America’s health care price tag: An inflationary tale

Tags: health care costs, fee-for-service, health insurance, payment, reform

By Roland A. Goertz, M.D., M.B.A.

What is it that makes American health care so expensive compared to every other developed country? I am often asked that question, and giving an accurate or simple answer is difficult. Instead of a long list of items that underlie the problem, I will describe four well-intended processes that I believe have created an inherently inflationary model of care. We have all benefited from the creation of the four processes, but we now pay a huge price for maintaining them.

Health Insurance

The most popular health insurance model for many years required a person with hospitalization insurance to be in a hospital to receive substantive benefits from this coverage. On the surface the concept made some sense. Outpatient care was relatively inexpensive 50 years ago. There were few procedures, tests or surgeries done in hospitals. But the services provided in the hospital were relatively expensive; hence the insurance coverage helped defray the expense of, or in some cases, completely pay for, the services.

A great example of how this model inflated costs was the fairly common use of weekend stays in hospitals by Medicare patients prior to October 1983, after which Medicare implemented a new hospital payment methodology, called Diagnosis Related Groups or DRGs. Before DRGs, it was acceptable, indeed it was common, for Medicare-covered loved ones to be admitted to a hospital for a few days to provide the care-giving family a break from care-giving responsibilities. Remember, Medicare only paid for the care if the covered patient was in the hospital. In many cases the same weekend break could have been provided by a home-health nurse at a fraction of the cost of the hospital stay.

This concept of paying for care when it was provided in the hospital setting helped create and grow into what some today refer to as America’s “sickness care” model, meaning our current model is wonderful for those who are both insured and sick. But the model does little in the area of illness prevention, and even less in the area of promotion of good health.

You see, a basic assumption of health insurance coverage was that we, the public, would care enough about our own health to personally pay for care that helps us stay healthy. Said wellness care is mostly delivered in non-hospital settings. Indeed, said wellness care—things like eating healthy, exercising and making other healthy lifestyle choices—might largely be paid for outside of any clinical setting. Regardless, the aforementioned basic assumption has not held true. The problem is that there is a counter assumption that our health insurance would pay to “take care of” or “fix” whatever illness befalls us. Thus, under the mindset that our health insurance will fix what goes wrong, we do not routinely use our discretionary time or funds to stay healthy. There continue to be countless Americans who do not seem to accept the reality that many chronic illnesses are preventable. Billions are spent researching possible cures and providing treatments, while precious few dollars are spent on becoming and remaining healthy.


We love specialization! America has a deep-seated belief that the more “special” something is labeled or called, the better it is. It reminds me of the term “premium” when it was applied to beer. The term “premium” was marketed as if the beer was “special,” when in fact the term really meant that the product had a tax attached, also known as a “premium.” Go figure. In any case, the assumption that specialization in health care is good is true in many cases, but certainly not in all cases. It might not even be true in most cases. In health care there are now more than 40 scientific studies that show that if a patient does not have a routine personal care physician, and instead picks a specialist for each problem they have, they uniformly have worse health care outcomes and cost society more!

Almost 70 percent of all physicians in our country are specialists in areas other than primary care. Primary care physicians, previously commonly known as general practitioners, have even had to redefine themselves as specialists in primary care to compete with this American belief! Primary care physicians are now specialists in family medicine, general internal medicine and general pediatrics. Regardless, the simple truth is that primary care specialists charge and make less than their non-primary care specialist counterparts. Unfortunately for our health care system, it appears that almost everyone has forgotten that the cost-benefit curve we learned about in our basic economics classes never had a perpetual correlation that implied “the more spent, the better the outcome.”

Overspecialization is inflationary in another significant way. Almost every delivery segment of health care wants to be licensed, certified, registered or credentialed in some form or fashion. Typically this is couched in a desire to improve or assure quality. That all seems very appropriate, but once the license, certificate or credential is created, I know of almost no one who then did not promote that he should get increased payment because of the certification! These multiple and increasing layers of additional credentials have added large amounts of additional cost to the health care tab.

