What Causes Medical Prices To Be So High?

← Back to Blog March 3rd, 2017 Tags: healthcare-costsfreedompersonal-responsibilityphysician-postsself-pay-patient

John Hunt, MD

Chief Medical Officer, Liberty HealthShare

Advancements in technology bring costs down in most every sector of the economy. Consider that computers, which used to take up an entire floor of a building, now fit in the palm of your hand, and with exponentially higher processing power than in the past. Yet all this increased computing power comes to us far cheaper each year than the one before.

In the same way, advancing technology in medicine should lower the costs of care. So it is wrong to blame advancing tech for the high expense of health care. Something else is causing this.

Government regulation of the field of medicine accounts for much of the egregiously high cost that we hear about for pharmaceuticals and medical devices, but that does not explain increases elsewhere in the medical marketplace.

Defensive medicine (geared to protect against lawsuits), practiced by a large number of doctors, is one modest contributor to the ever-rising use of laboratory and radiology tests and their associated costs. In many cases, laboratory tests and imaging studies that can prove a physician was not negligent have largely replaced more subjective clinical expertise. As frustrating as it is for a cost-conscious patient, doctors actually have an incentive to order these unnecessary but objective tests.

If patients were directly responsible for paying for such unnecessary tests, doctors might care enough not to insist upon them. But there is almost always a third-party payer in the mix, such as an insurance company or the government who will foot the bill, so neither the doctor nor the patient cares about the cost of the test. Laboratory and radiology facilities know this fact, so they get away with charging ridiculous, sky-high prices. For a frame of reference, the most respected academic centers often charge 40 times the reasonable price for labs, so beware! This is called price hyperinflation.

Within this system, only the third-party payers have the incentive to control costs. But if one of them tries to control costs by objecting to an unnecessary test, patients accuse them of prioritizing profits over health. In effect, the patient becomes an accidental advocate for those very medical facilities that are immorally hyperinflating their prices, rather than an advocate for the ones trying to stop the hyperinflation. In this scenario, the third-party payer seemingly becomes the patient’s enemy.

Changes in the laws that surround healthcare are desperately needed. However, tort reform alone will not solve this problem. Only when patients care about the costs will they be able to help their doctor to stop practicing defensive medicine. Here is how that conversation might go:

“Doc, I don’t want that test if I don’t really need it,” says a patient.

“Well, you don’t really need it,” replies the doctor. “At least not yet. Let’s wait a week or two.”

“Thanks, doc, I would rather save the money for now. I’ll sign a form or something to take responsibility for my decision,” replies the patient.

“Don’t worry,” says the doctor. “If I thought it was absolutely necessary, I would encourage you more strongly to have the test. It’s not, though.”

Unfortunately, interactions of this kind are rare. When physicians and patients don’t care about the costs of medical care, the prices will inevitably and continually rise. That is exactly what has happened. Here is what happens when the buyer of a service (in this case, medical care) does not care about the cost associated with it.

  1. Prices are no longer discussed. After all, who cares?
  2. Prices increase steadily. After all, who cares?
  3. People start to realize that costs of medical care are now so high that they are risking bankruptcy in the event of a disease or injury. This fear is understandable.
  4. People, therefore, buy health insurance to protect them from bankruptcy.
  5. But people with health insurance don’t care about the cost of their medical care!
  6. Now circle back to #1. This insurance-induced cycle goes around and around as prices spiral upward.
  7. Insurance premiums rise higher and higher as the cost of care shoots up.
  8. People get angry about the rising costs of insurance.
  9. Insurance companies try to respond by controlling expenses centrally and raising deductibles so that patients start to care about costs.
  10. People then get mad at insurance companies for interfering in the doctor-patient relationship and insist on regulators taking over.
  11. Government and insurance companies then work together to take over medical care in America. The phrases health insurance and health care start getting used interchangeably, even though they are almost opposites. This manipulates healthcare consumers and distances them from reality.
  12. We end up with government-controlled programs, mandates, and compulsion, with expensive care and empowered, wealthy insurance companies and hospital organizations. This leaves patients with essentially no free market forces to combat this structure.

In summary, advances in technology do not cause medical prices to rise. Defensive medicine by itself does not account for increased prices. A lack of insurance certainly does not create an overall increase in medical costs. It is a lack of individual responsibility that has caused the ever-rising prices. When individuals abdicate their responsibility, it makes possible bureaucratic and regulatory infringement of freedoms.

If you are a Liberty HealthShare member, I want to encourage you to remember that LHS is a non-profit community. If we ask you to help us control costs, it has nothing to do with us making profits. It is simply a reminder that we need you to help shoulder the responsibility of fighting medical hyperinflation. Each of us has a duty to this community to care about the prices of our care. Whenever we as individuals do not take ownership and responsibility for our care, we actually contribute to the price hyperinflation that has adversely affected all Americans. It costs us more and more while creating an environment where distant, faceless bureaucrats make personal health decisions for us. Joining Liberty HealthShare helps you escape that fate and puts the responsibility back in your hands, where it belongs.

At Liberty HealthShare we fight medical hyperinflation in several ways. Here are just two:

First, we negotiate down hyper-inflated medical bills on your behalf. Most bills that come to us are hyperinflated, often by as much as 1000%! Please help us work to negotiate down the bills, be patient as we do it, and understand we are undergoing this effort for you and all our members. When we fight for value, we are your allies.

Second, we frequently ask you to care about the prices doctors and facilities charge. If you don’t care, prices won’t ever be shown to you up front, people won’t shop around, doctors and facilities will have no reason to compete on the basis of price, and prices will keep on rising. So please do your part in holding medical providers accountable. Your engagement as a responsible, wise healthcare consumer is the most powerful weapon against medical price hyperinflation.

Liberty HealthShare is working to help Americans achieve health care freedom. With freedom comes responsibility. Please work with us to guard and exercise both.