Top 7 Drivers of Healthcare Costs

As the debate continues regarding healthcare reform, much of the discussion centers on expanding access, improving quality, creating affordable insurance and controlling cost, all of which are desirable goals. Costs seems to be the dominant point of contention.  Both sides of the aisle have different opinions of how their proposed reforms will impact costs. In order to address the cost issue, it’s important to understand the underlying drivers (www.wbcbaltimore.com). Here are my Top 7:

1. Utilization. Americans seem to have an unquenchable desire for medical services. Maybe it’s our therapeutic society, fueled by information access of the Internet and direct-to-consumer advertising. It’s also a primary outcome of third-party payments, where the consumers of care are not picking up the tab. They have been insulated from the phenomenal costs of treatment. Additionally, the current provider reimbursement system that pays on a fee-for-service basis, creates and environment where more procedures are ordered.
2. Cost Shifting. The adjustment that is made by providers to offset some of the losses they incur when supplying uncompensated care. Those with insurance get billed at a higher charge in order to make up this shortfall.
3. New Technologies. Innovation and advancements in medical devices, procedures and treatment therapies can add an estimated 20% of the cost growth trend. Biologic drug therapies will continue to represent a significant component in future healthcare spending.
4. Lifestyle Choices. It is estimated that as much as 50% of healthcare costs are the result of lifestyle choices and unhealthy behavior. Obesity,alcohol abuse, lack of exercise and smoking are major contributors.
5. Defensive Medicine.Fear of lawsuits motivates providers to perform excess diagnostic testing with no discernible patient benefit. Additionally,high cost malpractice insurance adds  overhead to medical practices that must be recouped through billing charges.
6. System Inefficiencies. Duplicate testing and lack of coordinated care through a non-integrated deliver system adds billions to our nation’s health care expense. Waste and fraud are additional unnecessary uses of resources.
7. Government Regulation/Mandates. Most states require insurance companies to cover a wide range of medical services which may or may not be critical to a patient’s overall health status. Fertility treatment, chiropractic care, and hair replacement are a few examples. Additionally, some states, through over-regulation, have driven insurers from issuing coverage, thereby reducing competition and increasing insurance premiums for those who choose to stay and do business.