Cost of Healthcare in the United States

Healthcare Economics
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Healthcare Economics
The cost of healthcare in the U.S. remains a matter of debate in multiple factions, bearing its impacts on the national expenditure and citizens’ health. The U.S. leads by a wide margin in the race for the most expensive healthcare. Naturally, high costs should be accompanied by high-quality services to justify the high costs. Unfortunately, the U.S. does not rank the highest when it comes to the quality of healthcare to citizens. That discrepancy triggers questions on why healthcare is so expensive in the U.S. At the onset of his administration, President Obama showed a commitment to instilling accessibility and affordability of healthcare services through policy changes. While the policy had changed, little can be said about healthcare costs that have consistently increased. This paper will employ the case of McAllen, Hidalgo County, Texas, to explore various economic factors that influence the cost of healthcare. The case of McAllen will be vital in exploring the inputs of economic factors such as demand inducement, practice variation, and insurance moral hazard in scaling the cost of healthcare and the different strategies that should be employed to manage the healthcare costs in Hidalgo, and probably the entirety of the U.S.
How McAllen Became the Most Expensive
The case highlights multiple prospects that could combine to fuel the escalation of healthcare costs in McAllen. Superficially, one would argue that McAllen has a high index for some illnesses. There is a 38% obesity rate, which is one of the highest in the country. With high obesity rates comes comorbid conditions such as heart disease, kidney illnesses, and high blood pressure. All such conditions can fuel the demand for healthcare services. The basic laws of economics imply that the demand and supply curves dictate the market prices. While that could be the case, the occurrences in McAllen indicate that the high costs of healthcare services are attributable to other indirect factors that occur beyond the simple confines of demand and supply. Gawande (2009) indicates that in 1990, McAllen showed the same index of healthcare cost as the rest of the nation. The statistics later changed, and McAllen grew in healthcare costs to overcome the national average by more than 50%. Such a drastic change must be attributable to specific prospects that indirectly fuel the increase in healthcare costs. The escalation in healthcare costs in McAllen is attributable to the factors discussed below
Overutilization
The current healthcare is becoming dependent on specific financial policies that have triggered overutilization in such facilities. Overutilization is the provision of healthcare services in quantities and qualities that are deemed unnecessary (Carroll et al., 2018). It bounds on the overuse of healthcare services with the motivation to extort patients. In the case of McAllen, few factors are attributable to the cases of overutilization. Primary among the factors is the reimbursement strategy. In McAllen and most of the U.S., fee-for-service (FFS) is the primary reimbursement strategy. In this strategy, healthcare services are unbundled, and they are paid for separately. Healthcare professionals in FFS can place their invoices based on the number of services that they have offered (Hanoch & Rice, 2011). In this platform, payment for physicians depends on the quantity of care and not the quality of care they offer. Hence, physicians are motivated to offer more services, even if such services are unnecessary according to the presented symptoms. In McAllen, the evidence is marked with physicians offering tests, treatments, and medications that patients do not need. FFS takes advantage of the fact that most patients are shielded from cost-sharing by their insurance covers. Hence, the patients feel the need to partake in the unnecessary services bearing the fact that they do not pay directly to the healthcare professionals. Perhaps, giving patients more authority in the reimbursement process would revitalize the escalating costs triggered by FFS. FFS also limits the efficiency of integrated care. The more healthcare services are unbundled, the higher the chances of fragmented costs that accumulate to deliver high healthcare costs.
Defensive medicine is another aspect of overutilization that is affecting the overall cost of healthcare in McAllen. Traditionally, patients sued their physicians for delayed or missed diagnoses. It is the responsibility of physicians to execute all the necessary tests and treatments for a patient (Hanoch & Rice, 2011). Any commission or omission aspect that renders the patient injured, hospitalized, or dead could attract legal suits. Healthcare professionals reacted to such lawsuits by developing defensive medicine where they conducted tests and recommended medications on patients principally to reduce the chances of the suits. The loophole provided by defensive medicine is currently employed by healthcare professionals and facilities to avoid high-risk patients and order unnecessary tests (Carroll et al., 2018). In the long-term, defensive medicine increases healthcare costs while reducing the quality of healthcare services.
