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Healthcare Business Intelligence

Three Reasons Healthcare is So Expensive in the United States

Posted by Ron Stephenson

Jul 28, 2016 12:30:00 PM

healthcareThere is no way around it: healthcare in the United States is expensive. The U.S. is ranked #1 in terms of total health expenditure per capita, but is 37th out of 191 countries according to its performance. According to Consumer Reports, if the United States’ $3 trillion healthcare sector was ranked as its own country, it would be the world’s fifth largest economy.

Although healthcare organizations are trying to reduce their cost of operations and pass those savings onto patients through the use of big data and healthcare analytics, issues that contribute to the high cost of healthcare in this country include greater use of advanced technology, administrative and drug costs and defensive medicine. In addition, the pricing of medical care isn’t transparent, so most consumers don’t know exactly what they’re paying for when healthcare services are provided.

Administrative Costs Add Up

A study published in Health Affairs noted that administrative costs made up approximately 25 percent of total hospital spending in the United States. Part of the reason for these high costs is that the U.S. has to negotiate payment rates with multiple payers, all of which have varying billing procedures and protocols and documentation requirements. Another reason is costs incurred through administrative overhead – physicians and other clinicians have to spend time to learn multiple rules and procedures of multiple insurance companies.

Putting a Payment on Prescription Drugs

Although consumers in the United States have access to more and better drugs, prices for these prescription drugs aren’t regulated in this country. Unlike many other countries, the U.S. government does not negotiate prescription drug prices with pharmaceutical companies, resulting in rapidly increasing drug costs. In addition, Medicare is not allowed to negotiate prices for prescription drugs, even though it’s the largest single payer in the country for such drugs. Prescription drugs in the United States cost 30 to 300 percent more for identical drugs sold in Canada.

Defensive Medicine and Malpractice

Gallup reports that one in four healthcare dollars spent in healthcare, about $650 billion annually, can be attributed to defensive medicine, which means physicians are taking steps to avoid being sued for malpractice. Defensive medicine is a wasteful but fairly common practice in the healthcare industry and may include unnecessary tests, procedures, referrals that result in high and unnecessary costs. Physicians using defensive medicine try to protect themselves from liability from missing a diagnosis instead of taking steps to correctly care for a patient.

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Topics: Healthcare Analytics

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