Friday, October 30, 2009

Are Profits Responsible for the High Costs of Health Care?

I remember reading a study showing that even if all profits were stripped out of health care, the United States would still spend more on health care than the OCED average. Actually, we don't need a study to see this, using OCED figures, we would have to cut spending per person by more than 2/3rds to get to the OCED average.

July 1, 2009

Organisation for Economic Co-operation and Development (OECD) Health Data

Total health care spending per person, 2007 *

United States ( 7290)
OCED average ( 2964)

Australia ( 3137)
Austria ( 3763)
Belgium ( 3595)
Canada ( 3895)
Czech Republic ( 1626)
Denmark ( 3512)
Finland ( 2840)
France ( 3601)
Germany ( 3588)
Greece ( 2727)
Hungary ( 1388)
Iceland ( 3319)
Ireland ( 3424)
Italy ( 2686)
Japan ( 2581)
Korea ( 1688)
Luxembourg ( 4162)
Mexico ( 823)
Netherlands ( 3837)
New Zealand ( 2510)
Norway ( 4763)
Poland ( 1035)
Portugal ( 2150)
Slovak Republic ( 1555)
Spain ( 2671)
Sweden ( 3323)
Switzerland ( 4417)
Turkey ( 615)
United Kingdom ( 2992)

I find it hard to believe that profits make up 2/3rds of the cost of health care. This flies in the face of all the financial statements filed by health care providers. Profits are not the main component of health care costs.

It's also untrue that "The American system relies more on individual consumer decisions and market forces than any other health care system in place" as stated by Devin. The individual consumer makes very few decisions, the decisions are made by the insurance company or HMO, AND doctors.

In our health system, the doctors are the ones who decide the appropriate treatment and course of action. Insurers can only deny coverage if the treatment is not deemed medically necessary for health (like cosmetic) or if there are pre-existing conditions. Insurers don't have a choice if the procedure is recommended by a doctor and it's to treat a medical condition.

Doctors do not consider costs as they are not the ones paying, in fact, they usually receive payments from whatever treatment they order. There is no method currently that tries to distribute health care based on value, that is getting the most bang for the buck.

A treatment that is only 90% as effective as the most effective treatment but only costs 50% as much will not be used. The patient and doctor will demand the most effective means of treatment, regardless of cost. To lower costs, we will have to insert value somehow as one of the components to calculate the appropriate treatment. But patients and doctors are opposed to this as that would mean the odds for survival would be reduced, if only marginally.

In other countries, the government decides on the value component. More effective, yet much more costly procedures are denied or not covered by the government health insurance. There was a ruckus a year or two ago about Britain's NIH denying an Alzheimer drug that was shown to delay the onset of Alzheimers by an average of 6 months. The government decided that it wasn't worth the cost of the drug and denied the treatment. Only after massive protests did the government reconsider. Most decisions aren't challenged though, so many treatments Americans get aren't available to patients in other countries, unless they pay 100% out of pocket that is. Some countries prevent even that, forcing patients to go out of country.

I believe it's the lack of a cost/benefit component to treatment decisions that is responsible for most of the high health care costs. People receive the best treatment the doctor is aware of regardless of cost. We see this with the use of drugs under patent instead of generics even if the patented drug is only 5%-10% more effective yet triple or more the cost. Yet should insurance companies, the only goalkeeper to costs, tries to deny that drug in favor of the generic, patients get upset and accuse the insurance company of greed and killing patients for profit.

Americans have to be willing to accept rationing, which is what cost/benefit analysis does. There is no way around it. They must accept a lower chance of survival, even if only slightly, so that the most cost effective treatment can be mandated. Until Americans, including the people on this board who hysterically deny the need for rationing, accept this, costs will remain high.

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