Defensive medicine takes two forms and can bear multiple impacts on patients. Defensive medicine can take assurance behavior where a healthcare professional charges additional costs for the unnecessary services offered to unsuspecting patients. The motivation behind assurance behaviors is to reduce litigation cases or to deter patients from filing medical malpractice claims. The strategy is also geared towards convincing authorities and patients that practitioners are working within the confines of the standard of care. Preventive medicine can also take the form of avoidance behaviors where practitioners refuse to partake in particular practices under the guise of high risks. Overall, preventive medicine indulges patients into high costs and unnecessary medications. Combined, such outcomes can harm patients. The impacts are also financial. It is indicated that there are $376 million indemnity costs incurred over the defensive medicine and an additional $73 million for defense administration annually. That alone costs $449 million annually. Enhancing the inputs of defensive medicine in healthcare should enhance the chances of escalating costs, as is the case of McAllen. The data provided in McAllen’s case shows just how efficiently the practitioners are indulged in the ills of defensive medicine. The case indicates that in 2005 and 2006, there were 20% more abdominal ultrasounds compared to the national data, 30% more bone-density studies, 60% more stress tests, 200% more nerve-conduction, and 550% more urine flow studies (Gawande, 2009). All the above tests and medication combine to increase McAllen’s medical costs beyond even the national data.
Demand Inducement
Operations in healthcare are anchored on the relationships between healthcare professionals and their patients. In that relationship, the healthcare professional bears a better understanding of the operations within a clinical setting more than the patient. Bearing the scope of their knowledge and skills, the healthcare professionals are supposed to help their patients to understand factors that include the financials surrounding the care, the illnesses, and the services offered (Irza-Hanie et al., 2020). The responsibility is engraved in the ethical obligations of all healthcare practitioners. However, the chances are high that healthcare facilities and professionals are exploiting the lack of knowledge among patients to induce unnecessary demands. Demand inducement in healthcare implies the amount of extra demand that a patient incurs due to partial information on primary issues of the relationship between a patient and a healthcare professional. Information asymmetry between patients and professionals arises from the general knowledge of the professionals or a practitioner’s professional judgment, expertise, and clinical experience. A perfect agent practitioner should advise a patient and influence the patients to make decisions that he/she (the physician) would make if faced with similar problems. However, some healthcare professionals take advantage of their patients’ lack of knowledge to instill unnecessary costs.
The induced demand can be explained in an economic model bearing the information asymmetry. In a population P with a number N of people poised to receive particular care in a given time, the inducement arises in various ways (Irza-Hanie et al., 2020). Such a market primarily provides no out-of-pocket payments for the services offered as far as the reimbursements are completed by a third player within a defined tariff, p. This can happen in either public or private insurance instances. This case considers two stages of demand for healthcare. The primary stage is instigated by the patient, who must choose a provider based on utility maximization. The second stage of demand s instigated by the provider, who determines the amount of treatment indirectly. In this framework, the principal assumption is that patients are incapable of assessing the value of services that they receive. The practitioner is fully responsible for the decisions that the patient makes. Hence, the utility of treatment is invariant in the exact amount that they receive. Once the patient has chosen a physician, j, the patient passively accomplishes his/her advice and consumes the treatment based on the following consumption function: dj = 1+ θ(1+ qj )ij. The above consumption function indicates that the patient consumes at least one unit of service in his/her interactions with the practitioner. The chosen provider, ij, can increase individual consumption by increasing the services. Moreover, the marginal productivity of inducement increases with quality, qj, by a factor θ (Irza-Hanie et al., 2020). Quality does not increase individual consumption effectively. That is if induction effort is absent, quality does not affect consumption. Once they have received their treatment, patients can engage in the word of mouth advertisement to appraise the services right from the primary service to the ultimate outcome. Advertisement is a typical feature for organizations and markets that prosper on reputation. In a market such as healthcare, consumer services offered by healthcare professionals are as a result of referrals from other professionals, relatives, or friends. In upholding the reputation of good markets, people’s assumptions are related. In the long run, healthcare is dominated by a series of patients seeking similar services fro...