When’s the last time that your premiums for healthcare went down? A rhetorical question, of course. With lightning-speed advances in technologies, it’s a wonder that healthcare isn’t as efficient as the other goods and services we rely on each day.
While it would take a book to clearly explain all the variables creating such a challenge for the healthcare space, following are a few trends contributing to the challenge.
First, most hospitals and their affiliated providers do not know what procedures cost on a “Activity based” cost accounting method. They focus on labor (time) in a fragmented manner. Additionally, Medicare and Medicaid patients are cross subsidized with commercial plans. As articulated in a previous Slice, Commercial plans paid 248% of what Medicare paid for claims in 2020. If everyone was covered under such a subsidized plan, hospitals would go bankrupt and physicians’ financial debt would never get paid off, not to mention that the talent pool entering the healthcare industry and quality of care would suffer.
Let’s not forget that with healthcare, we are dealing with a variable that is very hard to control, humans and their habits. Many people drive their body to the brink for many years in hopes that the healthcare system will save them when all else fails. Thus, we’ve become a system of treating illness (Sick Care) as opposed to supporting health and healthy habits (Well Care). And, as one who enjoys taking it to the brink occasionally, I’m not sure that’s going to change drastically for the masses, despite our propensity to want to be healthy.
Since the end of the COVID-19 Pandemic, outpatient procedures have increased. Surgeries performed in a hospital setting are more expensive than those performed at a doctor’s office or freestanding surgical center. Also, many physicians are now affiliated with a larger hospital group or health care entity and thus, charging more for services. Additionally, more people are seeking out behavioral healthcare, and the Mental Health Parity laws have put such appropriate services on par with covered medical procedures. All of this is exasperated by a shortage of skilled experts to provide services, such as nurses and doctors.
But, perhaps most of all, the demand for certain pharmaceutical brands tops the list. Following is a list of the top 10 selling drugs and the associated dollars spent by Medicare Part D in 2021 (source: Kaiser Family Foundation Analysis):
Drug Brand $ in Billions
While the inefficiencies and expensive treatments are evident, the free market is certainly responding with solutions. Generic forms of the diabetes and weight loss drugs (technically called Semaglutide or GLP-1s) are being developed for a much lower price. Coincidentally, the government is attempting to control pricing for a select list of expensive and commonly used drugs within the Medicare system. Although the pharmaceutical lobbying group (PhRMA) is suing the current administration on the grounds that the proposed negotiated pricing model violates several constitutional amendments and the separation-of-power principle, the administration is forging ahead on behalf of Medicare beneficiaries (Mostly people aged 65+). The drug manufacturers claim that forced price negotiations, as opposed to market based pricing, would significantly curtail profits, and force them to pull back on developing new treatments. Stay tuned to the airwaves for updates on that front.
Healthcare is certainly a complex web and involves skilled people, technologies, and business acumen. Therefore, while efforts will continue to persist in creating less expensive alternatives, don’t expect your cost of healthcare to go down anytime soon. Perhaps the best way to save is to create and sustain healthy habits.