Healthcare Costs: Who Gets The Money?

Stanly Feld M.D., FACP, MACE

The National Institute for Healthcare Management Foundations report also contained data on the amounts of money each provider received for patient care.  There are important take home points in the data.

The data was obtained from newly updated figures of the National Health Expenditure Accounts (NHEA), the official estimator of health care spending in the United States.

During the period from 2005 to 2009 healthcare spending rose, and premiums for private health insurance increased an average of nearly 15 percent per year.

In the last two years private healthcare premiums rose 35%. The 35% increase occurred in anticipation of the healthcare insurance industry being forced by President Obama’s Healthcare Reform Act to provide healthcare insurance to high-risk consumers at the same premium as lower risk consumers.

Physicians have been blamed for increasing fees and over testing. The reality is physicians have experienced decreases in reimbursement for their services.

It is true some physicians over test to defend themselves from lawsuits. Tort reform is essential to decrease the practice of defensive medicine. Texas has reversed this trend with its new tort reform laws. Few other states have followed.

How healthcare dollars are distributed is revealing.

The United States spent $8,086 per person for healthcare in 2009 . Total healthcare spending as a percent of GDP reached 17.6 percent in 2009. It is expected to increase in the coming years.

In 2005, the United States spent $6,827 per person on healthcare.

 

             Who Gets The Money?

 

                   2005/person      %        2009/person      %

Hospital Care                 $ 2071               36         $2471            31

Physicians and Lab        $1417               20         $1646            20

Home Healthcare           $ 869               13          $1066            13

Rx + Medical Devices     $910                 13         $1066             13

Dental and other           $473               7           $548                7

Non Medical Expense    $1109                 16         $1289             16

 

There are many important points to be made about these numbers.  Let us assume these numbers are close to correct.

1. Hospital services include inpatient and hospital-based outpatient, home health care connected to hospitals, nursing home and hospice care connect to hospitals, as well as the services of inpatient pharmacy and resident physicians.

The higher the obesity rates the higher the incidence of chronic disease. The higher the incidence of chronic disease the higher the complication rates from chronic disease. This results in higher utilization of hospital services. 

Each hospital service has an inflated markup. Remember the $45 dollar aspirin.

Hospitals with resident physicians are subsidies. These hospitals receive higher reimbursement than other hospitals. 

Hospitals collected 36% of the $8,086 dollars for patient care. It is obvious that reducing the number of hospitalizations for the complications of chronic disease would reduce the total cost of care.

 2. The physician and clinical services category reflect the care provided by physicians (MDs and DOs) in their offices and freestanding outpatient care settings and services billed independently by freestanding laboratories.   

It is obvious that physicians do not receive 20% of the per capita spending for medical care.

Laboratories that do lab tests, x-ray studies, MRI scans, CAT Scans and Ultrasound share reimbursement for this category. Unless physicians own the laboratories, they do not share in the reimbursement. It would be important to know the percentage of physicians that own those independent laboratories. 

Physicians own a small but growing percentage of laboratories. It is difficult for a physician or group of physicians to make a living from cognitive reimbursements alone. Physicians needs to collect ancillary laboratory fees to stay in business.  

 

Companies owning these laboratories are secondary stakeholders. They feed off the intellectual property of physicians. 

It is fair to say that physician reimbursement is half of the 20% of the dollars spent of medical care in this category. Physicians’ reimbursement for care is 10% or $708 of the $8086.

 3. $1,100 or 13% goes to other secondary stakeholders for care provided by freestanding home health agencies along with other long-term care providers include freestanding nursing homes, rehabilitation facilities and continuing care retirement communities with on-site nursing facilities (assisted living). Other non-traditional settings and providers receiving reimbursement include school, worksite health clinics, residential mental health/substance abuse treatment centers, some ambulance providers, and services provided through Medicaid home and community-based waivers.

 

There are many independent companies involved it the home healthcare business. Medicare patients utilize the majority of these services. The fees charged by the Home Healthcare agencies are high. These Home Healthcare agencies know how to pile on the services in order to receive better reimbursement. These agencies receive much more than the family practitioners who referred the patients.

 4. $1,100 of the $8086 is spent for purchases of prescription drugs, durable medical equipment and other medical products.

Pharmaceutical companies receive a large and growing proportion of the healthcare dollars spent for medical care but not the entire 13%.

How many advertisements do we see on television for electric wheelchairs totally paid for by Medicare? How about home glucose monitors? If it were not a very profitable business, we would not see so much direct to public advertisements.

5. The care given by dentists and other non-physician health care professionals including chiropractors, optometrists, podiatrists, private-duty nurses, and physical, occupational and speech therapists are included in this category.

Dentists and other non-physician healthcare professionals consumed 7% of the healthcare dollars for medical care.

 

The study is inaccurate for this category. It does not capture the actual money spent for dental care. Dental insurance usually provides poor coverage. Most dentists do not accept dental insurance and most people do not have dental insurance.

If we assume most of the cost should be attributed to the other healthcare professionals, these healthcare professionals receive as much or more than physicians.

The difference will become greater because President Obama is going to reduce physician reimbursement 30% on January 1, 2011.

 6. The last group is money allocated as direct patient care but is considered non-medical. This expense totals 16% of the healthcare dollars. It is included as a patient care expense and not overhead used to calculate premiums using the  Medical-Loss ratio formula.   

Healthcare insurers have insisted that typical business expenses to improve patient care should not be calculated into the Medical-Loss Ratio. The industry lobbied President Obama’s healthcare team and achieved its goal. 

President Obama made this deal with the healthcare insurance industry in exchange for its support of his Healthcare Reform Act. 

These non-medical care expenses are included in direct medical care. These expenses are 16% of the $8086 dollars per capita. These expenses are;

a. The cost of verifying the credentials of doctors in its networks.  

b.The cost to ferret out fraud by identifying doctors performing unnecessary operations, procedures, and tests.  

c. The cost for programs (help desks) to try that keep people with chronic diseases such as diabetes out of emergency rooms.

d.The healthcare insurance industry believes it should be entitled to expense sales commissions paid to insurance agents.

e. It wants to expense taxes paid on investments.                                         

 Healthcare insurers insist that typical business expenses should not be considered part of the Medical-Loss Ratio.   

President Obama has insisted that the Medical Loss ratio should be reduced to15% from 20-30 %. This means that the healthcare insurance industry can add an additional 15% above expenses paid for direct patient care when calculating insurance premiums.

The additional 15% is for healthcare insurance companies salaries and other expenses.

The total premium percentage the healthcare insurance industry takes off the top is 31% under present rules. Previously the healthcare insurance industry took between 35% to 45% of the total healthcare dollars paid into the system. 

 

                                    The Take Home Points

1. The healthcare insurance industry receives an excessive percentage of the healthcare dollar.
2. Physicians receive a surprising low percentage of the healthcare dollars.
3. Hospitals receive a large percentage of the healthcare dollars because of pricing standards and the increasing numbers of patients with chronic disease.
4. Ancillary stakeholders receive a greater percentage of the healthcare dollars than physicians.

 

President Obama’s Healthcare Reform Act cures very few of these problems.