Is The High Cost of US Medical Care Due To An Oversupply of Services?

The notion that excessive supply can result in overly high costs no doubt contradicts most reader’s understanding of how markets work, but the market for medical services in the US bears no resemblance to an efficient market, in which buyers and sellers possess an equally good understanding of the merits of the goods and services being offered. Patients rarely reject a doctor’s recommendation for a course of action; the vast majority accept whatever tests or procedures he recommends. At most, patients might get a second opinion for a high risk or high cost procedure. Thus medical services is not a well functioning market; most customers are price insensitive, even accepting charges that will put them into bankruptcy, and their inability to evaluate service quality makes them the perfect stuffees (seriously: are you in any position to evaluate your doctor’s competence? Unless you are a medical professional yourself, you rely only on crude proxies, namely his bedside manner and how he describes his decision process in recommending a course of investigation and treatment).

Arnold Relman, in a New York Review of Books essay on John Wennberg’s Tracking Medicine: A Researcher’s Quest to Understand Health Care (hat tip reader Roger Bigod), explains the seeming conundrum of how oversupply is a central, if not the central factor in the US medical services mess. I recommend reading the article in full.

He describes the pathology of the US health care system: that the core problem is cost, yet the mislabled health care reforms not only sidestepped this issue, but if made matters worse by assuring health insurers a monopoly position. Relman estimates that the peculiar private health care insurance regime alone adds at least $150 billion to $200 billion to the total expense of US health care without providing benefits even remotely in line with the price tag.

However, he does not regard that as the central problem but instead focuses on the role of physicians:

[O]nly in the US are there such strong business incentives to supply ever-increasing amounts of expensive technical care, even when it is not medically needed….these incentives cause US physicians and hospitals—both for-profit and not-for-profit—to act like businesses and to maximize their income, thus increasing health expenditures….

Of all the providers of medical care, physicians are most important in determining how much will be spent. In the US they account for only about 20 percent of medical expenditures, of which about half they use for expenses. But in treating patients, physicians call on the facilities and services of all the other providers of care—hospitals, imaging centers, diagnostic laboratories, manufacturers of drugs and equipment, etc.—and thus they control most medical expenditures.

What most people do not understand, but is actually well documented, is that medicine in the US is a retrograde form of Say’s law in action, where supply creates its own demand:

[Wennberg’s research] provides convincing evidence that oversupply of services throughout the US adds greatly to the cost of care. This evidence rests on an ingenious analytical approach devised by Wennberg and his colleagues, which compares health care expenditures in many different regions of the country…..

Wennberg founded the Dartmouth Institute for Health Policy and Clinical Practice and has spent his career studying the distribution of health care. Nearly forty years ago he made the seminal discovery that there were large differences between neighboring Vermont towns in the frequency (i.e., incidence per population) with which tonsillectomy was performed. These differences could not be explained by medical need or by the sociodemographic characteristics of the populations involved, and were not accompanied by any discernible differences in the health of the children in these towns.

These initial observations were followed by the discovery of similar regional disparity in the provision of other medical services elsewhere in New England….

Such large variations in medical services occur widely, as Wennberg and his colleagues later found when they began to analyze the masses of data collected by the federal government on payments for the care of Medicare patients. They devised new methods for studying the frequency of selected common medical services for the treatment of chronic diseases among the elderly as they neared the end of life (this helped correct for any regional differences in the average severity of illnesses). Their results were published in many articles in peer-reviewed medical journals and in a series of richly documented volumes from the Dartmouth Institute (The Dartmouth Atlas of Health Care)….

The data revealed as much as two- or threefold variations in the use of services when the country is divided into 306 hospital referral areas. The variations in Medicare services resembled those Wennberg first found in New England. They closely coincided with the availability of hospital beds and physicians in those areas, but not with the sociodemographic characteristics of the populations served or their need for medical services. Furthermore, he found no evidence that these variations in medical services resulted in different overall outcomes in the health of patients.

The general implications of the research by Wennberg and his Dartmouth colleagues are now widely accepted. Other researchers repeating some of the Dartmouth studies have come up with slightly smaller estimates of the extent of the area variations, and there have been a few technical criticisms of the Dartmouth methodology, but there is general agreement with Wennberg’s central conclusions.

Yves here. It is hard to believe that the people in the Obama Administration tasked to develop a health care reform plan were not aware of this research. The failure to take on the core issues leading to health care costs run amok shows a lack of imagination and will. Admittedly, any solution to the problem would need to be far-reaching (for instance, the huge cost of often-student-loan-financed medical education would need to be addressed in parallel with efforts to restrict physician excesses). But a realistic problem is that most patients are unwilling to think that their doctor might be racking up unnecessary costs on their behalf, even when the evidence is compelling that that sort of behavior is widespread.

