Economics: Cost of Health Care

One of the RR readers posted a link to this CNN.com article.

And certainly, the immediate reaction is outrage.

However, we have to think a second time and get beyond the initial reaction.

The startling number: surgery that costs $33,127 in the USA versus $2930 in the UK.

Taking a closer look ...

At the bottom of the article, it turns out the hospital misquoted the cost to the patient: "We inadvertently provided an incorrect quote for the consumer," a hospital spokesman wrote in an e-mail. "The actual procedure price was less than half of what we initially quoted."

The cost should have been at most $17,850.

The number is still quite striking (rounding-off) $15K vs. $3K.

Why does it costs more in the USA?

If I was the CNN reporter, I would check the following ...

The author points out: "If something goes wrong, you don't have the same legal recourse as you have in the United States."

How much additional cost is due to malpractice considerations?

The author points out: Here's a list of hospitals accredited through the Joint Commission International. The joint commission inspects facilities to make sure they meet the necessary standards.

Which leads to this logical question: How much additional cost is due to the higher technology and perhaps higher certification requirements at US hospitals?

I hear that the USA has more MRIs than other countries and those gadgets costs lots of $$$. I would figure the cost of those devices get spread out among all cases whether or not those high tech imaging systems get used for any particular case.

It is a question of allocating resources. In most cases, having that MRI around doesn't help! So how many MRIs should we have when most cases don't need one?

And who wants to be the hospital without one when it is needed to make the diagnosis?

One also has to ask, how much are doctors in the USA paid compared to doctors in other countries?

In that $15K, how much is "labor" costs of the surgical team of doctors and nurses which is likely higher in the USA?

One last reality check: how much is due to "cost shifting?"

What is the "true cost" of care?

I hear that Medicare might pay X for Procedure A.

When Blue Cross pays, they pay Y > X for procedure A.

Medicare is the largest insurance program in the USA, it can ask for lower prices though doctors and hospitals could refuse to take Medicare patients with the exception of a life-threatening condition which leads to the scenario of "uncompensated care."

When a patient who can't pay (if a condition is life-threatening, US hospitals are required by law to provide the care whether or not it will be paid for), it falls into the hospital's accounting slot "uncompensated care." They may pay Z << X.

Add up X + Y + Z ... the hospital might then "overcharge" the person who pays "out-of-pocket" to make up the true cost of carrying out the procedures.

Since I'm not a health care blogger nor a reporter whose full time job it is to track down the numbers, I do wonder how much of the $$$ can be accounted for by the four questions I pose here?

There are problems in the US health care system; no doubt about it.

This CNN story highlights some of them beyond the obvious immediate one that one might think of.