4 reasons why US health care is so expensive

Why is health care in the US so expensive?
Why is health care in the US so expensive?

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    Why is health care in the US so expensive?

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Why is health care in the US so expensive? 02:15

Story highlights

  • Higher costs for health services contributed $583.5 billion to the total $933.5 billion increase
  • Of 155 conditions, diabetes showed the greatest increase in spending: a $64.4 billion rise

(CNN)Health care spending in the United States increased by about $933.5 billion between 1996 and 2013, according to an analysis published Tuesday in the medical journal JAMA. More than half of this surge was a result of generally higher prices for health care services.

Joseph L. Dieleman, lead author of the study and an assistant professor at the Institute for Health Metrics and Evaluation at the University of Washington in Seattle, gathered information on 155 separate health conditions and six possible treatment categories: inpatient, outpatient (hospital), emergency services, dental care, prescriptions and nursing facilities.
    The researchers also analyzed changes in five factors -- population size, aging, disease incidence, use of services, and service price and intensity -- as they relate to health care spending in the study period, 1996 through 2013.
    "Intensity of care" refers to service variety and complexity. "It's the difference between a relatively simple X-ray as a compared to more complex MRIs and other forms of diagnostic services," Dieleman wrote in an email.
    The analysis resulted in four main takeaways about why US health care costs rose.

    Rising price of services

    "Price and the variety and complexity of services is the largest driver of health care spending increases," Dieleman noted.
    In fact, more than half of the total spending increase was due to price and intensity increases, which contributed $583.5 billion to the $933.5 billion total increase. Dieleman said price and intensity increased for most conditions "and especially for inpatient care."
    By comparison, the growth in population led to $269.5 billion of the total expenditures, while aging of the population equaled $135.7 billion of the total.

    More spent on specific conditions

    Diabetes was the condition with the greatest increase in spending, rising by $64.4 billion between 1996 and 2013. Most of this money went to pharmaceuticals prescribed to treat it.
    The single most important risk factor for type 2 diabetes is obesity, noted Dr. Patrick H. Conway of Blue Cross Blue Shield of North Carolina in an editorial published alongside the new analysis.
    Spending on low-back and neck pain surged by $57.2 billion in the 17-year time period, followed by hypertension ($47.6 billion), hyperlipidemia or high ("bad") cholesterol ($41.9 billion), depressive disorders ($30.8 billion), falls ($30.4 billion), urinary diseases ($30.2 billion), osteoarthritis ($29.9 billion), sepsis or bloodstream infection ($26.0 billion), and oral diseases or disorders ($25.3 billion).

    Outpatient treatment

    Spending on ambulatory care, which includes ER and outpatient hospital services, also played a role in increased overall costs. Annual spending on ambulatory care swelled from $381.5 billion in 1996 to $706.4 billion in 2013. This increase, about $324 billion, was higher than any of the other five types of care analyzed.
    There's a "significant payment differential" when a procedure, such as a colonoscopy, is performed at an outpatient hospital center compared with when it is performed in a physician's office, "with the former being far more expensive than the latter," Conway noted.

    Pharmaceutical drugs

    Another key driver of the total increase in health care expenditures between 1996 and 2013 was spending on pharmaceutical drugs. For example, $44.4 billion of the total $64.4 billion increased expenditure for diabetes was spent on medications meant to treat, as well as to prevent, the disease.
    Part of the high price paid for pharmaceuticals "is a regulatory problem," said Robert F. Graboyes, a senior research fellow at the Mercatus Center at George Mason University. Graboyes, who was not involved in the research, said that the FDA drug approval process makes pharmaceuticals far more expensive than they ought to be.
    "The FDA has a very powerful motive to take things extremely slowly and extremely carefully," he said. Although slow and careful has its virtues when it comes to something as "sensitive" as pharmaceutical drugs, Graboyes noted that the United States lacks something the European Union has.
    "There is a counterweight in the motive that says you also don't want to be too slow about it," he said.
    In Europe, rather than a single agency, there are a number of "quasi-private entities approved by the governments of the EU," and so there is a somewhat "competitive system." The result: "They do tend to get things to market quickly without -- as far as I can see -- any loss of safety and security," he said.
    Graboyes described the overall spending report as "well-done."

    Household perspective best

    Based on official US records, total health care spending reached $3.2 trillion in 2015 and constituted 17.8% of the US economy, Dieleman and his co-authors noted.
    Graboyes said that when it comes to health care spending, it can be misleading to focus "on percentage of GDP rather than a percentage of household consumption."
    He suggested we look instead at what Americans spend on health care as a percentage of household consumption expenditures.
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    "It turns out that we're not very far out of line with other countries," he said.
    This is not a criticism; "it's more of an addition to the paper," Graboyes said. "It's an interesting factor to overlay on the work they've done."