Incremental Fee-for-Service Billing Models

Bear with me a bit as I explain this one. All economic sectors have some model of billing or charging for their product or services. Lawyers typically charge by the hour. Automakers charge by the type of unit sold. But generally speaking, it is by some simple unit of measure (an hour, a car, etc.). The dominant method in health care is an incremental fee-for-service model. It is a hybrid model that is supposed to take into consideration time and intensity of the service provided the patient. Each of tens of thousands of possible health care services has a distinct code that describes it, and to bill for the service provided you must find a code that “fits” the service. Otherwise you do not get paid.

This model significantly favors specialties that perform procedures and/or surgeries, and typically does not reward the more “cognitive,” time-intensive, disease prevention and health promotion services of primary care physicians. Primary care physicians and a few other specialists usually do many more cognitive services, or evaluations of patient symptoms and histories, which in many cases require more time and analysis. The codes available for that type of service are limited and in many cases do not exist.

In the areas of health promotion and disease prevention, the codes that do exist are generally not paid for by most health insurance plans (see discussion above about health insurance not paying for wellness care, and instead only paying for illness care). Procedural specialties—the non-primary care physicians—have done a far better job of arguing for the creation of new codes and better fees for their services. American medicine has done a wonderful job inventing many more things (procedures and surgeries) to do to and for a “sick” person. The result is a system that only pays or rewards the physician for providing a service that has a defined code.

The primary care physician must more frequently complete paperwork or integrate and coordinate various service needs for their patients than the procedural specialist. There are virtually no reimbursable codes for these services, or for many of the other time-consuming processes that are necessary for patients to receive optimal primary care. Sadly, optimal care does not drive this model of payment. Instead developing more and more codes that can be billed for more and more illness services and procedures drives it. Unless there is development and acceptance of an alternate model that is driven by paying for what is needed for optimal preventive and illness care (the right care provided to the right patient at the right place and time), the current system simply spins costs higher.

Separation of the understanding of the cost of a service from the actual patient who receives the service

I challenge you to ask a friend how much the billed amount was for any recently received health care service to see if he knows. Most Americans have no idea of the real charges or costs of care they receive, though they usually do have a very good idea of how much is taken out of each of their paychecks for health care premiums. For those who have health care insurance and coverage, this separation of knowledge has created a false image of the cost of care, so many see no detriment to seeking any and all health care services they need, or worse, simply want.

“Scooters” (motorized personal vehicles) to aid the mobility of elderly or disabled patients are wonderful in some cases. But which patients really need them, and how much do they cost? And might some of those patients be better off starting an exercise program that includes a bit of walking? Company representatives often tell the patient: “Just get your physician to verify that you need the device and your insurance (most often Medicare) will pay for it.” This creates an expectation in the patient that all he needs to do is ask. In reality, the physician has a strict set of guidelines outlining when such a device is warranted, and “for convenience” or “because I want one” are not criteria! Notice nowhere in the typical process does the issue of cost get addressed; the actual cost of these devices is up to $20,000. Without knowing the cost of a service or device, why not ask for it? Again, costs spin.


None of the four discussed elements of American health care was intentionally created to be inflationary, and certainly they are not necessarily bad. We are all guilty of wanting what we want, not just what we need. We are also all guilty of not investing appropriately in our long-term health, versus what feels good at the moment. But over time, these elements have created and perpetuated perverse incentives that have driven increases in the cost of American health care. At the core of the problem is an imbalance of our system that significantly favors “sickness” care and not “wellness” care. A rebalancing must occur. It is my belief that our culture will have to change as we attempt to change our health care system. It will be difficult and painful, and there will be winners and losers from a market viewpoint.

I urge each of you to keep in mind and resist the negative or inflationary aspects of the aforementioned four issues, and any others that you think are part of the problem. If all Americans do that, I truly believe that instead of trying to answer why American health care costs are so high, we might find ourselves answering how American health care costs became so cost-effective.

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