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  1. rd

    All you have to do is look at specific types of discreet services, like MRI machines. In other countries, they are effectively rationed so that there are very few machines available in an area while in the US pretty much anybody can buy one and set it up. So the US has more per capita and yet the per use price is higher than in the countries with fewer per capita. Traditional supply and demand theory would dictate the opposite.

    I haven’t gotten into the pricing calculations of the insurance companies and governments, but it would not surprise me if the lower utilization rates in the US drive up the unit test cost as the capital cost and operational costs (staff etc.) are not significantly different if it is used once per day or eight times per day. So an audit of actual costs would provide a generally fixed cost over time per machine divided by the usage rate to come up with a auditable cost per use.

  2. Wolf 10

    Anecdotal data alert!

    I am recovering quite marvelously from two years of debilitating fatigue. Half a dozed doctors (including some at Stanford) and a variety of expensive tests could find nothing wrong. Utilizing for my own research that series of inter-connected tubes, sometimes referred to as the internets, I began to suspect a cholesterol inhibiting drug (gemfibrozil) which had been prescribed a few months prior to the onset of my fatigue. I quit taking it and at 63 I’m back to pounding nails and riding motorcycles. Wheee!

    The incidence of reported fatigue related to this drug is only about 3.8% and one of my doctors told me that if the complaint rate is less than 10%, its typically off a physician’s radar.

    Although retired, my former employer pays 90% of a considerable premium for a rather generous health plan. A lot of money has been flushed down the toilet and a considerable amount of avoidable suffering has flowed under the bridge in this instance. There are so many perverse incentives and other systemic bass-ackwardness involved in this tale that I’m getting fatigued just thinking of it. Instead, I’m going to take a ride or pound a nail. Cheers.

    1. Nathanael

      I make my doctors read the PDR list of side effects right down to the 1 in 10 million level. Because I’ve *had* “1-in-10-million” side effects.

      This is not routine. It should be.

  3. Tax Lawyer

    This simply violates some overwhelming statistics. The growth rate on the number of physicians is very small. Name a new medical school that has opened over the last 15 years. I can name a ridiculous number of law schools that have opened, and the most recent class of law graduates found themselves with a 15% rate of finding a job actually practicing law.

    I say the opposite. If this were true, you could get a doctor’s appointment in a day, as you can with attorneys, so long as you are willing to pay for it.

    I would prefer more doctors, not less, but with a caveat that we have a single payer system, that eliminates the insurance industry vampires. Flood the floor with doctors, and we will get lower prices. Somehow the idea that an oversupply of doctors causes prices to RISE, seems to violate every tenet I understand about supply and demand.

    1. liberal

      The growth rate on the number of physicians is very small.

      But the growth rate of highly specialized, expensive specialties within the physician community might not be small.

      Furthermore, there are other costs in the medical system aside from physicians themselves.

      1. Denise

        there are many other costs besides physician fees. I am a physician and know that many medical students see primary care as a sucker’s bet, to put it bluntly.
        After spending 200+K on an education I cannot blame them. My own debt load in 1987 was 100K and that was a lot at the time. I don’t own a home but at least I paid off my school loans…..

        It is obvious that managed care practices have substantially increased the overhead for hospitals and individual providers. Of course the profitable services are emphasized. As we used to say, “surgery pays for outpatient ob/gyn” meaning the services that operate at a loss (mostly outpatient services I think) are supported by profitable areas in any hospital. Get rid of the MRI’s and you may inadvertently cut funding for outpatient ob/gyn. What a system.

        1. GaryA

          Attempts to curtail physician fees should be a high priority, but not too high a priority. Some income serves a useful purpose.

          I mean, everyone knows an MD has no right to expect the sort of income a decent accountant or lawyer, or a good plumber, makes. But he needs at least enough to make enough to pay banker’s for his school loans.

          There are med students now facing debts as much as $400,000.oo debt loads upon graduation, and they don’t start earning an income until their early 30s, if not later. Those bankers are entitled to get their money back, at 8+% interest, too.

          The most solemn obligation of a young MD should be to work hard to support the banking industry by busying him/herself paying back those hundreds of thousands in debts.

          After all, most bankers are solid citizens and honest, and most have earned college degrees, MBA’s, even! The least a doctor can do is help one of these worthies earn enough to live in a comfortable suburb and send his/her kids to private schools. And it shouldn’t bother the doctor in the least that he shouldn’t be able to afford to live like his banker does, particularly if said doctor is in primary care.

          Because primary care docs squander gobs of society’s money in providing end-of-life care to dead-enders. Our whole society would be far better off if we just let them go, gracefully, of course. But the damned docs don’t appreciate society’s needs and keep them hangin’ on, and hangin’ on! Hell, it’s not THEIR money, is it?

          Look, doctors are the hired help, folks. It’s high time they got used to being treated that way and snapping to orders from those who are looking our for the financial welfare of our economically imperiled country.

          Do your country a favor: kick a doctor in the butt today!

