9 Drivers of High Healthcare Costs in the U.S.

In 2012, healthcare costs per person averaged almost $9,000, a monumental increase from 2007, when healthcare per capita hovered around $7,600.

Total spending on healthcare reaching $2.8 trillion in 2012, according to the latest data from CMS, and the trends have led to a panel to tackle the challenge.

The State Health Care Cost Containment Commission, part of the University of Virginia's Miller Center, released a report detailing how the U.S. should address its high-cost problems. The Commission, co-chaired by former HHS Secretary Mike Leavitt and former Colorado Gov. Bill Ritter Jr., includes several prominent hospital and health system leaders: Glenn Steele Jr., MD, president and CEO of Geisinger Health System in Danville, Pa., Lloyd Dean, president and CEO of Dignity Health in San Francisco and George Halvorson, former chairman and CEO of Kaiser Permanente in Oakland, Calif.

The Commission's report outlined many findings, including the main drivers of high healthcare costs in the U.S. Here are the nine primary drivers, according to the report.

1. Physician, facility and drug costs. Data from the Organization for Economic Cooperation and Development have consistently showed the average unit costs for U.S. physicians, hospitals, facilities and drugs are the highest in the world.

2. Expensive technologies and procedures. When Americans do receive treatment, they often choose the most expensive technologies and procedures. For example, MRIs in the United States occur twice as often compared with the average country in OECD data.

3. Fragmented and uncoordinated care. Because care providers often treat the same patient with little consultation, unnecessary care, errors and dissatisfaction proliferates.

4. Lack of cost consideration from patients. There is an assumption among patients that the most expensive care leads to the best quality, but expensive care has no correlation with quality. Patients have limited capabilities to participate in the cost decision making process of their care.

5. Fee-for-service. Hospitals and physicians are reimbursed for every service they provide, which often leads to a focus on volumes instead of a focus on care.

6. High administrative expenses. The morass of health insurers and billing processes cost the U.S. healthcare system billions in wasted costs every year.

7. Unhealthy behaviors. Chronic illnesses — like heart disease, cancer and diabetes — cause about 70 percent of all deaths in the United States, and they are the most expensive to treat. A majority of chronic illnesses stem from unhealthy behaviors.

8. Expensive end-of-life care. The last year of an American's life is the most expensive for medical treatment, and the unnecessary procedures and repeated hospitalizations provide little value to the patient and the system at large.

9. Provider consolidation. Hospitals and health systems are merging and acquiring each other at a feverish pace, and the same goes for physician groups. Studies have shown that although provider consolidation leads to some economies of scale, the increased market power leads to higher prices and oligopolistic behaviors.

More Articles on Healthcare Costs:
Is Healthcare Spending Finally Under Control?
Survey: CFOs Optimistic But Concerned About Healthcare Costs
3 Strategies to Contain Acute-Care Costs

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