In the Texas Community

Blue Promise: The Cost of Health Care in the US

Why are health care costs in the U.S. so much more expensive than health costs in comparable countries around the world? Dr. McCoy discusses how we can contain these runaway costs with Dr. Paul Hain, BCBSTX North Texas Market President, and co-host Ross Blackstone, Director of Strategic Influence. You can listen to the complete discussion in podcast form on Apple Podcasts and SoundCloud.

Blue Promise is an online video blog that aims to address complicated health issues with candid conversations from subject matter experts. New editions are published regularly and are hosted by Dr. Dan McCoy, President of Blue Cross and Blue Shield of Texas.

Show Transcript

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DAN:

Dallas is currently ranked as the most expensive city in America for healthcare and the United States is at the top of the list for the rest of the world.  Why are costs so high and what can we do about it? Thanks for joining us for this edition of Blue Promise, I'm Dr. Dan McCoy and I'm the President of Blue Cross Blue Shield of Texas.  I'm here today with my cohost, Ross Blackstone.

 

ROSS:

Thank you Dr. McCoy we have Dr. Paul Hain here with us as well

 

PAUL:

Hello

 

ROSS:

Hello. He's the Market President for the North Texas market

 

PAUL:

That's true

 

ROSS:

and Blue Cross Blue Shield of Texas So Dr. Hain a recent study showed that the United States spent 650 billion

dollars more on health care than other comparable countries why is it so expensive over here?

 

PAUL:

You know it's really pretty simple, in the late great economist, Uwe Reinhardt, pointed this out to us in 2003 even though

it hasn't fully sunk in yet he's still correct. He wrote this great article called IT'S THE PRICES STUPID and that explains everything right.  We are so overpriced compared to the rest of the world... the developing economies in Europe. That explains the vast majority of why healthcare is such a huge percentage of our GDP.

 

ROSS:

So for example a typical appendectomy in the United States costs about 20,000 dollars in Europe or other developed countries

it costs about half that price

 

PAUL:

Exactly. It's really what we are paying through the whole system for these types of things and the acceleration is what's really stunning when you look at it so if you go back in time to the early 80s we were a rounding error more than the rest of Europe

and then it accelerated from the 80s and the prices took off and pharma took off and hospital charges took off and you look up in the early 2000s and suddenly we are 50.. 60.. 70 percent higher than Europe

 

ROSS:

Is it because of regulations that Europe and some of these other countries have to control costs that we don't have or is it just that Americans are more capitalistic and we want to make as much money as we can

 

PAUL:

You know it's... there's a long and varied argument in the literature about why it is the way it is right.   Is it price controls,

Is it government health care, Is it just a better market in certain places and probably the answer is a little bit of yes to all of them

 

Certainly one of the things that's is covering the most scrutiny lately is drug prices. It's very obvious that this very same drug

manufacturer in the very same plant is being sold for way less over in Europe

 

ROSS:

One of the arguments that I've heard is that maybe Americans are just sicker, you know we eat more, obesity is such a big

problem and you know…

 

PAUL:

Right  I'm not going to argue that we're well but when you really look at the data and the folks in Europe smoke at a much higher rate than we do and we are obese at a much higher rate than they are and really those two conditions is about a wash in spending so the idea that somehow we are markedly different in our utilization of health care over here in the U.S. versus Europe is not true.

 

DAN:

Are we healthier. I mean does it does it result in better health for us those spinning these extra dollars

 

PAUL:

You know that's really the sad thing I was listening to the chairman of fed the other day on Marketplace and his comment

was everybody knows that we deliver relatively average health care at twice the price of all the other developed countries

and that's causing Economic distress throughout the United States and will continue to do so until we get it under control

 

DAN:

It seems like a fair statement to that, when I've driven through other parts of the world that it's somewhat hard to

find a health care delivery area.   A hospital or a clinic, you'll run across the signs

 

PAUL:

Right... Right

 

DAN:

But it seems like here there is a health care provider in every corner

 

PAUL:

Right. It's extremely entrepreneurial and is that a sign that that there's a lot of money in healthcare

 

PAUL:

There are a lot of signs that there's a lot of money in health. Venture capital is pouring in, you know freestanding ERs

are a sign there's a lot of money in health care because the laws of economics don't really work that well in healthcare so one of the principles of economics is if you have an oversupply of something, the price will drop.  What we see in healthcare is if you have an oversupply it gets used up so for instance if you have too many hospital beds compared to another region that you just

don't need to take care of that population. What happens is people figure out a way to admit people into those hospital beds

to keep them full and spend more money

 

DAN:

Yes a hospital CEO explained it to me like this about prices, I mean he would think that if you had maybe three hospitals

in a market with so many beds and somebody built a fourth one that it would dilute the number of beds and so therefore the overall unit cost of the bed would go down

 

PAUL:

Right

 

DAN:

But actually what was told to me was that now all of a sudden because there's a dilution in the attendance within

these hospitals...the admissions that the only option that the remaining hospitals have is to raise the prices on the ones that

are still there

 

PAUL:

Right

 

DAN:

So overall the entire market's prices go up

 

PAUL:

That's exactly right.