    2. JTFaraday

      Maybe it’s not a supply and demand market. Maybe it’s a push market. I thought this article was interesting in terms of the incentives to push medical care on the provider side:

      “The Cost Conundrum: What a Texas town can teach us about health care,” by Atul Gawande:

      “”One morning, I met with a hospital administrator who had extensive experience managing for-profit hospitals along the border. He offered a different possible explanation: the culture of money.

      “In El Paso, if you took a random doctor and looked at his tax returns eighty-five per cent of his income would come from the usual practice of medicine,” he said. But in McAllen, the administrator thought, that percentage would be a lot less.

      He knew of doctors who owned strip malls, orange groves, apartment complexes—or imaging centers, surgery centers, or another part of the hospital they directed patients to. They had “entrepreneurial spirit,” he said. They were innovative and aggressive in finding ways to increase revenues from patient care. “There’s no lack of work ethic,” he said.”

  4. Usha A

    Yes, there are possibly several avenues for cost savings in the health care system in the U.S., but the most egregious, non-productive, criminal sink-hole, is the medical insurance sector. And the latter can only be addressed by, at the very least, a public option and ideally, by a single payer insurance system such as the core Medicare system; we need to eliminate the external intermediaries (ins. co.).

    I’m afraid that the most popular way of digressing and diverting attention from the real issues, is by pointing out all the other inefficiencies that exist in the system. That is the strategy and route adopted by the health care insurance industry.

    1. Francois T

      Believe me when I tell you I’m not a fan of the US health care insurance industry. I’ve got a looong list of articles about everything that is wrong with them.

      However, it is important to consider the guys and gals on the other side of the negotiating table: providers and hospitals.

      This article will sure interest you.

      It made me realize there are other factors at play that (as if we needed THAT) complicates even more a resolution of the ever increasing costs of health care.

    2. liberal

      Yes, there are possibly several avenues for cost savings in the health care system in the U.S., but the most egregious, non-productive, criminal sink-hole, is the medical insurance sector.

      Doctors can be nonproductive. Look at spinal fusion surgeries. Overall, there’s no evidence that procedure is any more effective than “do nothing invasive,” yet it costs tens of billions/year.

  5. d jones

    Our consumer culture extends to the medical patient and the practice of medicine. The most obvious is the demand created by direct to consumer drug advertising. But it is operating much more subtlely as well. The insidious cases are when the financial incentive of doctors coincides with the desires of patients. This is a major reason why evidence based medicine has been so slow to take root here. There are numerous examples of very popular treatments being of minimal or no value. Whole fields of treatment like that delivered by ‘Spine Care Centers’ are largely a sham. A significant portion of ‘medical care’ is really a consumer product -demand for which is created by marketing, playing off and ‘leveraging’ peoples hopes and desires. This helps explain why our extra spending does not by us better health. As noted doctors are the critical link in the system – they can make or break the system – whatever its design. Without professionals with real itegrity any system will cost way too much and fail to provide the appropriate care.

  6. TeeJaye

    Two quick observation:

    1. This is a well-known phenomenon. When I was a tender undergraduate Public Policy major at Duke, one of our profs had just completed a paper which demonstrated that health care costs RISE as the number of doctors in a community RISE. Obviously in direct contravention to the economic principal of supply (if you assume that demand is inelastic – i.e. people demand services when they are sick, which is an exogenous factor). This was not a state secret at the time and is well-known in the health policy world.

    2. Not to wax too cynical, but can anyone think of a market with DOES comply with the precepts of a competitive market as stipulated by conventional microeconomics? I can’t. There are never an infinite number of generic sellers of an indistinguishably generic commodity to an infinitely diffuse cloud of buyers. OK, maybe the market for carrots or something like that. But for most commodities (goods and services) there is an oligopoly of providers. Advertising matters. Firms’ marginal revenue does not remotely equal marginal cost. Information asymmetries abound. In Econ grad school micro we learned that in these sorts of cases the rules of micro break down – – the rules only really work when the conditions for perfect competition or perfect monopoly are met. In the ologopolistic “middle” cases, as one prof explained, it’s all down to game theory – – if you want to understand it, go to business school. Which is what i did – and there are no rules or grand principals there – – it’s just one dog-fight after another. So to encapsulate, when, exactly DOES economic theory work?

    If micro theory rarely holds in practice, it seems we should have big-time doubts about a lot of the conclusions of macro theory (as the assumed aggregation of micro behavior.) All the data analysis is well and good – that is real enough. But the presumptions of causalities, of equilibria, of unconscious collective optimizations of invisible utility functions – – – maybe we should turn to Astrology instead (as did a senior wall street economist who i worked with…) yoix!

    Not that I am giving up on Econ as a discipline. just that we have a lot of work to do and a lot of assumptions to reconsider.

    In the words of Einstein, the significant problems of today will not be solved by the level of thinking that created them.

