of insurance forms (often requiring hiring an additional person), and an average of three hours a week on the phone or corresponding with insurance claims adjusters. The cumulative cost of the time physicians spend in these interactions with insurers is estimated at $23 to $31 billion annually. The costly and time consuming tasks of paperwork and completing multiple insurance forms weigh heavily in physician dissatisfaction and early retirements.

Laboratory tests… see “Rising Costs: Unneeded Tests and Procedures.”

[Source: excerpted from blog by Simeon Margolis, MD, PhD, from Yahoo!Health on February 16]

About ACPP_archive

formerly Alaska Center for Public Policy

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