Where does all the health-care money go?

Every company and town government I hear of, not to mention individuals, says that skyrocketing health care costs are the single biggest, and uncontrollable, problem in their budget.

Taking a macro-view of our (US) economy - where is all that money going? They don’t just put that money in a pile and burn it. My Doctor sure isn’t getting rich. Some must be going to drug companies. (I base this on reports of wildly marked up prescription costs in the US vs the same drugs from the same manufacturers being available for far less in Canada.) But even then who gets the money? Just a few people near the top, or does it ripple through the drug companies and their investors and down to all the employees. The same thing with all the “extra care and procedures” people are getting nowadays It either lines a few pockets, or it ultimately ripples back into the economy in the form of salaries of health care workers.

I have zero view into the economics of the health care business. I just know why my employer says he can’t afford to give me a raise, and why my town government needs to raise taxes.

Here’s a few:
[ul][li]High insurance premiums to protect doctors from malpractice suits.[/li][li]Unnecessary procedures ordered by doctors, falling under CYA.[/li][li]High priced procedures such as MRI’s (the equipment is very expensive)[/li][li]Pivate rooms. Who would want to share a room or be put in a ward.[/li][li]Cost of meeting all kinds of standards. This is generally good, but I’ll bet some are a total waste of time and money.[/li]
:wink: [sup]That’s my 2 cents worth.[/sup][/ul]

Our health care coverage keeps going up in large amounts and the reason appears to be mainly drug costs. Based on different plans, you get different coverage. Getting better Rx coverage is the biggest extra cost among them.

The malpractice insurance companies have taken a serious beating in the stock market lately. They have raised doctors’ insurance premiums to cover their mistakes. Actual payouts to victims are small potatoes by comparison. (And permanently banning bad doctors would fix most of that.) Don’t believe anything you hear from an industry that gets parrotted by a senator. (Consumer Reports covers this issue regularly.)

As for other costs, general paperwork/clerical costs have been skyrocketing in recent years. All over, hospitals, insurance companies, etc. The clerks shall inherit the economy.

Rock! Myself, I’m a medical records clerk at a hospital in Philadelphia, and I sure hope you’re right, ftg.

I am by no means an expert when it comes to the economies of health care, but i can talk about a few things I’ve noticed working in the health care field these last few years.

One factor is regulations, both federal and local. These regulations are often very sensible and useful, but do cost money to implement. For instance, a few minutes ago i had to take a test to get certified for HIPAA (a patient information privacy act, passed by Congress in 96). I would wager that the cost of certifying all the health employees, you know like having someone write the test and other people formulate the policies and yet other maintain the databasi, must be staggering.

Equipment is another big cost. There’s the price of the machine, the upkeep of the expensive machinery, and (most importantly) the wages of the people who keep up and run the expensive equipment. Operating an isotronic lithotripter takes a hell of a lot of training (I know- you think, “How hard could it be?”), which is pretty damn expensive, so those people need to be compensated. Plus, they have a pretty marketable and in-demand skill, so the bare economics says they should get paid a lot.

oops- i finished my certification early, and my boss said that we can go home when we’re done (sweet!), so i will have to finish this later.



I’m going to address some of these points.

“Unnecessary” procedures are defined pretty vaguely. It’s true that some doctors order more tests than others, but this is sometimes justified. There are a lot of surgeons, for example, who want every patient to have a chest x-ray and an EKG prior to surgery, along with a battery of lab tests before they’ll do elective surgery on a patient. But there’s a sound reason for this. No surgeon wants a patient at high risk to undergo anesthesia, and the anesthesiologist wants to know the overall health of the patient before deciding what anesthesia to use. The cost of the chest x-ray, EKG, and labwork is necessary to prevent a patient from possibly dying from anesthesia or the physical stresses of surgery. In any case, I’ve seen patients initially diagnosed with serious illness during “routine” tests. It’s a simple cost-benefit analysis. It’s cheaper to do a bunch of tests and find something and treat it early than it is to put the patient through anesthesia and surgery and risk serious complications.

It’s true that there are some doctors who order everything under the sun just to protect themselves. These tests generally aren’t covered, because they don’t fall under “medical necessity.” The patient either has no symptoms that justify the test, or the symptoms the patient does have don’t match the purpose of the test. In other words, an insurance company isn’t going to cover an MRI of the brain when the patient has a broken leg. And guess what! The doctor usually has to eat the loss.

It’s also true that medical equipment is expensive. An ultrasound machine can cost upwards of $100,000; and an MRI machine can run in the millions. All machines have to be maintained, and that isn’t cheap, either. An X-ray tube can run $25,000, even on an older machine. Patients generally won’t stand for it if a hospital’s equipment is that much out of date, even if it’s still serviceable.

