Short Takes On News & Events

Studies: Doctors, Hospitals Profit As Health Costs Rise

By Jordan Rau

September 8th, 2011, 6:42 AM

Over a decade, the median-income family of four with health insurance from their employer saw their real annual earnings rise from $76,000 in 1999 to $99,000. But nearly all that gain was eaten up by rising health care costs, a new study finds.

After taking into account the price increases for other goods and services, the typical family had just $95 a month more in 2009 than in 1999 to devote to non-health spending, according to the paper by David Auerbach and Arthur Kellermann of RAND.

Who’s at fault? The latest issue of Health Affairs is devoted to the topic of growing health costs. The culprits, many of the studies conclude, are hospitals and doctors more than insurers or patients, despite the political rhetoric to the contrary. To wit:

  • Higher fees to physicians are the main driver of health care spending increases, according to a study by Miriam Laugesen and Sherry Glied. They compared fees for primary care visits and hip replacements in the U.S. with their counterparts in Australia, Canada, France, Germany and the United Kingdom.  They found that in most cases, both public and private payers in the U.S. spend more than overseas counterparts:  Government insurers paid U.S. doctors $1,634 for routine hip replacements, more than double the $652 paid to Canadian doctors. Private insurers paid $3,996 to U.S. doctors for a hip replacement, triple the $1,340 paid to French doctors. U.S. docs earned higher incomes than their peers in other countries: $186,582 for primary care and $442,450 for the orthopedists.  The authors concluded that insurers haven’t been successful in negotiating fees with specialists.  One of the authors, Glied, is now an undersecretary at the Department of Health and Human Services; the paper was written when she was teaching at Columbia University and, Health Affairs said, does not reflect the official views of the government.
  • Lack of competition among hospitals is a bigger problem than is the lack of competition among insurers, according to a study by Glenn Melnick, Yu-Chu Shen and Vivian Yaling Wu. Only 7 percent of hospitals operate in local health markets with few insurers. When that occurs, the insurers tend to have more clout and hospital prices are about 12 percent lower than in markets with lots of insurers competing with each each other.  More often, markets have only a handful of hospitals and a bunch of insurers, giving the hospitals more leverage in negotiation over prices. The authors conclude that the government needs “to adopt proactive policies to increase hospital market competition.” (Hospital market power is an issue KHN has examined in our Hospitals, Inc. series, including our look at the San Francisco Bay Area and at the Washington, D.C., region.)
  • Three-quarters of the growth in health care spending per person between 1996 and 2006 was due to increases in the cost per case, according to a study by Charles Roehrig and David Rousseau. (Rousseau is a vice president at the Kaiser Family Foundation; KHN is an editorially-independent program of the foundation.) The study found that only a quarter of the growth was due to the rise in the number of cases. It concluded that efforts to prevent disease, such as tackling obesity, aren’t likely to be enough to stop health care spending from rising faster than the economy’s growth. That will require getting control of the increase in costs per case.

Much of the issue is less gloomy, examining potentially promising efforts to cut health care costs. One article estimates Medicare could save $7 billion or more if it successfully focused on weight-loss programs. Another provides an overview of Medicaid managed care efforts, which also have been recently examined in Texas by KHN and in Illinois by the Chicago Tribune.

4 Responses to “Studies: Doctors, Hospitals Profit As Health Costs Rise”

  1. It is tough to compare apples to oranges.

    The legal climate in the US is very different from most other countries. The defensive medicine and the fear of law suits makes the USA an expensive place to practice.

    The cost of a medical education is very different in the US compared to other countries with the US being significantly more expensive.

    Simply talking about the difference in fees to MDs for a certain procedure doesn’t portray the reasons behind this.

    I’m tired of the blame game….we should all be taking more responsibility for our own health..

  2. Kim Slocum says:

    I suggest that Dr. Fullerton might want to review the policy literature on this topic. Mello et al. showed in their September 2010 “Health Affairs” article that total health care costs attributable to all aspects of the US medical malpractice system (including defensive medicine) totaled only $55 billion (less than 3% of US health care spending). There is also the “real world” experiment in Texas which imposed strict caps on malpractice awards several years ago. That state still has health care costs significantly above the national average.

    Before we can attack the important problem of escalating health care costs, it is important that we understand the drivers. The idea that medical malpractice is a significant contributor is one of those urban myths that has little to do with reality. The real factors are 1. US prices (50% higher than those paid almost anywhere else in the OECD), 2. Fee-for-service medicine (which rewards providers for doing more rather than doing better), and 3. Easy market access for new medical technology (the developers of which are generally not required to prove superiority to existing modalities as a condition of approval). Until we address this interlinked triumvirate of challenges we will continue to suffer as a nation.

  3. Suzanne Respess says:

    Would suggest the same authors look at the cost of the daily, conflicting regulations which give cause to manufacturers raising prices, doctors and hospitals raising prices, and hiring more people The CMS regulations of the last 10 years have increased the number of federal employees at CMS, multiple staff levels in every single health care provider level and to say the least has increased costs to every facet of our economy. We do more defensive medicine to prevent being investigated and falsely accused by government than we do lawyers.

  4. Our educational system and our for-profit health care system in the USA is substantially different from any other advanced country in the world. I believe that these two entities are the key players concerning the root cause that is driving up the costs of health care in the USA.

    Keep in mind that in the USA when a doctor graduates from medical school, the average debt is $250,000 in student loans. That’s a lot of money. I personally know of family doctors that are in their mid 40s and will be paying on their student loans well into their 50s. That’s ridiculous! Why do we allow banks to charge so much interest?

    Other advanced countries offer a college education for free (funded by the government) or at a very low cost, with the understanding that an educated society benefits everyone. The citizens also understand this philosophy and don’t mind paying a little extra in tax dollars, because this little bit extra positively affects their lives as well. An educated society is a safer and more stable society. This benefits all who live under these means.

    In addition, doctors and hospitals in the USA must hold malpractice policies that are extremely expensive. International hospitals also hold malpractice policies, but the cost is far less than demanded in the USA.

    As someone else commented on this thread, “Simply talking about the difference in fees to MDs for a certain procedure doesn’t portray the reasons behind this.” Not even close!

    If you want to solve our health care crisis problem, you have to look much deeper. Why are pharmaceuticals (only in the USA) marked up 100,000% or more? Why do we pay executives $8,000 hourly? Why do we allow lobbyist with corporate interests (not the interests of the people) to buy off politicians?