The Cost of Health Care…
Email This Post
Print This Post
I saw a survey the other day that surprised me a bit. It asked a random sample of Americans from around the country to comment on whether or not they thought drug, doctor, health plan, hospital and nursing home expenses were reasonable or unreasonable. Not surprisingly, most Americans (76%) thought generic drugs were reasonably priced, while only 20% thought they were not. For brand name drugs, just the opposite was true - as 83% of those surveyed throught brand name drugs were unreasonably priced, and only 13% percent thought they were reasonably priced. Health plans only did a little better than brand name drugs, as 70% of those surveyed thought health insurance prices were unreasonable, and 24% thought they were reasonable. Truthfully, my own conversations with employers and members would have led me to believe that NO ONE thought our prices were reasonable - so by that standard, 24% wasn’t all that bad.
The big surprise, though, was people’s attitudes about hospital costs. Only 10% of those surveyed thought hospital costs were reasonable, while 86% thought they were not. That’s kind of a shocker, but it’s consistent with one other opinion voiced by people in this survey. When asked to choose between health plan profits and the cost of health care as the primary driver of higher health plan premiums, almost 50% of those surveyed chose health care costs, and only 30% picked health plan profits.
This is encouraging, for two reasons. First of all, it implies that people understand where the vast majority of the money collected by health plans actually goes - to pay for medical costs. The plans in Massachusetts spend somewhere between 85 and 90 cents of every dollar they collect on health care - that is, docs, drugs, hospitals and ancillary services. Only 10-12 cents gets spent on health plan administration, and the other 1-2 cents represents “margin,” or profit. Secondly, these results also sugggest that people get the fact that generic medications have had a very positive impact on health care spending overall, and are, in fact, a good deal - for them and for the system.
And by the way, nursing homes only did slightly better than health plans - as 17% of those surveyed considered their costs to be reasonable, and 63% of those surveyed said they were not.
On ABC News tonight, there was a story about healthcare in the African country of Zambia where infant and maternal mortality are significant problems. For 60 cents, they provide a ‘clean birthing kit’ to expectant mothers with clean and sterile components to protect the mother during labor (a clean plastic drop cloth!) and a sterile clamp and razor blade for the umbilical cord. For 60 cents, they reduce the chance maternal mortality by a factor of 13!
For less than the price of a cup of coffee!
That will make healthcare costs in any state seem unreasonable.
10-12 percent sounds a lot to spend on administration, though I have no doubt it is necessary.
If physicians and hospitals were running common HIS software that you could better integrate your systems with (lets say open source), could that percentage be drastically reduced?
Dear Mr. Baker:
I think it is a phantstic idea that you decided to be available on a blog. It may work well as a marketing move, but also give you a few ideas.
May I take the opportunity to ask a few questions?
Where does the money your company spends go? What are percentages or your payments are spent in hospitals, doctors, nursing homes, drugs, supplies, and for your own administration?
Have those percentages changed over the last 20 years?
Which area contributes the most to the increase in cost?
Where may I find those data?
I am trying to figure out how we could save…
Your Matthias Muenzer, MD
The problem with the 85-90% number is that some portion of that money goes to hospital administration. What proportion of health plan dollars goes to true client-derived costs (physicians/nurses/allied health, supplies, etc)?
Dr. Flood - a dollar is not a dollar all over the world. This is part of what makes the notion of a global economy so bizarre. What looks like a pittance ($5 a day) to one country is actually a decent wage in another. Clearly, the example you refer to falls somewhat into this category. But it also speaks volumes about the way in which we’ve industrialized our care delivery model. That’s probably both good and bad. And as you probably know. the cost of health care in every state - including MA, NH and ME - which are the three I pay the most attention to - is extraordinarily high, even by US standards. Whether or not we get more for our money is, has been, and will remain the subject of a never-ending debate, at least until we get serious about publicly posting and updating information on price and performance (which all three states appear to be in various stages of doing).