 

DAN:

Which is bizarre

 

PAUL:

It's the... it's the most ridiculous inverted economic problem ever and we are so far really really refusing to get our arms

around that

 

ROSS:

and employers are the ones who are paying the cost actual employees only cover typically about 20 percent of those

medical bills so it's really it's the employers and it's the economy that's being affected

 

PAUL:

Right, so about 60 percent of people with commercial insurance in this country get their insurance through a self funded business so that means the business is paying all the bills themselves right.  So your cost share is about 20 percent but you know a lot of employees don't realize that the cost share of the employee is like 80 percent of the bill so that's typically health care is the number two spending item in the business right the first one is running the business and the second one is health care

which is kind of crazy

 

ROSS:

I don't want to get defensive but we all work for BlueCross BlueShield of Texas and I think it's worth noting that the insurance sector in general typically takes a very very small piece of that pie when it comes to the cost related to health care and

I think people don't always understand that when you consider how much pharma takes out how much providers take out

hen you break out all the different parts of the health care continuum. Health insurance is a very small part and we're oftentimes one of the only ones that continue and that is actually working to control or reduce the costs of health care.

 

PAUL:

Right now you're exactly right Ross, I mean I think we should state that part of our job is to continue to work on becoming

more and more efficient because every dollar we take out of the system is a dollar not in the system so you know let's just state that up front but the reality is you could take away all of the insurance costs and you would barely moved the needle on this system right so the real cost in this system is in the hospitals and the drugs and the procedures that sort of thing

 

DAN:

And I would say this to that.. insurance expense has gone up to some degree because it's it's a more complex environment to adjudicate

 

PAUL:

Right

 

DAN:

So when you're trying to handle up coding and in managing who goes where those are all items that add cost to the system

 

PAUL:

And just like you were talking about those that extra hospital that opens up either the prices of the hospital beds go up

or more people get admitted or both that costs us money in watching that scenario because we want to be sure that people

aren't being inappropriately admitted to the hospital to pay for the hospital right. So that drives up administrative costs

as well because there's so much chicanery going on in the system that somebody has to be watching out for what's appropriate

what's appropriately billed and it costs money to keep an eye on the system

 

DAN:

So Paul we've kind of picked on hospitals here a little bit but really and truly what's the other interesting thing that's happening in the market particularly here in the Dallas market which I know that's what you're here to talk about is that there's been a lot of venture capital purchasing physicians practices now I was in practice for a long time and we had a really good practice but I never really thought our practice would be the target of adventure capitalist, we weren't we weren't a huge revenue generator so..

 

PAUL:

You didn't have huge amounts of assets that you could sell

 

DAN:

that I could sell

 

ROSS:

You're talking about individual doctor who just has his own business I'm gonna open up shop in this you know in this in building

 

DAN:

and it's exploding So in fact even groups that I and I will tell you I'm a dermatologist if you had told me ten years ago that dermatologists would join large financially backed practices. I would have told you, you were crazy, No we don't. I mean I'll be honest with you we like to play a lone solo small practice but I will tell you in Dallas it's in all the parts of the country but particularly here we're seeing these groups form at an long alarming rate

 

PAUL:

It is really surprising I never thought I would see it either

 

DAN:

So what's the what's the reason behind that?

 

PAUL:

Well you know there are many reasons probably the biggest reason is that VC money smells money right so there's a lot of money in these practices in the seeing of the patients and the controlling of the referrals and the consolidating so that they can negotiate higher rates right So the more consolidated the market gets the higher the rates go because folks are starting to exercise what economists call monopoly rents.  Additionally you have this kind of strange phenomenon where younger doctors

coming out really aren't interested as much as the older doctors were in running a business. So as they come out they're perfectly happy to become employed which cedes some of that control over to the venture capital firm who is then deciding who gets what money off of the of the bills and additionally where they're going to align with their referral center.  Which also aligns with pharmacology costs and hospital costs and all those sorts of things

 

ROSS:

So maybe if we could wrap up this conversation by talking about what we can do to address this you know as we're talking I'm kind of feels like it's a runaway train.  What can you do about it right? The Congressional Budget Office estimates that we wasted seven hundred and billion seven hundred billion dollars and health care so what do we do.. what are we doing right?

 

PAUL:

And it has to be a solution over multiple players but here's what we're doing right so first off we're making prices a lot more transparent.  You can come online you can call us so when you're going to be getting a medical procedure or seeing a

doctor we can help you with that. We can let you know that there is there are wide price variations in the market and you can actually choose to spend less money which would be great a consumer driven solution. We also are attempting to keep the price down at all of the various places that you can get care. So when you see us in the paper arguing over a contract negotiation with a system you should be happy because that means we're saving you money in the long run.

 

ROSS:

  1. There's a lot that goes into this Doctor McCoy, certainly not going to be solved tomorrow but I think we are making some strides to address this problem that is pretty unique to the United States.

 

DAN: 

Absolutely Paul thanks for being here

 

PAUL:

It was my pleasure

 

DAN:

Thanks for joining us for this

edition of Blue Promise.

 

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