Costs of Health Care | RMHP

Most people agree health care costs continue to rise at an unsustainable rate.

Doctors, insurance companies, hospitals, trial lawyers, pharmaceutical companies and individual patients have all been blamed for driving up health care costs.

The reality is there is no one single cause.

Health care is complex and there are a number of cost drivers. To make it more understandable, RMHP CEO Steve ErkenBrack utilizes a Colorado-inspired (but widely relevant) acronym-phrase to list and define the major cost drivers of health care: SPIRIT OF CAMPING.

Several of the SPIRIT OF CAMPING cost drivers are positive when properly used, such as technology that enables more effective and less invasive care. Others are less positive, including unnecessary procedures and operational inefficiencies.

These drivers are:

Statues – Statutes that mandate coverage also result in higher costs. For example, many states now require insurance coverage for autism therapies and treatments.  While covering medical conditions such as autism can positively impact the lives and financial well being of many families and individuals, it also increases premium cost.  According to the Council for Affordable Health Insurance, coverage for autism raises premiums by an estimated 1-3 percent.

Pharmacy – Drug treatment is a significant cost. Drug treatment is important, from managing chronic conditions to providing relief and treatment for acute medical problems. In the US, we bear the cost of much of the world’s drug research. It costs hundreds of millions of dollars to develop a single medication. This expense drives up the purchase price of the medication. There is also a great deal of unnecessary spending on drugs. The US alone utilizes a full 50% of the world’s drugs. Due to the effectiveness of drug companies’ advertising, many patients focus on a specific pill (e.g. “The Purple Pill”) rather than the treatment that pill provides. Learning about the difference between generic and brand name drugs, can help each individual get the most effective and cost-effective treatment.

IT Silos In general, the Health Care system has not kept up with current technology. Patients’ insurance cards are often photocopied and faxed from provider to insurance company.  Further, the relative newness of electronic medical records and the rarity of providers emailing patients underscore how behind Health Care is in comparison to other industries. The absence of the effective use of administrative technology decreases efficiency and drives up costs.

Regulatory Influences – Many different State and Federal agencies audit health insurance companies.   In Colorado this includes state agencies such as Health Care Policy and Finance (HCPF) and the CO Department of Insurance (DOI).  At the federal level examples include the Centers for Medicare and Medicaid Services (CMS). Every regulatory agency audits health insurance companies using a different process. This makes audits inefficient. Health insurance companies pay for these state and federal government compliance audits, so the inefficiencies translate to higher administrative costs.

Inefficiency of Coverage/Care – A patient’s medical history is invaluable in providing effective and efficient care. Without integrated Electronic Medical Records (EMR) and the sharing of patient information, the history and care of a patient is not immediately known to all providers who are treating the patient.  This contributes to an increase in unnecessary and redundant testing and evaluations.

Technological Advances –   Technological advances, when used properly, have improved patient care and reduced cost.  For example, technology has allowed us to save premature babies that weigh less than a pound. Hernia surgery is now an outpatient procedure, resulting in a tiny incision rather than one that is four-inches in length.

Thanks to technology, side-effects, complications, and recovery times have all decreased. These advances have gone a long way to improve medical care and save lives.  But they are also expensive and when inappropriately used drive up costs.

Overuse of Hospital Emergency Services – Emergency rooms must, by law, accept any individual regardless of insurance status. For many individuals, especially those on certain government programs, the emergency room is used as a substitute for much less expensive primary care.  Medicaid actually encourages the use of the ER by providing full coverage for such services. Using the ER is the most expensive way to receive basic medical care.

Fee for Service vs. Aligned Financial Resources – Fee-for-service is still the system most insurance companies use to reimburse providers. This means providers are paid for each service they perform, instead of for each patient they treat. The more they do the more they make and this can lead to higher costs.


Cost Shifting – A more detailed discussion of cost shifting can be found here.  But essentially cost shifting occurs when providers and hospitals compensate for unpaid hospital bills or the lower reimbursements under Medicaid and Medicare by shifting those costs to the private sector. Actuarial firms estimate that cost shifting adds almost $2,000 to an individual family’s annual health care costs.

Aging – Since 1950, the average life expectancy has risen by over a decade. This is very exciting, and the medical developments that make this possible are inspiring. However, the golden years are not inexpensive and health problems increase with age. The increasing numbers of individuals on Medicare and their increased life expectancy are significant cost drivers in health care.

Malpractice Actions – Every doctor has the responsibility to treat their patients thoroughly and with wisdom.  However, to avoid malpractice claims and lawsuits, many doctors practice defensive medicine. That is, they prescribe unnecessary tests and procedures to make sure they cover every possibility.  This, in turn, drives up medical costs.  According to one estimate, defensive medicine adds 20% to some specialists’ treatment costs.

Peer Review (or lack thereof) – Among the physician group that works with RMHP, providers regularly review (and are reviewed by) their peers. This enables collaboration to solve problems, a team to approach community health concerns collaboratively and consistently, and the checks-and-balances to ensure that doctors are treating their patients efficiently. Peer reviews discourage over-prescribing tests or dispensing unnecessary name-brand drugs when a generic equivalent is available. Peer Reviews also helps ensure that doctors charge fair rates and use technologies appropriately.

Integration of care is not a focus (yet) – The sickest 15% of the population incurs 85% of the cost. Despite the clear financial and social incentive for integrating the care for those with complicated health concerns, there is little focus on a holistic approach. Providers have limited time to see and treat patients, often as little as 10 minutes. As a result, their focus is often on acute care and addressing the immediate symptoms rather than an integrated approach that helps prevent illness.

Nursing underutilization – Nurses are an invaluable resources in health care, but they are underutilized. Nurses often provide a coaching, nurturing and an interpersonal dynamic to care. RMHP, for example, utilizes a well-trained team of nurses that follow up with our members after surgical procedures, making sure the member understands their discharge instructions, has their appropriate medication (and is taking it properly) and answering medical questions. Utilizing nurses ensures interpersonal, teaching care and keeps complications and costs low.

Growing Provider Charges/Costs – Rates that physicians set for their services are a significant cost. Provider fees must cover medical school loans (well into 6 figures, and more for specialists), as well as the high costs of malpractice insurance (see “Malpractice Actions” above) and cost-shifting (see Who Pays the Bill).  In addition, fees are influenced by profit margins and market uncertainty. High provider fees translate directly into higher insurance premiums.

As you can see, it is impossible to identify a single cause to rising health care costs.  Consequently, any solution will require a multi-facetted approach.

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