Why Does It Cost So Much?

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Why are health costs rising? Here are a few reasons:

“…The big problem that may explain why health care spending is so much higher in some places than others — without any evidence that the patients do better because of it — is that doctors have too many incentives to give patients more and more care, rather than better care. As long as they get paid for each medical service they give their patients, they have little reason to ask whether a test or procedure is really necessary.

“In an influential article in The New Yorker last year, author and surgeon Atul Gawande compared the practice of medicine in two Texas towns, McAllen and El Paso, to find out why McAllen spends so much more on its health care even though the demographics are about the same in both places. He found that McAllen had lots of doctors who owned surgical or imaging centers and used them to bring in revenues. McAllen didn’t have better care. It just had more of it.

“The problem isn’t just that health care providers are paid to perform too many services. It’s that specialists are rewarded more than the primary care physicians who are likely to be needed in coming years. Robert A. Berenson, a senior fellow at the Urban Institute, studied Medicare’s payment rates and found that radiologists, surgeons, cardiologists and dermatologists earn more per hour than the primary care physicians who perform important, basic services. The same is true for private health insurance, which often takes its cues from Medicare.”  The full report, “Medicare: An Entitlement Out of Control/Health Care Program Is Unsustainable, but Politically Untouchable, by David Nather of the Center for Public Integrity (Nov. 7, 2010) is available here.