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Why Do Healthcare Costs Increase So Much?

Why Do Healthcare Costs Increase So Much?

By Joe Mott, Vice President, Healthcare Transformation

Apr 17, 2015

Updated Jul 13, 2023

5 min read

Sudden Cardiac Arrest

Spending on healthcare typically increases at a higher rate compared to spending increases for other goods and services—and this is a problem for consumers and businesses that struggle to pay for healthcare and health insurance. Many factors contribute to healthcare inflation, but three major factors are:  1) a lack of standards defining the effectiveness of different types of care; 2) patients who are not fully empowered and engaged in decisions about their health and care; and 3) a payment model that encourages the provision of high volumes of care rather than care that is safe and effective.

Problem 1: Lack of evidence-based standards of care. Much of the healthcare provided in the United States is of little benefit to patients. In fact, many experts estimate the rate of overtreatment to be north of 30% of all the care that is given.  Providers don’t purposely or consciously provide care their patients don’t need. The fact is, providers and patients are stuck in a “system” that does not do a good job of identifying and supporting the delivery of care that is supported by evidence. So that’s our first problem: we lack evidence-based standards to support care that patients receive.

Problem 2: Need for greater patient engagement and empowerment. The second problem is that patients are often insufficiently engaged in decisions about their own health and care. Individuals too often do not connect how their behavior influences their health outcomes. And they expect that when they have a health problem, the “system” will both fix it and pay for it. In reality, patients have enormous control over the cost and outcomes of their healthcare – principally by managing their own health – and we can do a much better job of supporting that. We also frequently see patients demand medicines and treatments based on what they hear from their neighbor or see on TV, when in reality, that treatment may not help them at all. In the end, many patients end up receiving unnecessary – and sometimes harmful – care that directly contributes to poorer health and higher costs, reflected in premium increases and higher medical bills.

Problem 3: Payment based on output rather than outcome. The third problem is that hospitals and doctors are paid to do things. They are not paid to keep their patients well, but only to “do something.”  A new payment model is needed in which all parties are incentivized to seek the best possible health and highly effective care.  Such a model would continue to pay providers for the services they provide but would also base payment partly on clinical quality, service quality, and wise use of resources.  The payment system should encourage providers to do more of the things that matter and fewer of the things that don’t.

The real kicker is when you consider these three problems not in isolation, but working together. Think about it: If physicians do not have clearly defined and evidence-based standards, if patients are asking for tests or treatments that aren’t helpful, and if providers are paid more to grant such requests, you can see that the bias toward unnecessary and ineffective treatment is simply the path of least resistance.

I have described this assessment to more than 500 physicians around the state of Utah and have had only one tell me this description of our healthcare system is wrong. Most have responded that this is indeed the system in which they find themselves. In fact, one physician approached me after a presentation and lamented that he has felt trapped in a system that has almost compelled him to do things he didn’t think he should do.

So, these are our problems. We need to own them, and until we solve all three – and they must be solved simultaneously – we will continue to fail to rein in healthcare costs. Left unaddressed, these three flaws that are inherent in our current system will continue to drive costs higher and higher without a proportional increase in benefit.

There is much excitement around the country about new arrangements, new payment models, and new contracts, all of which are needed and appropriate. But unless we are also fundamentally changing the delivery of healthcare and the way we care for ourselves, we will have simply been shifting the money and risk from one part of the system to another – merely playing musical chairs and waiting to see what new party is left holding the bag.