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Clinical Laboratories and Pathology Groups

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Clinical Laboratories and Pathology Groups

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What Makes US Healthcare So Expensive? It’s Price, Not Overutilization, Say Researchers at IHME and UCLA

Recent studies exploring the economics behind the high price of US healthcare independently point to the price of labor, goods, services, administrative costs, and pharmaceuticals as primary reason why the US spends almost twice as much as peer countries on healthcare

It is regularly reported that the cost of healthcare in the United States is notably more expensive that in most developed nations. Overutilization of medical services in this country is often given as a reason why this is true. But the findings of a new research study suggest that the reason healthcare in the US is expensive is not due to overutilization. Rather, it is because of the much higher prices American patients pay for services, including clinical laboratory testing.

This recent study contradicts the claims of some experts who say overutilization is to blame for the high cost of healthcare in the United States. The research was conducted by researchers at the Institute for Health Metrics and Evaluation (IHME) in Seattle and the UCLA David Geffen School of Medicine. They attribute the overarching factor in high healthcare costs not to high utilization of services—such as clinical laboratory and anatomic pathology testing—or increased rates of illness.

Instead, the researchers found that it’s simply a matter of higher prices for healthcare delivered in this nation, compared to other healthcare systems around the globe. This is what makes America’s healthcare system so expensive. And, lacking financial incentives for stakeholders to lower prices, these researchers suggest that continued high costs could negatively impact providers’ quality of care.

High Cost of Diagnostic Services, including Medical Laboratory Testing

The IHME/UCLA researchers published their findings in the Journal of the American Medical Association (JAMA), in which they argued that increases in US healthcare cost are independent of increases in:

  • Disease prevalence;
  • US population age;
  • Use of healthcare services; or,
  • Overall population size.

Joseph L. Dieleman, PhD, Assistant Professor at IHME and lead researcher on the investigation, stated, “After adjustments for price inflation, annual healthcare spending on inpatient, ambulatory, retail pharmaceutical, nursing facility, emergency department, and dental care increased by $933.5 billion between 1996 and 2013—from $1.2 trillion to $2.1 trillion.”

Data produced by the study identified one overlying factor in increased spending—increased prices. According to Dieleman, health spending in 2015 “reached $3.2 trillion and constituted 17.8% of the US economy.”

In an editorial response to Dieleman’s investigation, also published in JAMA, Patrick H. Conway, MD, MSc (above), President and CEO of Blue Cross Blue Shield of North Carolina in Durham, stated that “the United States is on an unsustainable growth path in terms of healthcare costs and must get costs under control.” He added that data from Dieleman’s study has important implications for quality of healthcare, which may include medical laboratory diagnostics. (Photo copyright: Duke University.)

Price Spirals and Artificial Price Hikes: No Real Incentive for Regulation

Pricing for medical care is notoriously opaque. Patients are often unaware of the cost of services until the bill arrives. This lack of transparency prevents patients from comparing prices between healthcare providers and medical laboratories.

To try and create some cost transparency for consumers, Conway noted that some states, such as Maryland and Vermont, have adopted multi-payer payment models or all-payer rate settings. However, there could be resistance to such reforms, according to some experts.

Health economist Austin Frakt, PhD; and Aaron E. Carroll, MD, MS, Vice Chair for Health Policy and Outcomes Research, and Director of the Center for Health Policy and Professionalism Research at Indiana University School of Medicine, co-authored a New York Times article that agrees with Conway’s assertion. In it, they state that attempts to create regulation for healthcare prices “would be met with resistance from all those who directly benefit from high prices, including physicians, hospitals, pharmaceutical companies—and pretty much every other provider of healthcare in the United States.”

No Incentive to Lower the Prices of Medical Services

An opinion piece in the Wall Street Journal, Keith Lemer, CEO, WellNet Healthcare Group, shared a similar view. He stating that insurers and preferred provider organizations (PPOs) have no “natural incentive to keep provider prices down.” Lemer looks at the Affordable Care Act and its establishment of a medical loss ratio rule, which “requires insurers covering individuals and small businesses to spend at least 80 cents of every premium dollar on medical expenses.”

Lemer uses the cost of a routine blood test as an example, stating that when providers raise costs of such tests, “insurers can charge higher premiums, while also boosting the value of their 20% share,” which goes “towards administrative costs and profits.”

Lemer argues that the deck is stacked against consumers, and that the medical loss ratio “encourages insurers to ignore providers” artificial price hikes,” while attracting customers “with the promise of steep discounts through their PPO plans.” The resulting affect is what Lemer calls a “price spiral” that’s difficult to escape.