    1. Nathanael

      You’re absolutely right, of course; there are practically no perfectly competitive markets. The market for screws comes close though.

      Thankfully, proper macroeconomics is actually *not* based on the rotting, defective “principles” of microeconomics. If you read any Keynesian you’ll see that it’s really based on general observations about herd behavior.

      Non-Keynsian macroeconomists tend to be stupid.

      Microeconomics is thankfully *finally* getting some revitalization from behavioral economics and experimental economics. It’s not fit to use for hardly any purpose yet, though.

    2. Nathanael

      FYI, economic game theory is making great strides as well, so that’s good news for microeconomics too. :-)

  7. Francois T

    Whoa! A topic near and dear to my heart. Alas, it is a fiendishly complex one and I’m pressed for time. :-(

    A couple of observations:

    Over supply of services? Indeed:

    “The Tonsillectomy Riots also remind us about the durability of profitable medical procedures even in the face of evidence against them. By the mid-1930s, fully one-third of all operations performed under anesthesia in the United States were tonsillectomies. Around that same time, research that included a pioneering study of New York City schoolchildren began to show that the tonsillectomy rate was more dependent on physician preference than on objective indicators. Nonetheless, the growing medical literature on inappropriate and even dangerous tonsillectomies had little effect on actual practice until Congressional hearings in the 1970s spotlighted parents whose children had been harmed or killed. Only then did the profession react.”

    In other words, it took public exposure and threat of Congressional action to act as a deterrent to greed.

    that medicine in the US is a retrograde form of Say’s law in action, where supply creates its own demand

    This is true of any health care system that does not have cost controls in place. It is amazing the amount of damage a tiny minority of greedy physicians can do to to the finances of any health care system. I clearly remember a piece about MetLife when they had to combat medical fraud in NY State 25 years ago. It was so bad that their inspectors came to the conclusion that stamping out the fraud committed by less than 3% of their providers would result in a decrease in premiums for all their members. (yes, they thought that way in the good ol’ days) As for an example under a gubmint controlled system, see my comment here:

    So, be it private insurers of the gubmint, someone has to mind the store. Pick your poison, but poison there will be.

    Yves here. It is hard to believe that the people in the Obama Administration tasked to develop a health care reform plan were not aware of this research.

    You are correct. Quite a few people in Congress and the White House are very aware and knowledgeable about the Dartmouth Research. Why don’t they even talk about it?

    Well, there is this little problem called guaranteed political suicide. Consider this:

    The key finding from focus groups, interviews, and the online survey is that there is a fundamental disconnect between the central tenets of evidence-based health care and the knowledge, values, and beliefs held by many consumers. For health care experts, variation—in quality among health care providers, the evidence base regarding therapies, and the effectiveness and cost-effectiveness of treatment options—is a well-established fact of the health care delivery system, documented extensively in the published literature and well understood after years of careful study. Yet such concepts are unfamiliar to many Americans and may even seem threatening, to the extent that they raise unwelcome questions about the quality of medical care that people receive.

    The majority of consumers believe that:
    1) all care meets minimal quality standards
    2) more care means higher quality care
    3) newer care is better care
    4) treatments costing less are inferior
    4) medical guidelines “represent an inflexible, bargain-basement approach to treating unique individuals.”

    In other words, they believe pretty much everything that is contrary to the bevy of research from evidence-based medicine.

    And these beliefs are very strongly ingrained in the psyche of the American people. You can bet your last n’gwee that politicians of all stripes know this fact all too well. As a matter of fact, when one press any of them that is cognizant of Dartmouth as to why they are silent about it, their evasive maneuvers would put the best ace pilot of Top Gun to absolute shame. It’s just too risky politically.

    It’ll take a true national catastrophe to really reform the health care system in this country.

  8. Debra

    This is a subject near and dear to me too…
    How terribly ironic that on TWO continents when consumer spending on a bubble (the medical one…) gets totally out of hand, the powers that be start screaming like stuck pigs, drag out their fingers and.. POINT AT THE DOCTORS.
    Nothing new under the sun there.
    Before you dismiss me completely, I am NOT going to pretend that there are not doctors out there who are in it exclusively for the money, and count out their stash every night, because there are, of course.
    But.. NOT ALL doctors are behaving this way, and not even the majority.
    Two people in the above comments fingered the problem :
    the FACT that the public will be SUSPICIOUS of a doctor who does not prescribe tests, and the more the better (remember my mantra… “more of a good thing is ALWAYS better in many people’s minds…).
    The problem as the other commenter pointed out is that… we are CONSUMING health care JUST LIKE we consume new sofas, DVD’s, whatever. Because we now believe that… EVERYTHING in the world is there for our consumption (in subtle ways, this is NOT a subtle declination of our belief, agreed.)
    And that health care happens to tie right in to our BELIEF in the ideology of scientism. That “science” (preferably medical, these days…) WILL SAVE OUR BODIES (many of us pooh pooh the idea of even HAVING SOULS these days).
    At the base of any financial bubble is BELIEF.
    And.. we GOTTA have something to believe in. Otherwise… well, I prefer to not think about THAT.

