Costs are Up…Because They’re Higher Than They Were

In perhaps no other country is there a greater abundance of data about health care than there is in the United States.  And in perhaps no other country is there more confusion as to what’s really going on.

Take the recent report by powerhouse actuarial firm Milliman (disclosure:  Best Doctors uses Milliman for actuarial work).  It’s a fascinating report with some of the best information on American health care there is.

The major take-away:  U.S. health care costs continue going up.

But when people start interpreting the data, well, that’s where the trouble starts.

For example, NPR reports on why costs are going up:

For three straight years, outpatient care has led all other categories of care in cost increases. Ninety percent of the increase is in more types of care being delivered in outpatient settings.

Factually, of course, this is correct.  More and more care is being delivered in outpatient settings.

But it’s not by accident.

In an effort to cut costs, hospitals and doctors, pressed by private and public payers, have been systematically moving what was once in-patient care into outpatient settings.  It’s why more and more surgeries are being done on a same-day basis, why diagnostic studies are increasingly done at private centers and not inside of hospitals, it’s why ambulatory care centers are one of the fastest growing segments of the health care economy.

Which raises the broader point.

The American health care economy is so big, complicated and yes, dynamic, that it is difficult to make simple conclusions about it.  Causes get lost in their effects, and the success of ideas to reduce health care costs – like doing more outpatient care – end up being called key drivers for rising costs.

Evan Falchuk is President and Chief Strategy Officer of Best Doctors, Inc. Prior to joining Best Doctors, Inc., in 1999, he was an attorney at the Washington, DC, office of Fried, Frank, Harris, Shriver and Jacobson, where he worked on SEC enforcement cases.

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5 replies »

  1. Evan, the simple reason that care is being shifted to outpatient (and has been for years) is because outpatient and emergency care are huge profit centers for hospital systems. The hospital makes more money shifting to outpatient because costs are lower, contracts are better, and they can hide price gouging charges for implants and drugs and get away with it. We need to all get a grip, doctors salaries are flat for 10 years, hospitals are raking it in and hiding profits in huge salary increases for their executives (who are not doctors), construction projects, and real estate holdings or their just sending the money to off shore accounts. I used to work for a non profit hospital before I got a conscience.

  2. Is the decrease in beds due to beds in Cleveland, Detroit and other declining cities finally closing these last 10 years or so, well after the population already had declined and moved to other cities?

  3. Barry – There has been a large gradual downsizing of hospital beds. According to the AHA, the number of hospital beds reached a high in the mid-60s at 1,704, 000 in ’65. Since then, it has fallen to just 944,000 in 2009 (latest year figures are available). It basically has stabilized around ~950k.

    In community hospitals, it reached a high of 1,018,000 beds in ’83 and was 806,000 in ’09. It basically has stabilized the last several years slightly north of just 800k beds.

  4. Barry Carol: Hospitals are licensed for a number of beds, even if the hospital is not full, the beds unused, the number does not change. The number of empty beds does not effect overhead unless it is enough to close a wing. Even then hospitals are very reluctant to reduce the number of beds because it would be very difficult to re-license them.

    Yes, the switch to outpatient treatment would increase that statistic significantly. Although deemed as a cost containment item it is relative, especially since many new non hospital ASC have bloomed in the last decade. Demand is up, insurers require outpatient surgery for many procedures….

    Statistics lie !!

  5. Then why aren’t we seeing a more rapid decline in the number of licensed inpatient beds in the U.S.?

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