US Healthcare Spending: Are We Asking the Right Questions?

Addressing healthcare Spending by discussing cost, culture, and the questions we should be asking

healthcare spending

There is a lot of discussion right now about US Healthcare Spending and why the cost of care has grown at faster rates than inflation and the general economy. There are entire books dedicated to this topic but I wanted to try and shore some concise thoughts on the subject after reading Jim’s most recent post. Here are just a few reasons for the high healthcare costs in the US:


I could write a book on this subject, but I will try and refrain. Let’s talk about litigation using a singular example of MRIs. On average, hospital MRIs cost more than twice what they do in a non-hospital setting. Firstly, the overhead costs for maintaining those machines, employing radiologist who read the films, employing nurses, transporters, etc. is higher than the overhead for an MRI in a physician office or freestanding clinic. Secondly, the cost of those hospital MRIs is higher because of cost shifting.

If MRIs cost so much more in hospitals, why are they prescribed so readily? The simple answer is litigation. There are absolutely cases in which MRIs must be ordered in an acute setting, that goes without saying. A little-known fact amongst the public may be that MRIs which are ordered as part of an Emergency Department work up, and which come back negative, are unlikely to be reimbursed by an insurance company.

Here is an example: A patient presents to the ED with a headache. The provider believes the patient likely has a migraine but works the patient up for all other potential differential diagnoses such as a brain bleed, brain tumor, and a list of a dozen other potential causes. The provider knows, based on their exam and the patient presentation, that the very likely outcome is the patient has a migraine and will need outpatient follow up with a primary care provider; but they have to do a full work up just in case. The definition of just in case is ‘just in case this is the 1 in a million which actually has a brain bleed and I get sued.’

With all this in mind, the provider orders a CT scan, which is negative. Brain bleeds don’t show on CT scans right away, though, so the provider orders an MRI. The MRI also comes back negative. The patient is told to follow up for further migraine management with her primary care provider.

The hospital then bills the insurance and receives no reimbursement for the CT or the MRI because they A) they weren’t truly warranted and B) they both came back negative. This is routine business in a hospital. The hospital may get paid for half of the MRIs they actually perform in an ED setting so in order to offset the cost of those which are not reimbursed they jack up the overall price. This is the basic foundation of cost shifting and one of the reasons US healthcare spending is so high.

If everyone knows the hospital isn’t going to get reimbursed and the imaging is very likely not needed, why is it ordered? Because providers are afraid they’ll be sued for poor outcomes. This is not to say that providers who make poor decisions or neglect evidence-based practice shouldn’t be held accountable, of course they should. Providers should not, however, make decisions in medical care because they are afraid of malpractice suits. The malpractice culture in the US is directly driving up healthcare costs.


In order to address US healthcare spending problems costs must be discussed, but while questions regarding the cost of an MRI may seem logical, the bigger question is regarding utilization. The US has the second highest rate of MRI usage compared to any other industrialized nation. The US utilizes MRIs more than twice as often as the Netherlands or Canada and three times as often as Australia. The bigger question which needs to be asked is why is this utilization so high? What drives this high utilization and is the rate at which we prescribe MRIs appropriate?

MRIs are only one example of higher utilization of services in the US. The US also has the highest rates of total knee replacements and cesarean section surgeries compared to other nations. Why is the US using more costly services and having more procedures that other nations?


One answer to this question is culture. The US has a culture of ‘the customer is always right’ which other nations do not have in healthcare. US healthcare consumers want to be partners in healthcare, not simply recipients. This is not necessarily a bad thing, but it absolutely leads to consumers who demand and dictate their healthcare. That will always lead to higher costs and utilization of services. Every single time.

Consumers in other countries do not dictate care. They do in the US, though, and then insurances go on to refuse to reimburse hospitals or providers for the care they provided based on consumer demand. There are pros and cons to this culture, but one absolutely known outcome is higher costs.

Healthcare consumers cannot have their cake and eat it to, as the saying goes. It’s impossible to want to dictate care and then demand lower costs of care. Those two things cannot co-exist. If US healthcare consumers want MRIs for lower back pain and headaches and knee replacements when walking up stairs without taking Advil beforehand becomes painful, they are going to pay higher premiums and out of pocket costs.

This is not meant to be a facetious commentary on the overly-demanding consumer, though those consumers certainly exist. This is meant to illustrate that the problem of increasing healthcare costs is not only due to poor insurance company regulation, a lack of actuaries, and providers and hospitals who want to make high profits. There is also an aspect of culture which must be addressed.

The Big Picture

There are a few things which people need to consider when discussing the high cost of healthcare in the US:

  1. Baby boomers are retiring at a rate of 10,000 people per day according to the U.S. Census Bureau. There are not 10,000 new people entering the job market every day to pay into the Medicare and Social Security system, which means the current rate of usage is non-sustainable.
  2. If we are going to cut US healthcare spending, then we must cut utilization. In order to do that safely and without sacrificing outcomes providers must be given more leeway to make decisions solely based on evidence-based medicine. Not fears of litigation or patient demands.
  3. The US has the highest physician reimbursement and salaries in the world. If we are going to reduce costs, we need to have honest conversations around if those salaries are sustainable. If they are not, how do we address that without driving potential doctors out of the market? Is the expectation that US MDs make 30-50% higher salaries than their peers in Europe a reasonable expectation? Is the trade off for these higher MD costs better quality of care and outcomes?
  4. Consumers in the US spend significant amounts of money in the last 1-3 years of life. That spending does not buy quality of life or quantity of life. We must address this anti-death culture if we are to address healthcare spending issues. We must shift to a quality of life mentality instead of ‘do whatever you have to in order to keep them alive’ mentality. Conversely, if we focus only on reducing spending towards the end of life, this will have a marginal impact on costs overall. Addressing how expensive it is to die is only part of the equation, the other part is cost containment for the chronically ill.
  5. Hospitals are so burdened by healthcare regulation and insurance dictated care that profit margins are the slimmest they have been in history. If the margins keep shrinking, then only giant healthcare systems are going to be able to survive. This will lead to monopolies and more rural hospitals closing their doors.
  6. Other cultural issues, such as obesity, food quality, the lack of regulations around additives, and a shift away from family cooking and dinners also need to be considered. Healthcare does not exist within a bubble. Lifestyle issues such as food consumption, smoking, alcohol consumption, etc. will all help dictate the overall cost of care. Hospitals cannot incite people to eat better food and people cannot avoid unhealthy additives if the FDA is unwilling to implement appropriate rules.
  7. More government in healthcare will result in higher taxes. There is simply no way around this. US residents cannot decide to both keep their paychecks and have 100% of their cost of care paid for. Those things cannot exist simultaneously.

Each and every one of those bullet points (and the dozen or so I didn’t list) need their own post to do them justice.

This is a complicated issue with no easy answers. The solutions will not come from current presidential nominees. The solutions must come from within the industry. The country, as a whole, must engage in provocative and uncomfortable conversations in order to determine what the values of US Healthcare consumers really are. Those values will drive outcomes and cost. This is a much larger conversation than can be had during campaign stumping or on a blog post, but I hope these points illicit some contemplation from readers.

Please visit Tabitha’s website for more information on healthcare trends today.

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