Higher Costs Do Not Equate to Better Care

A special JAMA communication from Irene Papanicolas, PhD, and other members of the Department of Health Policy and Management, Harvard T. H. Chan School of Public Health, Harvard Global Health Institute, and Department of Health Policy at the London School of Economics and Political Science, reports that higher US costs do not coincide with better care.

In comparison to 10 other high-income countries the US spends “approximately twice as much,” Papanicolas noted. She added that despite the higher spending in the US, the nation “performs poorly in areas such as healthcare coverage and health outcomes.”

To illustrate the difference in average costs, Papanicolas and colleagues listed “comparison prices” on a series of healthcare services between countries in 2013. For example, the price of a single computed tomography (CT) scan varies widely:

  • $896 (US);
  • $97 (Canada);
  • $279 (Netherlands); and,
  • $500 (Australia).

The high prices of clinical laboratory (AKA, pathology laboratory in Australia) diagnostics have already caused a sharp decline in the use of important imaging utilization and are at risk of affecting other aspects of clinical pathology, such as anatomic pathology (histopathology in AU) services.

PricewaterhouseCoopers (PwC) Health Research Institute’s annual medical cost report predicts 2018 medical costs will rise by 6.5% and that “price continues to be a major driver of healthcare costs” that are outpacing the economy. PwC recommends “increasing collaboration across the industry” to address the growing issue of rising medical costs and shift the burden of cost away from patients.

Clinical Laboratories Contribute to High Costs

Although US healthcare cost is a topic of intense conversation, little change may come if there is no incentive to change. Each of the recent JAMA published articles ends on the same repeated note: a plea for active debate among policy makers, healthcare providers, patients, insurers, and politicians, with the goal of decreasing healthcare costs, without sacrificing patient care.

This is also true for clinical laboratory and anatomic pathology stakeholders, which are critical aspects of the healthcare continuum, and therefore, contribute to the overall financial burden on healthcare consumers.

Amanda Warren

Related Information:

Why the US Spends So Much More Than Other Nations on Healthcare

Healthcare Spending in the United States and Other High-Income Countries

Factors Associated with Increases in US Healthcare Spending, 1996-2013

Factors Associated with Increased US Healthcare Spending: Implications for Controlling Healthcare Costs (Editorial Response)

The Best Healthcare System in the World: Which One Would You Pick?

The Deception Behind Those In-Network Health ‘Discounts’

Medical Cost Trend: Behind the Numbers 2018

Bill and Melinda Gates Foundation Seeks Better Accountability in How Philanthropic Dollars Are Put to Work

We are witnessing a major shift in philanthropy, which will have a major impact on how charitable dollars are spent to improve healthcare outcomes. Many philanthropists are happy to get the positive press that comes with a large donation and worry very little about what actually becomes of the money. This is not the case with the Bill & Melinda Gates Foundation. It is putting hundreds of millions of dollars into projects that will track and report on the actual improvements that result from charitable gifts.

The foundation made its second large gift to health care tracking this year, a $105 million grant to the University of Washington to measure the impact of public health programs globally. In 2005, the foundation donated $50 million to create the Health Metrics Network with the World Health Organization. Both of these large gifts from the Gates Foundation have similar purposes — to better track the private money spent on health and to use statistical measures to determine the effectiveness of the Foundation’s grant-giving. The 10-year Gates grant to the University of Washington will be combined with $20 million from the University to establish and operate the Institute for Health Metrics and Evaluation in Seattle. The 2005 Gates Foundation health care grant funds programs that generate information on health in developing countries.

The Institute for Health Metrics and Evaluation will collect and analyze data on health trends, such as the prevalence of major diseases and the availability of health services. It will also conduct independent evaluations of the effectiveness of health programs. Institute officials point out that there is an absence of available statistics in global health, particularly in contrast to the available data in business and other sectors. There is a possibility that such health program data is unavailable by design, and that the Institute may face resistance from governments and organizations that want to evade measurement.

The desire for the Gates Foundation to have greater transparency in health care is designed to put pressure on global health care and aid organizations to track and measure each dollar spent and results achieved. Organizations that cannot account for dollars spent and how these dollars benefited the recipients will likely see donors reluctant to make donations.

Because of the role of laboratory testing in early detection, diagnosis, therapeutic decisions, and ongoing monitoring of patient progress, the transparency drive of the Gates Foundation can be expected to increase both the utilization and societal value of laboratory testing. After all, lab test results provide objective benchmarks for validating all types of clinical, operational, and societal improvements.

Related Articles:

Gates Grant Targets Health Gauges
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