  9. Expat

    No one wants to address the fundamental issues because that would leave them open to attacks like being accused of running Death Panels. Maximum treatment means maximum profits. There are still plenty of opportunities to sue, so the lawyers don’t mind one way or the other.

    The US needs to decide what is a right and what is a privilege. Healthcare? Education? Roads? Minimum wage? Defense? Human rights? Civil rights? Our bastardized healthcare system creates the worst of all possible worlds because high private costs are being borne by the government and by taxpayers writ large under their private insurance.

    We need to either fully privatize and watch thousands die prematurely or introduce a public system with restricted services. Or blow up down the road.

  10. M.D.Texas

    Obama certainly knew about this kind of research. In the beginning of his push for “overhaul” he use to emphasize the unnecessary test/fee for service structure that drove up the cost of medicine. He wanted to incentivize and reward doctors who didn’t do that and he cited Mayo Clinic many times as a good example. Unfortunately, the social conservatives/right (from both parties) hijacked him by claiming that Government was trying to “control” medicine, trying to tell doctors how to practice, trying to “ration” care, death panels, etc. And then of course the political AMA machine got to Congress and all of a sudden there was no more about the doctor part of controlling costs. The whole insurance company cost thing is certainly true, but again, when Obama and his people saw that it was futile to criticize the doctors for their part, they made the whole thing about insurance, because no one, except for the Republican Corporate Alliance (joke) will defend insurance companies. And again, whenever you try to point out comparisons with health care in other countries, the crazies scream “socialism” and start bringing out the testimonials about people who had to wait forever for a procedure and died doiing it………..So what happened after they passed their pitiful version of “reform”? The insurance companies jacked up their rates about 30% across the board, before the new laws even took effect. Our country is full of those who are motivated solely by GREED and those who are lazy, make a habit out of gaming the system, and refuse to take responsibility for anything. Until we as a society change our values, government is ineffective and politics is total folly.

  11. jbmoore

    If I understand Yves’ post, the issue is the more empty hospital beds or unused medical equipment, the more likely it is that physicians will make their patients use them whether the patients need the care and services or not. The article was not addressing the limited supply of doctors which is artificially low in this country. Those providers are not an oversupply problem. The trend is likely worse for those physicians that own a diagnostic laboratory or hospital. There would definitely be a conflict of interest with a physician owner as opposed to a regular physician.

  12. Jim the Skeptic

    The only doctors I know are the ones who treat me. I have had asthma since the early 1970s and have had regular contact with the medical professions since that time.

    I believe that the vast majority of people have a medical problem when they visit a doctor. This is not consumption for consumptions sake.

    The vast majority of doctors are not prescribing tests, drugs, or treatment because of greed. They are confronted with a patient with some health issue. The health issues are understood to a varying degree and the treatments are effective to a varying degree. Anyone who does troubleshooting will tell you that if you can not determine the cause of the problem you need to collect more data. Doctors collect more data by doing diagnostic tests.

    I don’t think that particular study proves what they believe it proves. It proves that doctors education and experience are not uniform across the country. It proves that some doctors are more aggressive in their treatments. Tonsillectomies were out of favor by the time I was raising my children and so their repeated strep infections were treated with antibiotics. (Strep infections are dangerous and can cause kidney problems, or so the doctors told us.) One of my daughters finally got a tonsillectomy when she was about age 27.

    Continuing education is the ideal in the medical profession but is it implemented to the same degree all across the country? Local doctors talk to each other, is it possible that they come to a consensus about how certain diseases should be treated?

    It seems me that the discussions about the costs of health care are as biased as the discussions about the cause of the current problems in the economy.

    1. Yves Smith Post author


      I have to tell you, you are lucky and therefore naive.

      First, people do seek unnecessary care. They demand antibiotics for winter colds, for starters.

      Second, I’ve had PLENTY of cases where doctors have recommended unnecessary and profitable to them treatments or diagnoses, and I’ve succumbed a few times. My list: an unnecessary crown (which is now leading to an unnecessary root canal, as said crown was done in such a way as to destroy most of the tooth structure, so the crown came off), a recommendation of unnecessary oral surgery (this has happened twice), an unnecessary high sensitivity echocardiogram (a $1300 test, administered in the doctors’ office).

      The ones I did not succumb to: unnecessary orthroscopic surgery on my knee, multiple recommendations that I use psychoactive drugs (either antidepressants or Adderall) to treat fatigue, use of steroids to treat a chronic knee problem (comes from instability in my feet/ankles, steroids might be OK for an acute problem, not something chronic).

      And I’m basically healthy.