Now for the private room thing. In most states, hospitals are no longer reimbursed per charge, as they used to be. They’re paid by the diagnosis. So, for example, if a maternity patient delivers, the hospital is paid a flat rate based on what a delivery is worth. This covers the delivery room, hospital room, nursing care for the mother after delivery, drugs, supplies, the whole ball of wax. (The baby is paid separately under a newborn diagnosis.) Diagnosis-related groups (DRGs – the system under which hospital claims are paid) is a way to reduce needless costs, because these cut into the hospital’s bottom line. Complications are factored in, and will reassign the patient to a different DRG, with a corresponding increase in reimbursement.

Even in states that don’t bill by DRGs, most insurance companies won’t pay for a private room without medical necessity. For example, if you’re Joe Blow, and you’re in for hernia surgery, you’re getting a semi-private room unless you need a private room because you’ve got an infection, or need to be isolated for some other medical reason. Even if you ask for and get a private room, the insurance company is going to pay for a semi-private room, and you get to pay the difference.

Finally, some patients do demand and get specific procedures done. An article in a popular magazine like Modern Maturity will cause some people to demand the tests described, even when there is no medical reason to do those tests. When I worked in radiology billing, I’d get phone calls from patients demanding to know why their heart CTs weren’t being covered, even though their doctors ordered them. I had to explain that heart CTs weren’t a covered expense without medical necessity, and a doctor’s order isn’t enough to justify medical necessity.

There are a lot of details in insurance. Believe me.


Old people living 30 years past retirement in a system that expected them to live 5.

One of the main reasons drug costs are so high is the tremendous investment drug companies have in reasearch and development. All these new and powerful drugs don’t just spring up overnight. It takes years of testing to get to the point where a new drug can be submitted to the FDA for approval and then it has to go through an extensive approval process. By the time it is finally approved the drug company has an enormous amount invested that must be recouped before it can show a profit.

In addition to everything that’s been mentioned, it’s the success of medical care that makes the total cost of health care go up. A few decades ago, a person who had a heart attack or a tumor or liver damage simply died, and that person never again had a procedure or test done. Nowaways, a person with the same ailments can often be successfully treated, and thus we have the expense of their treatment and recovery, followed by a lifetime of related and unrelated medical expenses needed.

anybody know where to look to compare Drug Company R&D, vs Drug Company advertising? that thought just popped into my head, and i haven’t the foggiest. thanks,


While drug companies do spend a lot on R&D, and this is a good thing, they also charge ridiculous amounts for drugs that didn’t cost much to develop. The stuff I take for ulcerative colitis, for example, is basically just a coated aspirin, but costs 100 bucks a month to take 4 a day. Sounds like printing money to me.

Some items that I think need to be minded/explained:

-The insane amount of money that goes to the CEO’s.

-The amount of money they use for political support of like-minded politicians to keep any reforms at bay.

-And the amount of money US health corporations are using to influence Latin American and other poor countries to privatize their health care.

BTW not all this is bad :dubious: , but I think that forgetting all that misses a big part of the whole picture

Gorsnak what medication are you refering to?

A large amount of what your insurance pays the hospital after your visit goes into covering the cost of people who pay nothing and Medicare/Medicaid patients. Basically medicare tells hospitals what it will pay for a procedure. If the actual costs for that procedure are more than medicare is willing to pay, the hospital will increase the cost to other patients to recoup the difference. Now, insurance companies will say to the hospital “We know what a procedure costs, and we’ll pay you 80% of what your normal charge is.” Now the patient with no medicare or insurance is charged 100% and can either attempt to pay it off or pay nothing, which causes the hospital to increase their charges to recoup the losses etc etc.

Many states have laws stipulating that hospitals cannot refuse a patient with a life threating condition even if the patient cannot pay. The cost is passed on to the insurance companies by setting prices of health care to compensate the hospital for the loss. Hospitals base prices for treatment, medicines, equipment, etc. with the lost revenue of the free major treatment of the uninsured figured in. Therefore insurance premiums are higher because the insured are paying not only for their minor and major treatments but also for the major treatment of the uninsured.

And let’s not forget all the money spent on marketing direct to the consumer as well as to the physicians and other medical personnel. Medical equipment and pharmaceutical sales reps have absolutely indecent entertainment budgets. Public and government scrutiny has curtailed some of the more blatant abuses, but lunches, dinners, pro sports tickets, and “educational” trips are still the norm.

I remember an analysis of medical insurance (back in the Hilary Clinton health policy studies days)(and since), that compared the percentage of medical insurance premiums that goes to health care, to the percentage to insurance-company executive compensation and stockholders’ profits.

