Why do medical costs keep outpacing inflation?

Why do medical costs keep outpacing inflation?

April 30th, 2017 by Steve Johnson in Local Regional News

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The news from the U.S. Food and Drug Administration last month was striking: The FDA was approving a drug that seemed to dramatically slow the progress of the most severe form of multiple sclerosis, a crippling disease that often leads to paralysis and mental decline.

"I think this is a very big deal," MS expert Dr. Stephen Hauser, whose committee supervised some of the clinical trials, told The New York Times.

It was news that has been repeated several times in recent years as new drugs have been developed to cure hepatitis C or treat previously deadly forms of cancer.

But drugs that may offer miracle cures come at a steep price. The MS drug costs $65,000 a year, while the one for hepatitis C runs $80,000, and many new cancer drugs come with six-figure price tags.

For terminally ill patients, the news is potentially life-saving.

But insurance companies say surging drug costs are a major reason the cost of health insurance has kept going up in recent years, even as consumers have faced higher co-payments and deductibles.

The debate in Washington has focused on access to health insurance and slowing rising premium costs, but what is getting little attention is why those costs keep going up: the steady rise in the cost of health care.

In 1960, expenditures for health care in the U.S. averaged $147 per person. By 2013, that had risen to $9,255, an average rise of 8.1 percent per year. In comparison, personal income went up by an average of only 5.7 percent per year during that same period.

The share of the U.S. gross domestic product spent on health care rose from 5 percent in 1960 to 17.4 percent in 2013 and will hit almost 20 percent in 2025, according to the U.S. Centers for Medicare and Medicaid Services.

So what is behind the increased costs? Why should the cost of medical care increase faster than the cost of almost everything else? And could we resolve the health care impasse not by cutting care, but by making it cheaper?

Health care experts in the Chattanooga metro area and in Washington don't believe that could happen soon, but they say we could be doing many things to help reduce costs.

But first, why do medical costs keep going up?

Chattanooga-based BlueCross BlueShield of Tennessee insures more people than any other company in the state, so its data offers a view of where health insurance dollars are going.

Two major areas are drugs and chronic care, defined as when a patient requires regular treatment over the course of several years for conditions such as diabetes or high blood pressure.

About 17 percent of the $4 billion BlueCross BlueShield pays out in claims each year to people with employer-sponsored coverage goes for drugs, as does 25 percent of claims under the Affordable Care Act.

One of the biggest categories is for insulin to treat diabetes, where price hikes since 2013 for the three most common types have ranged from 37 percent to 44 percent.

"Prices have been going up without any real explanation," said Dr. Ilana Graetz, a health policy expert at the University of Tennessee Health Sciences Center in Memphis. "Manufacturing costs are not going up."

But that doesn't include the cost of specialty drugs such as the ones used for multiple sclerosis or cancer or hepatitis C. Total spending nationally on those specialty drugs has increased from $87 billion in 2012 to $192 billion last year and is estimated to hit $402 billion by 2020, according to BlueCross BlueShield.

With chronic care, the problem is not huge individual costs, but large numbers of people suffering from relatively low-cost problems.

BlueCross' top five categories for spending per patient per year are congestive heart failure ($3,500-$4,000 annually), coronary artery disease ($2,700-$3,600), diabetes ($1,600-$2,200), asthma ($600-$650) and chronic obstructive pulmonary disease ($200-$300). Those costs may seem low, but they add up because so many Tennesseans are being treated for those conditions.

"What's being paid for services in Tennessee is pretty reasonable compared to the rest of the country, but our utilization is high here," said Stephen Johnson, Erlanger's vice president for government and payer relations.

"One of the keys to getting costs under control in Tennessee is trying to look for initiatives that keep people healthier, helping keep people out of the hospital in the first place," he said.

"The diseases costing the most are lifestyle diseases that are preventable," said UT's Graetz. "We don't invest a lot of money in those areas."

Yet another way of looking at the data is to focus on the most expensive procedures, the ones that cost more than $50,000. For employer insurance plans, some 37 percent of the money paid in claims is for those treatments, while the figure jumps to 47 percent for Affordable Care Act claims.

"There are a lot less people who have these things happen, but when they do happen, they have high costs," said Sherri Zink, senior vice president and chief data officer for BlueCross.

"Transplants are one of the highest costs we see," she said.

Transplant surgery costs run from $130,000 to $400,000 per operation, depending on the type of transplant, whether there are complications and the degree of followup treatment.

Strokes cost between $90,000 and $300,000, depending on their severity. Cancer is also big, costing between $85,000 and $225,000, depending on the type of cancer and whether surgery is required.

Knee and hip replacements are less expensive, but are becoming much more common, doubling between 2000 and 2010 as more seniors try to maintain active lifestyles.

Contact Steve Johnson at sjohnson@timesfreepress.com or 423-757-6673.