Why US Healthcare Costs Are Out of Control: Two Insiders' Perspectives

Frank J. Veith, MD; Zvonimir Krajcer, MD


March 05, 2010

As the authors of this commentary -- a vascular surgeon from New York and a cardiologist from Texas -- waited in an airport boarding area, we pondered why healthcare costs in the United States are out of control. Here are some dollar-wasting examples that we have both observed:

1. The Building of Shrines for Hospital Administrators. We have both witnessed the building of expensive and unneeded new healthcare facilities to satisfy the desire of an institution to provide a monument to a hospital executive who is nearing the end of his or her career. In one case, architecturally spectacular new hospital buildings costing billions of dollars were erected within a few hundred yards of similar facilities belonging to a competing institution. In another case, a specialty hospital was constructed despite the fact that 2 other similar specialty facilities existed within a few miles. In both instances, as large as the costs of the new buildings may have been, they were dwarfed by the costs of the duplicative staffs required for the new facilities. Moreover, to keep both new facilities acceptably occupied, substantial additional monies continue to be spent on advertising and public relations campaigns.

2. Unnecessary Duplication of Services. One large city had 3 excellent transplant programs, each associated with a different university hospital. Administrators at a fourth university hospital decided they also wanted a transplant program to enhance their institutional image and prestige. When the relevant state agency determined that there was no need for a fourth transplant program in the city, there was a rumor that a top officer at the medical center interceded personally with a high-ranking elected state official. Whatever the truth of the rumor, the unneeded fourth program was quickly approved. The costs for the complex and extensive additional staffing and equipment for the extra program were borne by our healthcare system. Because the number of organ transplants in the area is totally dependent on the number of donor organs and not on the number of programs, no increase in quality or number of patients treated could accrue -- only an increase in the overall cost. The sole purpose served by the additional program was gratification of the egos who served the institution.

3. Absence of Medical Malpractice Tort Reform. It is well known that medical liability costs are out of control in New York State. Abuses are rampant because the system depends on contingency payments to trial lawyers and "hired gun" expert witnesses who are often nonexpert and who are paid handsomely for their biased opinions -- a pure example of conflict of interest.

Numerous studies have documented that most awards, some of which are larger than lottery payouts, do not correlate at all with actual malpractice and that most instances of actual malpractice do not result in awards. Clearly the system is fueled by the greed of trial lawyers who contribute large sums of money to the campaigns of federal and state elected officials so that they will block reform of a system that is nonfunctional and frighteningly expensive. The billion dollar insurance premium burden is, of course, passed on to our overall healthcare system.

Worse still are the staggering costs of defensive medical practices, such as adding unnecessary tests, hospitalizations, and consultations. These defensive practices are estimated to increase healthcare costs by 65-200 billion dollars every year.

Texas and a few other states have passed sensible state malpractice reform laws that protect patients' rights to seek redress for real malpractice, while limiting liability to reasonable amounts rather than lottery amounts. President Obama, however, who originally advocated medical liability reform as part of his healthcare federal legislative package, has inexplicably backed away. If we are serious about cutting healthcare costs, how can we not address this problem on a national level?

4. Need for Hospitals to Be in the Black. Hospitals need to survive. To do so, they cannot operate at a deficit. This requires hospitals to admit enough insured and paying patients to maintain their income stream. Tremendous pressure, therefore, is placed on physicians and surgeons to increase hospital admissions. In one New York institution, salaried staff surgeons were ordered to increase their admissions and operations by 20% or face a cut in salary. Because most surgeons normally operate on all patients who have appropriate indications for such aggressive treatment, the only way these surgeons could possibly increase their operative load was to perform procedures that were not indicated. Such behaviors subject patients to unwarranted risks and increases costs.

5. Decreased Physician Reimbursement Leading to Unnecessary Procedures. Physicians, like other humans, do not like to take a cut in pay. Physicians who do procedures are paid on the basis of the number of procedures performed. If the compensation per procedure is decreased, as is happening, the only way for a physician to maintain his or her income is to do more procedures. Accordingly, a cut in procedural reimbursement will inevitably motivate physicians to do more procedures. For reasons already mentioned, this will result in more unnecessary operations and procedures. Increased costs and unnecessary risks to patients will result.

6. Pay-for-Performance Systems. In an effort to improve the quality of healthcare and physician performance, financial incentives have been introduced. These provide additional income to physicians who can perform procedures with lower mortality and morbidity rates.

It is well known that patients who most need certain procedures are at higher risk for death and complications than patients whose indications are weaker or nonexistent. Physicians are therefore incentivized to add easier cases, even if some of the people do not need the procedure, so that their mortality and morbidity rates will be lower and they will receive higher reimbursement rates. This adds to the current trend of treating patients who do not need treatment, and it increases costs. In addition, as we have both observed, pay-for-performance systems motivate physicians to deny interventional or operative treatment to patients who need it most.


These are just 6 of many reasons why healthcare costs are rising uncontrollably. Suggesting detailed ways to address these issues is outside the scope of this article. However, we should recognize that some of these problems are inherent to a system in which compensation is based on the number of procedures performed. Others relate to the nature of man and the fact that humans are strongly motivated by self-interest, greed, and ego gratification. If these system and motivational factors are recognized, it is likely that measures to offset them can be developed. Healthcare costs are more likely to be brought under control.


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