Old figures, per memory it was 20% or 40% of the dollar that were of no benefit to the consumer, ie $200 or $400 of each thousand dollars. That’s why Hilary proposed a “single payer” system like Canada’s. And that was why there was such an intense anti-Hilary campaign at the time.

…Other issue comes to mind, has anyone else tracked the Tenet Health-care apparent milking of the system? They are the ones charged with multiple unnecessary heart surgeries, and with defrauding Medicare throughout their major chain of hospitals. They are under Federal investigation now, and their stock price has crashed since the revelations.

As per prior comments, there are many legitimate and fairly legitimate costs in health care. I’m for standards, especially competently designed ones. My uncle is in a “skilled nursing facility” right now and there are a lot of personnel available the clock around to keep him OK, and someone has to pay them.

This is a somewhat different slant, but consider the overall lifestyle of a population. Is it a population which enjoys and values exercise? Healthy diet? Refrains from smoking or excessive drinking? I think we can all agree that we Americans in particular could be considerably healthier than we are.

I don’t know exact numbers or hype, but it seems the kids growing up today will be a generation consisting of many obese adults, with all the associated health risks. So consider the fact that smokers and fat people add a good deal to healthcare cost, more than should be necessary for a healthy, strong population.

It’s not exactly aspirin, but a very closely related NSAID.

I can tell you about the lab I work in. We do genetic tests.

We have three machines that extract DNA for us, at about 85 grand a pop. We have four machines that do the PCR and get results - roughly 30 grand a pop. The supplies to keep these machines running and doing useful work cost about $30,000 a month. That’s where a huge chunk of our money goes.

probably a mixture of things. Off the top of my head i would say
Newer technologies & drugs that are expensive to implement & provide

Increased rates of obesity (i think its 2x what it was 20 years ago)

People are living longer

A shortage of healthcare professionals like nurses or technicians is driving up wages (a friend of my brothers wife makes $31 an hour with an associates degree from community college).

Increasing medical malpractise insurance for doctors

Basically, we are paying more because we are doing more and getting more.

30 years ago we had no “techs” to speak of, but then, only one or two really top hospitals had MRIs, PET scans, ultrasound, and the host of other wizardry that we use on a regular basis, today, even in small clinics. Each of those machines requires a staff of trained people to operate them, interpret their results, and maintain them, and the only way to get people to take the training to do that is to offer them a competitive wage that will allow them to pay off their student loans and then make a comfortable living.

We now have laser surgery, laparoscopic surgery, and dozens of other procedures that provide cleaner, safer, more effective treatment than the old “cut 'em open and see what we’ve got” surgeries. We have titanium and plastic and composite replacement parts for bones and organs the failure of which meant permanent disability or death as recently as 15 or 20 years ago. (Look up the mortality figures for people with broken hips from 25 years ago. Immobilized, huge numbers of those people used to sink into depression and simply give up living. Now, with new hips, they go out and live for another 15 years or more.) We are transplanting organs and creating artificial organs. Not only do the procedures cost money to develop and perfect, but people need to be trained to perform them (and many require trained technicians or medical specialists to carry them out).

The standard statistic for drug development (for which I have never seen a reasonable rebuttal) is that the drug companies initiate 5,000 attempts for each drug that finally comes to market. That is a lot of investment for the drug companies. (I think that some attempts to extend patent life on some drugs is excessive, but the drug companies are hardly minting money.)

For that investment, we are also getting drugs to handle conditions in ways that we could not imagine a few years ago. For example, as recently as five years ago, Rheumatoid Arthritis was treated (basically) with aspirin plus the advice that the patient should resign themselves to a life of suffering. In the last couple of years, a new drug therapy has provided a very large number of RA sufferers with a significant reduction in pain and a nearly complete restoration of movement. However, the therapy costs $10,000 per year. Is it worth it? I, myself, am not prepared to tell a sufferer of RA to go back to the aspirin, pain, and disability.

Much is made of comparisons between the Canadian and U.S. systems for drugs and treatment. However, with the caps on pricing that Canada imposed, that country no longer has a pharmaceutical industry that is developing new medicine–although they used to. And, while they have a burgeoning generics industry, they must wait for the U.S. or Switzerland to develop the medicine before they can create a generic. (And, while their generics are much cheaper than U.S. “brand name” products, once a drug makes it to the generic market in the U.S., it is often cheaper than the Canadian generic.) Similarly, there are several U.S. border towns with prospering clinics for cancer and such that make most of their money simply treating Canadians wealthy enough to come to the U.S. for treatments that are either unavailable or require lengthy waiting periods to be scheduled in Canada.

There is much that is wrong with the way that health is financed and funded (those being separate operations) in the U.S. However, any simplistic finger-pointing at “greedy” companies, doctors, or whoever is probably missing the point.