By the way, I’ll try to have the NH DOI web site - which has some terrific cost information for the state of NH on it - linked to this blog. And Dartmouth-Hitchcock Medical Center has some cool stuff, too. I’ll try to put that up as a link as well.
On the how much goes where question, I plan to write a whole piece on that tomorrow. But for now, the short answer to where each dollar of premium collected by Harvard Pilgrim goes is…
Inpatient hospitals - 20%
Outpatient care - 32%
Physicians - 21%
Drugs - 15%
HP Admin/Margin - 12%
These are, obviously, rough numbers - and they can vary by month, by quarter and by year - but they’re fairly decent approximations of what goes where. Perhaps more importantly, the big growth in year over year spending is NOT drugs. The pharmacy trend these days is under ten percent. The big driver of cost increases year over year is inpatient and outpatient costs.
Again, I’ll have more to say on this topic tomorrow.
Does MassHealth cover hospitalization,test and operation fees? Is an Estate Recovery Process involved? Or is this true mostly with long-term and/or nursing home stays?
Well, I can honestly say that I can practive cheap medicine or expensive medicine (and I sometimes straightforwardly give the patient the choice). Although excellent clinical judgment will serve you well, there is always the 0.1% or so of every condition that will present atypically. How much of that risk is willing to be accepted by the consumer is the key to Health Care costs. Even if the risk may be negligible in certain clinical situations, people intuitively realize that the possibility exists (if they thought otherwise, lotteries would be out of business). Health Care Consumers in New England are much more sophisticated than in other parts of the country, and there seem to be more attorneys in New England constantly barraging the population with the message that if there is a bad outcome “someone owes you money”. When you combine extremely small risks, a modicum of knowledge, and heightened anxiety with an unrealistic perception of the morbidity of everyday life, you have a prescription for ever-growing Health Care costs. For those who have not had medical reality therapy, I have news for you: Each and every one of us will have a bad outcome. If you are standing in the middle of the ICU at Mass General and God pushes the “Smite” button, no degree of extremely sophisticated, incredibly brilliant, and unbelievably expensive medical care is going to change the outcome. I can spend 20 minutes that I don’t have trying to convince the parents of a two-year-old who rolled out of the bottom bunk, cried immediately, sustained a goose egg on his forehead and who has been acting normally for the two hours that it took them to be seen in the ED that a CT scan of their baby’s brain is not going to find anything of significance and that the unnecessary radiation may ultimately be harmful to the child, and then be nose-to-nose threatened with a lawsut if I don’t order the scan. I have seen patients disagree with board-certified hand surgeons when they have sustained a minor amputation of a distal finger (as much as any amputation can be minor if it happens to you) on a non-dominant hand and insist that they be sent immediately to a transplant service for reimplantation.
There are many opportunities to improve care and save money, but we need to do something other than to place blame: We have met the enemy and it is us. If I get drunk and crash my car without a seatbelt on and am left paraplegic, it is very likely that that is my fault and not the fault of the paramedics who were attempting to immobilize me while I was concussed and combative, no matter what the attorney might say. If my four-year-old daughter trips on a rock and sustains a 5cm horizontal laceration across her forehead and the Emergency Physician, who has performed facial laceration repairs daily for the past 22 years, reassures me that his repair will have substantially the same cosmetic outcome as that of a plastic surgeon’s, perhaps I should not insist that they call the plastic surgeon in to repair the laceration. When my demented 89 year-old uncle falls at the nursing home, fractures his hip, has it repaired in the hospital, is discharged back to the nursing home for rehab 3 days later and dies of a pulmoonary embolism 2 days after that, perhaps I should not give in to greed and file a lawsuit as suggested by the attorney who gave me his card at my cousin’s yard-sale.
As patients, we need to look beyond ourselves at the costs of the decisions we make, and realize that we make some incredibly expensive decisions.