      1. Jim the Skeptic

        In my defense I did say the vast majority and my GP stopped prescribing antibiotics for viral infections at least 15 years ago.

        I don’t think that I have been all that lucky.

        My step daughter developed kidney failure at about 12 years old. The specialists said it was probably due to strep. But I had 2 daughters who continued to be treated with antibiotics instead of a tonsillectomy. All in all, I think they all got decent health care. Bad things happen to good people.

        My experience with asthma ran from ‘psychosomatic’ mumbo-jumbo, to ill conceived treatment with oral corticosteroids with horrible side effects, to very good treatment with corticosteroids inhaler. All along the way I got the best treatment for that time, in my location. I have had surgeries for nasal polyps so that I could breath through my nose, since warm moist air is better for the lungs. I have had more than a few x rays to diagnose the cause of acute breathing problems.

        My doctor’s were not using me as a profit center. They were just doing the best they could with the knowledge that they had at the time. I am not saying that there are no greedy doctors, I am saying they are the exception.

        I recently refused a pacemaker. I will live with the problem a little longer and try a few changes to medications and lifestyle. Those 2 cardiologists were not villains, they were just offering a treatment which is the standard of care. (Second opinion agreed.)

        Want to cut the cost of health care for the aged or sick?

        Insurance companies take 20% to 30% right off the top and provide no medically necessary service. Answer, slash at least 15% to 20% of that.

        The young and or healthy absolutely detest mandatory health insurance. But it turns out that the young and or healthy get in accidents or worse yet develop some illnesses which are very expensive to treat. In the current system, doctors and hospitals mark up the cost to the sick and insured to cover the uninsured. Add the cost of constantly adjusting the charges to cover these costs. Answer, no insurance and no cash then no treatment! It’s time to play hard ball with the freeloaders. This is another large dollar savings.

        Periodically drug companies take a drug which is about to go off patent and make some minor tweak with a combination drug or a new delivery system. Presto the government extends the patent. Outlaw extending drug patents based on tweaks. Let them sell their new tweaked drug only if they continue to sell the drug which went off patent. Let the market decide if the tweak was worth anything. I have been the victim of these unethical methods. Next include drugs which don’t treat the problem any better than existing drugs. Doctors need to be educated about this issue and the drug companies should be forced to provide the data to them. We are talking about very large savings here!

        But none of that will be done, we will spend our time and energy pointing out minor contributors to the problem.

        1. Yves Smith Post author

          I hate to continue to be a devil’s advocate, but as Upton Sinclair said, it is difficult to make a man understand something when his salary depends on not understanding it.

          Your defense of of what you consider to be standards of care ignores the fact that the evidence is overwhelming that many doctors do not in fact adhere to evidence-based practices. And on top of that, many standards of care are in fact self serving. For instance, the ADA as of roughly 2003 started recommending crowns for teeth where more than 1/3 of the tooth has been removed (this was not the reason for the crown I mentioned earlier that was unnecessary). I have two filling that large or larger (the joys of not having flouridated water in my childhood), done by a NYU professor of dentistry, that I’ve had more than 20 years with no problem. So tell me why there is now a blanket recommendation of a crown, a more costly procedure? (in fairness, my dentist did use different materials for the restoration than are the norm now). Similarly, the two cases in which I’ve had oral surgery recommended (and pronto), my dentist clued me in I could wait until the tooth became symtomatic….which might be NEVER.

          Ditto with orthopedists. If something doesn’t respond to rest, ice, elevation, and compression, or cortisol shots, or physical therapy, they’ll recommend an operation, no matter how low the efficacy rate. Action is seen as better than managing a chronic problem.

          Or look at one of my favorite pet peeves, mammograms. They are a terrible test. They do a lousy job of detecting the fast moving cancers, and a great job of false positives. And they pump radiation into soft tissue.

          Far more reliable is a manual exam by an experienced practitioner (turns out those bad cancers feel different than benign lumps, what a concept, and oh, that exam is cheaper and involves no nasty radiation) and thermal imaging. But radiologists have an installed base of equipment, and lo and behold, they are vigorous defenders of mammograms. I’ve literally been hectored for refusing mammograms and getting the more accurate manual exam. And when I’ve asked why they are using mammograms rather than thermal imaging, they just get pissy.

          And don’t get me started on so-called auto-immune diseases.

          1. Nathanael

            Treatment of autoimmune diseases is a mess, but I think that’s largely because the doctors are generally unwilling to admit how much they don’t know.

            They’ve found a few things which work on certain sympton clusters (immune suppressants, quinine derivatives, steroids). They don’t even know *why* most of them work. They also haven’t got the root causes of any of the diseases sorted out; they’re just symptom clusters.

            Not that there’s anything wrong with that. When a doctor approaches it with that attitude and treats a patient as an individual case who is going to be a unique experiment, you can get good care.

            If a doctor imagines that these are ‘real’ diseases like tuberculosis and that they have ‘real’ standard treatments, you have trouble.

