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What's Causing Health Care's Rising Costs?

Posted on: Monday, 3 October 2005, 21:00 CDT

By Mark Schwanhausser, San Jose Mercury News, Calif.

Oct. 2--Rafael Sanchez of San Jose reacts to soaring health insurance premiums with the same sense of distrust he gets when he pulls into a gas station and tanks up with $3 gas.

"They're taking money out of our pockets without any real reasons other than greed," the 64-year-old mechanical and nuclear engineer grouses. "What is the justification?"

It's a common question these days as workers enter the season to sign up for ever more costly, pared-down health insurance through their employers. Premiums have risen 73 percent since 2000 -- nearly five times faster than inflation and wages. The cost -- eclipsing $10,000 for a family of four for the first time last year -- is stretching the budgets and patience of consumers, employers and taxpayer-funded health programs.

But there are few simple answers when it comes to explaining how much of the nation's $1.9 trillion in health care bills is justified, experts say.

The "system" is loaded with incentives to push costs higher and disincentives to keep costs low. Virtually everyone involved deserves a share of the blame, including insurers, hospitals, doctors, drug-makers, the government. And at the heart of it all are American consumers who demand the best health care.

"We need to stand in a circle if we're going to point fingers," said Alwyn Cassil, spokeswoman for the Center for Studying Health System Change in Washington, a non-partisan research organization. "There is plenty of blame to go around."

This year, health care spending is expected to consume nearly 16 percent of the nation's gross domestic product -- double the share in 1970, according to the California Health Care Foundation, an independent non-profit in Oakland. That works out to more than $6,400 in medical spending for every American this year -- nearly twice the $3,400 spent in 1993.

"It's like a hurricane," said Glenn Melnick, a health policy professor at the University of Southern California and a consultant for the Rand think tank. "Right now, it's a Category 1, but it's gathering steam. Soon it will be Category 2."

The explanation for that rapidly rising bill starts with America's insatiable demand for the latest and best drugs and treatments, experts say. But doctors sometimes have dubious incentives to prescribe extra drugs, tests or treatments -- ranging from profit to protection from malpractice suits.

The profits for serving well-heeled, well-insured patients are so enticing that hospitals and specialty clinics are investing billions on buildings and high-tech equipment to provide more high-cost procedures. Drug makers also have built a sexual-dysfunction industry around the demand for drugs such as Viagra and Cialis.

"The private system has been very good at exploiting demand," said Ed Kaplan, a national health practice leader for the Segal consulting firm.

Criticism also abounds over how the drug industry peddles expensive name-brand drugs like Viagra and Vioxx. Ads on television and in magazines and newspapers have exploded since the rules were relaxed in 1997. That drives up health care costs because it multiplies doctor visits and can lead to more tests and potential medical complications, Kaplan said.

Too often, critics say, new drugs and procedures come into widespread use before their effectiveness is clear. In many cases, prescribing generic drugs or forgoing a popular treatment not only is cheaper but also better for the patient's health.

But health care costs also climb simply because doctors are more adept at diagnosing heart disease, asthma, cancer and other ailments. The number of people treated for high cholesterol has more than doubled to 19 million in recent years, and now many Americans rely on daily doses of pricey drugs such as Lipitor and Zocor. Left untreated, those patients could wind up costing far larger sums in the long run.

The vast majority of health care spending isn't discretionary. Ten percent of patients are responsible for nearly two-thirds of the nation's health spending, according to the Kaiser Family Foundation, a Menlo Park-based non-profit that studies health issues. That has been the case for decades.

"Those people are really sick," said Gary Claxton, a vice president with the Kaiser foundation. 'It's not whether they are using an extra Viagra tablet."

In contrast, half of Americans need such little care that they account for just 3 percent of the spending.

The question that looms is this: To what extent would insurance premiums fall if Americans decided to ration care for the sickest patients -- many of whom are in the final hours or weeks of life?

Cassil said one analyst put it bluntly at a recent Wall Street conference sponsored by the Center for Studying Health System Change: " 'Are we willing to spend $40,000 to give a cancer patient three more weeks to live?' " she recalled. "Just because we can do things doesn't mean we should."

Rafael Sanchez's brother illustrates many of the issues at play. In July, Reynaldo Sanchez, 60, was rushed to the emergency room to treat a blood clot in his brain. The treatment was successful but in just three days, his hospital bill hit $50,000, including $3,500 each time a doctor ordered a brain scan.

"It's something you didn't have 30 years ago," Rafael said of the brain-scan technology. Then, noting that insurance paid the vast majority of his brother's tab, he added, "Maybe that's why the rest of us are paying more."

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Copyright (c) 2005, San Jose Mercury News, Calif.

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Source: San Jose Mercury News

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