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Commentary on Rising Healthcare Costs – OR – How Did We Get Here?

By Dr. David Edward Marcinko; MBA, CMP™

By Hope Rachel Hetico; RN, MHA, CMP™

“New financing and risk management schemes, restructured delivery systems, advanced therapeutics, sophisticated information technology and profound demographic shifts are among the forces that will lead to very different healthcare systems in the first part of the 21st century.”

-Clem Bezold 

Introduction

Traditional organizations in the “good old days” – except for the military – provided indemnity (fee-for-service) insurance which gave patients great freedom and MDs great incentives to supply care. But, insurers had little control over the care that was rendered and its associated costs. Healthcare costs skyrocketed to more than a trillion dollars, or 15 percent of GNP by 2002, crippling U.S. productivity.  

The increase has continued unabated, since then. 

Present Day Medicare 

Now, consider that Medicare which says it has enough to “pay” medical benefits for our seniors, in reality cannot pay a thing. This created a rising burden on the young, who subsidized treatment for the old and middle-aged. Workers under 65 pay most taxes and even among workers there are generational subsidies. 

In 1999, workers aged 45-64 years-old – with employer-paid insurance – had health costs twice those of workers aged 18-44; since the young have wages reduced because of elder insurance costs. Additionally, Medicare C+ programs have fared even worse, as evidenced by the wave of plan dropouts, corruption, quality concerns, and continued issues about burdensome requirements and inadequate payment rates. 

Medicare Since Inception 

Also, realize that since 1963 – in the Medicare system alone – the following has happened:

· Workers contributing to the system decreased from 6:1 to 2:1 since 1963.

· Enrollees increased from 22 million to more than 55 million currently.

· The elderly population increased from 10 percent to 17 percent of the U.S. population.

· The average life span increased from 71 to 79 years.

· The Medicare Trust Fund is not really a trust fund at all; but actually an accounting fiction since technically the fund holds interest earning U.S. government bonds, representing an accounting surplus of payroll taxes collected minus benefits paid. The bonds are essentially IOUs the government has written to itself). 

Furthermore, the rising cost of healthcare attributed to wide treatment variability patterns, and mistakes reported by the Institute of Medicine [IOM], could be ascribed more to style than to patient differences.  

Medical Treatment Variability 

In the classic example, studies by John (Jack) Wennberg, MD, in the early 1970’s at Dartmouth Medical School, shocked the health care community when he discovered that differences in hysterectomy, tonsillectomy and prostatectomy rates in one county were 30-50 percent higher than rates in adjacent counties. 

By the early 1980’s Wennberg’s studies concluded that new physician incentive were needed if doctors were to provide appropriate care at acceptable costs.

Nevertheless, iatrogenic (doctor-induced) factors contributing to healthcare cost escalation continued into the 1990’s, despite rising physician incomes.  And, a few years ago it was estimated that:

· 53 percent of all surgeries may be unnecessary.

· 36 percent of all medical office visits may not be needed.

· 35 percent of all hospital admissions may be iatrogenic.

· Iatrogenic medication errors abound. 

Other causes of spiraling costs included: voracious consumer appetite, lifestyle drugs with direct to patient advertising, inflation, cost shifting, and the relative insulation of consumers to the true cost of medical care. 

The “Malpractice Phobia” 

Moreover, malpractice phobia, misinformed patients, hungry trial lawyers and class action lawsuits have all contributed to escalating healthcare costs.  

For example, the Jury Verdict Research estimated median award statistics for the Year 2000, as:

· $689,000 for medication errors;

· $563,000 for misdiagnosis cases;

· $277,000 for surgical negligence;

· $280,000 for non-surgical treatment cases;

· $284,000 for cases involving doctor/patient relations;

· $630,000 median award for all medical malpractice cases. 

All have grown since then.

Conclusion 

Not coincidentally, corporate America looked for methods to contain costs and provide pro-active, rather than retroactive-active medical care. In the past, managed care, not national healthcare, was the private result.  

But, a national healthcare system may still be in the future. 

What are your thoughts on the above regarding the upcoming political election season?

More related info: www.HealthDictionarySeries.com

Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com

Filed under: Health Economics | Tagged: Health Economics |