            I’ve been dealing with this for a decade or two.

          2. Yves Smith Post author


            I cant do this justice in a short space, but you have been a tad misled on root causes. There was research prior to WWII that was pursuing the notion that what are now called auto immune diseases were in fact the result of an infectious agent, mycoplasma (which are somewhere between a virus and a bacteria). That was abandoned immediately after WWII when the first immune suppressants were developed (I forget the name) and the auto immune theory was created out of whole cloth, with no underlying evidence behind it.

            Aside from one researcher/med school professor, who developed a protocol using tetracycline (a cheap and low side effects antibiotic) which has a good deal of experimental evidence to support its use, there has been no interest in pursuing this line of inquiry. Most doctors are hostile when patients bring it up.

            My father died of an autoimmune disease. There are only three labs in the country that can test for mycoplasma (the only mycoplasma that a commercial lab can screen for is a one type involved in pulmonary ailments). It is extraordinarily difficult to get a sample of your own blood transferred across state lines for a test; even with the help of a retired MD friend who could get access to the lab (but no cooperation from his regular doctors) it took my father six months to get his blood to the lab (and his life expectancy was only a year). The test results? “Your blood is swimming in this stuff.”

            By then, my father was having very severe adverse reactions to the “autoimmune” treatment: ulcers in his mouth to the point where he could not eat, colon blockage, inability to sleep. He didn’t have the strength to travel to a doctor who would use the tetracycline protocol.

    2. JTFaraday

      And hormone replacement therapy–here’s Barabara Ehrenreich:

      “In 2000, at the age of 59, I was diagnosed with Stage II breast cancer on the basis of one dubious mammogram followed by a really bad one, followed by a biopsy. Maybe I should be grateful that the cancer was detected in time, but the truth is, I’m not sure whether these mammograms detected the tumor or, along with many earlier ones, contributed to it: One known environmental cause of breast cancer is radiation, in amounts easily accumulated through regular mammography.

      And why was I bothering with this mammogram in the first place? I had long ago made the decision not to spend my golden years undergoing cancer surveillance, but I wanted to get my Hormone Replacement Therapy (HRT) prescription renewed, and the nurse practitioner wouldn’t do that without a fresh mammogram.

      As for the HRT, I was taking it because I had been convinced, by the prevailing medical propaganda, that HRT helps prevent heart disease and Alzheimer’s. In 2002, we found out that HRT is itself a risk factor for breast cancer (as well as being ineffective at warding off heart disease and Alzheimer’s), but we didn’t know that in 2000. So did I get breast cancer because of the HRT — and possibly because of the mammograms themselves — or did HRT lead to the detection of a cancer I would have gotten anyway?”,_welcome_to_the_women's_movement_2.0/#more

      This from the woman who wrote the book on women’s health and bad science, ie., someone who should be a sophisticated consumer of optional treatments like HRT:

  13. Sophia

    When doctors get called out for unnecessary costs they blame lawyers and the public believes them. Doctors aren’t greedy — the lawyers made them do it. It’s not that the public is unwilling to believe these expenditures happen, they just refuse to hold doctors responsible for them — coming and going. It’s not the doctor’s fault he ran all those extra tests and added unnecessary costs to the system. And when you put the doctor in front of a jury, they’re rarely held responsible for failing to order tests (even though they all claim that fear of lawsuits forces them to over test).

  14. Justin

    A close friend of mine has an older brother who is an optometrist in Louisiana. I can’t remember the exact details, but I remember my friend telling me how his brother charges ridiculous prices for the most basic items, e.g., $10 for a few Kleenexes. Of course, the patient doesn’t pay for these items out of his/her own pocket and doesn’t even realize that he she/is being charged, because the insurance company (or Medicare/Medcaid, I would presume) receives and pays for the bill.

    And I doubt my friend’s brother is a lone crook in a sea of fine, upstanding optometrists. Most likely, he picked up the “tricks of the trade” during his residency or from his colleagues.

    I have a very simple proposal that I think would solve (or, at least, alleviate) more than a few of our nation’s healthcare woes; publicly fund medical school.

    Take a few billion away from our grotesquely bloated “defense” budget to fund the education of any American child who has the grades to make it into and through medical school. As I see it, an abundance of trained physicians can only be an asset to our nation. Besides, the difficulty and rigor of medical school would prevent a deluge of unqualified participants.

    If we did this, we could finally eliminate the tired argument that “doctors need to get paid such exorbitant salaries because they are buried under exorbitant student loan debt.” There would be no debt at all for most physicians.

    Maybe that’s just a pipe dream of mine (and I have no desire to become a physician), but I think it would be a wise investment.

    1. JTFaraday

      “I have a very simple proposal that I think would solve (or, at least, alleviate) more than a few of our nation’s healthcare woes; publicly fund medical school.”

