The Economics of Healthcare Costs

Healthcare EconomicsNestled within the University of Texas educational system, MD Anderson is one of the three original cancer centers as established by the National Cancer Act of 1971. The center is consistently highly ranked in cancer care internationally, and in the case of Sean Recchi, it was his choice in the treatment of his Non-Hodgkin’s lymphoma. The initial cost of an examination and a treatment plan was $48,900, the same exorbitant cost that his mother-in-law Stephanie was asked to pay [1]. And an additional $35,000 was needed after the doctors decided that Sean’s rapidly failing condition needed urgent care [1]. Yet the Recchis had to wait ninety minutes in the reception area until MD Anderson could confirm Sean’s check had been cleared.

The total cost was $83,900 [1]. The number appeared after 344 lines had printed across eight pages of Recchi’s hospital bill. The numerical codes, the strange Latin sounding medications, and all the acronyms seemed extreme for his treatment and initial doses of chemotherapy. As elucidated in a recent article in Time Magazine, author Steven Brill uses Recchi’s case as symptomatic of the larger issues of medical bills and the incentives both hospitals and physicians are lured towards.

The ninety minutes the Recchis had to wait is indicative of the growing gap between hospitals and patients. The hospital, as an institution with limited resources, had to withhold treatment from Sean even though he was in visible pain. But if the hospital prides itself as a symbol of hope for the sick, then why does it have to rely on the bottom line? Why did the check matter so much? Did the institution weigh the risks of people like the Recchis not paying their bills versus the amount of human suffering that could occur? The economic model through which hospitals, insurance companies, and people pay into reveals uncomfortable assumptions of the American healthcare system, and Sean Recchi’s case reveals a microcosm of its financial limitations.

On average, the U.S. spends approximately 2.5 times more on healthcare than most Western developed nations. In 2010, the U.S. spent $8,233 on health per person in contrast to Norway, Switzerland, and the Netherlands, which all spent less than $3000 per person [2]. GDP, the gross domestic product, is the market value of all goods and services within a country. In 2010, the U.S. spent 17.6% of its GDP on healthcare, more than any other Western country [2]. Such a high-rate investment in health services leads to the logical conclusion that the country would have state-of-the-art facilities, comprehensive diagnostic services, and an overall reduction in chronic illnesses and public health tragedies. But looking more closely at the 17 cents per dollar eaten up by this expenditure finds some uncomfortable truths [2].

One such truth is the notion of waste. According to some recent estimates, approximately $750 billion in excess come from a variety of factors including unnecessary testing, high administrative costs, and a lack of proper prevention methods [3]. This health care system has created a network of doctors and providers, each with competing specialists and highly variable payment plans. Moreover, newer legislation and policy will further entangle taxpayers and policymakers. Even with Obamacare, insurance companies and legislators will find loopholes to manipulate. This confusion results in a whole range of unnecessary expenditures that will rise over time.

The issue is further complicated in the framework of basic economics, particularly the notion that we, as rational beings, work in our own self-interest in a world of limited time and resources. This could also apply to large-scale corporations and business. The hospital has limited resources, in that the doctors, medications, staff, and overheads all cost a significant sum. Moreover, these institutions need a viable and sustainable way to survive. But Recchi’s case seems a little extravagant, considering that the hospital had a 26% profit margin in 2010 [4]. The bottom line seemed to have pushed this agent to pursue its best interest and keep Recchi waiting so that the payment could be authorized and all parties be reimbursed.

Such practices portray the American healthcare system as having a dubious relationship with business and profit. Health insurance companies spend millions on lobbying for provisions in health care bills. Recently, America’s Health Insurance Plans, the primary trade group for insurance companies, stepped up its lobbying efforts after the Center for Medicare and Medicaid Services proposed a 2.2% reduction in payments. These cuts would affect almost all of the 14 million senior citizens who use the service. As a result, the American Hospital Association has devised an effort to stop this by employing television ads and having a spur of studies that support Medicaid expansion. Thousands of calls have been made, a grassroots effort to convince seniors to call congressmen has been employed, and even a social media campaign using Twitter, Facebook, and television advertisements has been implemented [5].

At the end of the day, the modern doctor is very different from the Hippocratic ideal of Greek mythology. He or she cannot possibly provide equal services to all those who come knocking on his or her door. With increasing insurance costs and issues with compensation, doctors will have to make difficult decisions regarding their care and their patients. Recchi’s case is only symbolic of the constraints that modern medicine has within a system that focuses so much on profit. We can only hope that institutions like MD Anderson can find a better way of working with people like Recchi to alleviate their  pain and not compromise their financial wellbeing at the same time.

References

1. Brill, Steven. “Bitter Pill: Why Medical Bills Are Killing Us,” Time Magazine, March 4, 2013, accessed March 24, 2013, http://www.time.com/time/magazine/article/0,9171,2136864,00.html
2. “Health Costs: How the U.S. Compares With Other Countries,” last modified October 22, 2012, http://www.pbs.org/newshour/rundown/2012/10/health-costs-how-the-us-compares-with-other-countries.html
3. “The Cost of Healthcare: How much is waste?,” last modified December 16, 2009. http://resources.iom.edu/widgets/vsrt/healthcare-waste.html
4. “Health Insurance Scams Leave People High and Dry”, last modified March 21, 2013, http://obrag.org/?p=72031
5. Baker, Sam. “Insurers Ready to Battle Medicare Cuts.” Healthwatch, March 6, 2013. http://thehill.com/blogs/healthwatch/medicare/286419-insurers-ready-to-battle-medicare-cuts

Varun Moktan is a junior majoring in English Language and Literature at the George Washington University. He currently helps with research in the Department of Emergency Medicine at the George Washington University Hospital, and will be attending medical school in the fall of 2014. Follow The Triple Helix Online on Twitter and join us on Facebook.

You May Also Like