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A few reasons for the cost of healthcare in the US- and will they be addressed?

Posted on Aug 27, 2008 by Sergio Ulloa ()

With the US presidential election around the corner, one of the issues getting the most media attention is the candidates' differing stances on healthcare. Everyone agrees that something needs to be done about the rising costs of healthcare in the US to the federal and state government and to private individuals; the question is: 'what?'. But to answer this question, we need to know why costs are rising in the first place. Part of the reason is the large numbers of different groups trying to make money out of the system. Pharmaceutical companies, hospitals, insurers; unfortunately, altruism is not always the primary motivation, and as with any detective investigation, the question we should ask ourselves is 'cui bono?'- or 'show me the money!'. Hospitals in the States and elsewhere, especially with the rise of medical tourism, will often try and sell themselves to prospective patients by advertising their latest equipment or more advanced surgical techniques. Sometimes a hospital will buy a machine, such as a CT scanner, for this very reason, but in any case, once it is bought, the hospital will want to make sure it is used, even if it is expensive, unnecessary for a particular patient, or even dangerous (for example, CT scanners subject patients to radiation equivalent to that of hundreds of x-rays) - not least because of the amounts they can bill. A CT scan often leads to additional precautionary treatment- increasing costs even more. Insured patients will often want the peace of mind that new technology can bring- it may have attracted them to the hospital in the first place- and insurers may end up footing the bill, much as they try to avoid paying for unnecessary treatment. Insurers may sometimes try to avoid such costs, but only at the risk of legal challenges and their reputation in a competitive market, especially when they get it wrong. State and federal medical programs such as Medicare and Medicaid have more difficulty when they want to exclude certain procedures from their coverage on utilitarian grounds, and are often under pressure to include more procedures. Unlike in many countries, cost-benefit analysis is not so rigorously applied in the US- for example, the The Food & Drug Administration is forbidden by law from taking cost into account when considering the approval of a new device or drug. Drugs are another reason for the high cost of US healthcare. Other governments which run universal state healthcare systems put limits on how much they will pay for drugs, and some say that this actually pushes up the price of drugs in the States. On the other hand, Professor Sir Michael Rawlins says that other countries are having to pay for the marketing cost of drugs in the US, which he estimates at about twice the amount spent on actual research and development- the pharmaceutical representatives who make sure their companies' products are used in hospitals and by doctors, a privilege companies will pay for - and advertising directed at potential patients, which is forbidden in many other countries. If this is the case, it is unlikely that marketing costs will go down any time soon, as big pharmaceuticals see the patents on their money-making drugs expire and face competition from 'generics'. Pushing unnecessary, inappropriate and expensive drugs might not happen if cost-benefit analysis was more carefully applied to new products and techniques. As it is, physicians face pressure from drug managers who try and keep costs down for hospitals and on behalf of insurance companies. These competing forces mean a doctor might be under pressure both to promote expensive drugs and procedures and at the same time not to approve these for insurance purposes. The questions that all this has created about the validity of being able to trust your doctor to make an unbiased prescription of the most appropriate drug, and the direct marketing of many alternative brands of drugs to patients, has created a feeling that for determined individuals the right drug is out there if they are willing to put in independent efforts to find it, and the idea that the cost will primarily devolve upon the individual may create a sense of entitlement to the newest treatments, even if they are untested and have a slim chance of success. There is even debate about whether this atmosphere may prejudice clinical trials. It is very likely that this all inclusive approach to drugs and medical techniques has pushed up the cost of healthcare in the US without proportional benefits to life expectancy and child mortality How can this be changed? The pharmaceutical lobby is likely to use the threat of a drop in profits due to generics taking over many of their markets to try and influence any new health-care system, and it will be hard for any government to limit drug costs unless they are simply brought down by market competition, in which case there is still the possibility that they will have to include newer and more expensive treatments in healthcare cover. The existing systems federal and state medical provision such as Medicare have been leaking money recently, because of the involvement of subsidized private intermediary plans, and well publicized incidences of paying for fraudulent and improper claims. Congress recently overrode a presidential veto which would have reduced Medicare payments for doctors; the president had justified his veto partly on the grounds that bill would "perpetuate wasteful overpayments to medical equipment suppliers." The existing state provision appears to be wasteful and inefficient, so while everyone agrees it needs to be changed it may be harder to appear to advocate more state spending, even if it would save money. While it would seem that socialized medicine would reduce overall individual insurance costs by virtue of healthy young people's payments subsidizing risk prone older individuals, there is a good deal of disagreement on the subject, not least because of the element of 'Socialism' involved. There are many myths about the reasons for the cost of American health care- Mark Gimein in Slate points out that too much blame cannot be put on private insurers, whose profits only make up a small percentage of total healthcare costs. The popularity and promotion of expensive medical techniques and drugs must surely play a large role, and will have to be taken into account and checked more aggressively if any more universal system of health care is to be introduced in the US.
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