      Yeah maybe, but it strikes me that this “high cost of medical school” arm waving may be a bit of an excuse.

      I would reform the health care delivery system FIRST and then decide if certain kinds of practitioners need subsidy.

      Maybe we should subsidize journalism students. Or MBA students. Or corporate law students. Or any other group of professionals using the high cost of their education as an excuse to sell out their professional ethics, destroy their professions, and betray the public interest in order to “pay off their loans”–wave arms wildly–even when some of these people can “pay them off” a hundered, a thousand, ten thousand times over.

      I’m not saying student loans aren’t a problem, but they’re a problem for everyone. And they’ve also become everyone’s excuse. What if I’m tired of hearing this excuse?

      1. Nathanael

        Publicly funded higher education is simply standard in continental Europe. (For those who pass the admissions exams, naturally.) This includes medical schools. Result: large supply of doctors who *aren’t* trying to pay off debts.

        We should do it. We have too many deeply ignorant people in this country, education is a public good, and it’s worth the money.

  15. Hugh

    Many communities have two or more hospitals or two or more physicians groups in them. They provide services not on community need but as a competitive tool. They do not compete on price. Indeed because many of these services are misdirected, underutilized, and reduplicative, prices from this competition go up, not down.

    We don’t even have to invoke defensive medicine. This oversupply will tend to inflate community best practice standards. If, for example, you have a sports medicine center (selling point one) and you add a lot of capacity to do arthroscopic knee surgeries (selling point two), it will be completely unsurprising how many people will get referred as a medical “best practice”, even though the long term efficacy of such a procedure is dubious in most cases.

  16. Sunny

    Being a physician + imaging specialist over 40 years the subject is my favorite one.

    All the views expressed so far are valid with a lot of truth behind them. I especially endorse the the views of Francois T on this issue which are SPOT on!

    I have read many studies at Dartmouth especially the EBM (Evidence based Medicine) which is my focus for the last 10-20 years.

    Every one talks about EBM but hardly any one adheres to it for simple reason it gets thrown in a court of law by plaintiff lawyers. Second there guidelines to practice Medical Specialties by each Specialty Association which takes into consideration the prevailing ‘medico-legal’ standards based on numerous court rulings Which will be NOTHING to do with EBM or good medical practice!

    Medicine used be a CALLING but it is BUSINESS!

    Medical Ethics – What’s good for the Patient

    Business Ehics – What’s good for the bottom line!

  17. Mike the Mad Biologist

    The Dartmouth analyses are flawed in that they don’t consider poverty. Most of the reported analyses look at geographic regions that lump together poor areas that require lots of services due to poor health with wealthy areas that raise average income and need far less healthcare. Consequently, they conclude, incorrectly, that income isn’t an effect.

    The other issue is that poverty is associated with certain diseases that require longer hospital stays, but that aren’t deadly–the Dartmouth analyses only use the costs occurred in the last two years of life.

    I wouldn’t call these and other problems methodological issues, but fundamental flaws.

    (The Dartmouth Atlas is good at showing regional variations in practice, but that has to be overlaid with patient characteristics).

    Also see this.

    1. Francois T

      Don’t know where you got this idea that the Dartmouth analyses doesn’t account for poverty, but it is not true.

      See here:

      In the Measures subsection, one can read:

      Baseline characteristics—including age, sex, race, socioeconomic status, illness severity, and comorbidities—were defined using data obtained from the Medicare Denominator and Medicare Provider Analysis and Review (MEDPAR) files (all three cohorts), chart review (acute myocardial infarction, or AMI, cohort), and the U.S. census, based upon ZIP code of residence (all three cohorts).

      See also this:

  18. ChristineWithRegence

    We all have a role to play in helping to control health care costs. Check out

  19. NLC

    Actually, the wealth-adjusted expenses of the US Healthcare system vis-a-vis the rest of the developed world overrun expectations by approximately 30% or so or about $477 billion, or about 25%(see: The McKinsey Report:

    Realistically, attempting to maintain reasonable quality, access and cutting costs will entail rationing, delays, and cuts in service and coverage on a very significant scale.

    When this Healthcare reform bill rolls out in a few years, it will massively expand coverage (likely doubling the size of Medicare & Medicaid) without any cost controls. This will result in a financial crisis which will give DC the ability to impose a nationalized health system along the lines of Canada or the UK. A private, parallel system will survive for those who have the money necessary to avoid having to go to what will eventually be the equivalent of the VA or a County Hospital system.

    The people most unhappy with this new arrangement will be the 70% of people who previously had good healthcare that they were happy with – Medicare patients and patients with employer-sponsored plans who are going to get the short end of this stick.

    Quite a political coup, to convince the majority of people to support a change that will benefit the minority (perhaps half of whom are disadvantaged, and half of whom just elect to pay nothing toward their healthcare) and disadvantages the majority (the 70%+ people who like their present system).

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