Why is healthcare so expensive?

In my recent post, Why our healthcare system is like using a shopping cart for a BBQ, I briefly discussed a New Yorker article New Yorker article The Cost Conundrum – What a Texas town can teach us about healthcare.  In the unflattering article, writer Atul Gawande takes a trip to McAllen, TX to find out why it is one of the most expensive healthcare markets in the country.

“Only Miami—which has much higher labor and living costs—spends more per person on health care. In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.“

According the Dartmouth Atlas of Healthcare Texas, Louisiana, Florida, New York, New Jersey and Massachusetts have the highest Medicare Reimbursement rates in the US:

Is this because the citizens of those states are so much more sick?  Do they need more care? Or is there something else causing the disparity in Medicare Reimbursement?

According to Atul, the patients in McAllen are sick, but not worse than other lower cost areas of the country:

“One day, I went on rounds with Lester Dyke, a weather-beaten, ranch-owning fifty-three-year-old cardiac surgeon who grew up in Austin, did his surgical training with the Army all over the country, and settled into practice in Hidalgo County. He has not lacked for business: in the past twenty years, he has done some eight thousand heart operations, which exhausts me just thinking about it. I walked around with him as he checked in on ten or so of his patients who were recuperating at the three hospitals where he operates. It was easy to see what had landed them under his knife. They were nearly all obese or diabetic or both. Many had a family history of heart disease. Few were taking preventive measures, such as cholesterol-lowering drugs, which, studies indicate, would have obviated surgery for up to half of them.

Yet public-health statistics show that cardiovascular-disease rates in the county are actually lower than average, probably because its smoking rates are quite low. Rates of asthma, H.I.V., infant mortality, cancer, and injury are lower, too. El Paso County, eight hundred miles up the border, has essentially the same demographics. Both counties have a population of roughly seven hundred thousand, similar public-health statistics, and similar percentages of non-English speakers, illegal immigrants, and the unemployed. Yet in 2006 Medicare expenditures (our best approximation of over-all spending patterns) in El Paso were $7,504 per enrollee—half as much as in McAllen. An unhealthy population couldn’t possibly be the reason that McAllen’s health-care costs are so high. (Or the reason that America’s are. We may be more obese than any other industrialized nation, but we have among the lowest rates of smoking and alcoholism, and we are in the middle of the range for cardiovascular disease and diabetes.)”

Atul was impressed with the healthcare provided in this rural town:

“I was impressed. The place had virtually all the technology that you’d find at Harvard and Stanford and the Mayo Clinic, and, as I walked through that hospital on a dusty road in South Texas, this struck me as a remarkable thing. Rich towns get the new school buildings, fire trucks, and roads, not to mention the better teachers and police officers and civil engineers. Poor towns don’t. But that rule doesn’t hold for health care.

At McAllen Medical Center, I saw an orthopedic surgeon work under an operating microscope to remove a tumor that had wrapped around the spinal cord of a fourteen-year-old. At a home-health agency, I spoke to a nurse who could provide intravenous-drug therapy for patients with congestive heart failure. At McAllen Heart Hospital, I watched Dyke and a team of six do a coronary-artery bypass using technologies that didn’t exist a few years ago. At Renaissance, I talked with a neonatologist who trained at my hospital, in Boston, and brought McAllen new skills and technologies for premature babies. “I’ve had nurses come up to me and say, ‘I never knew these babies could survive,’ ” he said.

And yet there’s no evidence that the treatments and technologies available at McAllen are better than those found elsewhere in the country. The annual reports that hospitals file with Medicare show that those in McAllen and El Paso offer comparable technologies—neonatal intensive-care units, advanced cardiac services, PET scans, and so on. Public statistics show no difference in the supply of doctors. Hidalgo County actually has fewer specialists than the national average.

Nor does the care given in McAllen stand out for its quality. Medicare ranks hospitals on twenty-five metrics of care. On all but two of these, McAllen’s five largest hospitals performed worse, on average, than El Paso’s. McAllen costs Medicare seven thousand dollars more per person each year than does the average city in America. But not, so far as one can tell, because it’s delivering better health care.

So why is healthcare so expensive in McAllen?  Later at a dinner with doctors from McAllen, TX the author gave the doctors a hypothetical situation:

“A forty-year-old woman comes in with chest pain after a fight with her husband. An EKG is normal. The chest pain goes away. She has no family history of heart disease. What did McAllen doctors do fifteen years ago?

Send her home, they said. Maybe get a stress test to confirm that there’s no issue, but even that might be overkill.

And today? Today, the cardiologist said, she would get a stress test, an echocardiogram, a mobile Holter monitor, and maybe even a cardiac catheterization.

“Oh, she’s definitely getting a cath,” the internist said, laughing grimly.”

Later in the article:

“Providing health care is like building a house. The task requires experts, expensive equipment and materials, and a huge amount of coördination. Imagine that, instead of paying a contractor to pull a team together and keep them on track, you paid an electrician for every outlet he recommends, a plumber for every faucet, and a carpenter for every cabinet. Would you be surprised if you got a house with a thousand outlets, faucets, and cabinets, at three times the cost you expected, and the whole thing fell apart a couple of years later? Getting the country’s best electrician on the job (he trained at Harvard, somebody tells you) isn’t going to solve this problem. Nor will changing the person who writes him the check.”

Doctors are not evil as Atul is trying to allude to in this article, they are being forced to practice defensive medicine.  Even with malpractice reform in Texas, doctor’s reputation as well as their ability to get malpractice insurance can and will be severely hampered if they get sued by a patient even if the lawsuit is frivolous.   I have spoken to dozens of doctors regarding this and it is at the back of their mind in almost every situation.

If an ER doctor can have a 70% chance of getting the diagnosis correct with one test, 80% with three tests and 90% with six tests, guess how many tests the doctor is going to order?

Not only does it not affect the doctor negatively to order more tests, in certain cases they can actually profit for it.  Show me a human that would not do the exact same actions as these doctors and I’ll show you a liar.

Patients for their part, want a 90% chance of diagnosis if they have the opportunity and since they don’t ever see the actual costs of the procedures, you can bet that they will happily participate in six tests.

As a patient, I want these tests, I have insurance so I say do the tests.

And there lies the problem.  If doctors want more tests and patients want more tests then we are going to get more tests.  More tests equal more money and more money is not a reasonable outcome.   Remember the Atlantic Article that I wrote about recently?  David said:

“Every time you walk into a doctor’s office, it’s implicit that someone else will be paying most or all of your bill; for most of us, that means we give less attention to prices for medical services than we do to prices for anything else. Most physicians, meanwhile, benefit financially from ordering diagnostic tests, doing procedures, and scheduling follow-up appointments. Combine these two features of the system with a third—the informational advantage that extensive training has given physicians over their patients, and the authority that advantage confers—and you have a system where physicians can, to some extent, generate demand at will.”

A recent Wall Street Journal Article says:

At the University of Miami School of Medicine’s patient practice, 14 cents out of every dollar collected in fees for services to patients goes toward buying medical malpractice insurance, says William Donelan, the university’s vice president for medical administration. That figure doesn’t include costs of defensive medicine, which are difficult to quantify, he says”

If all we do is provide insurance to more people we are going to bankrupt the system.