The Driving Forces Behind the High Cost of Health Care

By Kurland, Orin M. | Risk Management, January 1994 | Go to article overview

The Driving Forces Behind the High Cost of Health Care


Kurland, Orin M., Risk Management


The United States reportedly is spending about $1 trillion on health care expenses, with an annual increase of roughly $30 billion. At the recently held REBEX '93 conference in Rosemont, Illinois, Dr. Gerald Osband, vice president for medical affairs for the Wausau Insurance Cos. in Wausau, Wisconsin, related a host of reasons for the increased cost in health care over the past decade, including: people's lifestyles (smoking, alcohol and drug abuse); an aging population (long-term care and nursing home costs are going up); significant lack of primary care practitioners; lack of tort reform; physicians self-referral to establishments they have controlling interests in; and technology.

Dr. Osband emphasizes the importance of technology in driving health care costs. "The greatest force moving us forward in terms of increasing health care costs appears to be technology. Almost half of the annual increase goes into new medical technology," he said, adding that 30 percent of Medicare expenses occur during the final year of life, with the bulk of those expenditures occurring in the last month. The reason for this is, "we as a society are not willing to forego the latest technology [to prolong life], which is moving along much faster than the clinical benefit," he said.

But there are other significant factors fueling the increase in health care costs. For example, it is estimated that anywhere between $20 and $30 billion per year are spent on defensive medicine issues (e.g., ordering extra tests). Also, as employee benefits got tighter, there was cost shifting to workers' compensation. This is significant because, according to studies Dr. Osband cited, employers are paying 110 percent more for workers' compensation medical care than for the same injuries under group health care, due in part to higher overhead for claims processing

Also to be considered is the prediction that by the year 2000, prescription drug costs as a percentage of health care will top 20 percent. As with the escalating costs of health care itself, the reasons are numerous: increased liability costs; alternate therapies--drugs replacing traditional surgical procedures; new therapies for AIDS, controlling cholesterol; greater emphasis on outpatient therapies; an aging population causing increased utilization; and a shift to generic drugs.

Intuitively, one would think that the last item--a shift to the use of generics--would lower costs, and it can, but there are market side effects, according to Greg Rucinski, president of Serv-U IPA Inc. …

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