• What makes the US health care system so expensive – Inpatient Care

    If you haven’t read the introduction, go back and read it now.  That introductory post also includes links to all the posts in this series on what makes our health care system so expensive.  Each of these pieces is going to discuss one of the components of unexpected spending that accounts for why our system is so expensive.

    Remember, these posts are going to follow a common theme.  I am going to highlight how the United States is spending more than you’d expect given our wealth.  Much of this comes from the McKinsey & Company study, Accounting for the cost of health care in the United States.

    The first area of spending I’m going to discuss is inpatient care.  In 2006, we spent $458 billion on hospital care, which – to be honest – might be less than you would have thought.  Given our obsession with talking about end-of-life care and people demanding expensive surgeries, you would have thought this number might be higher.  What might shock you is that even though it may feel like a low number, $40 billion of it is still more than you would have expected us to spend, given our wealth:

    Now one of the reasons this number isn’t as high as you might expect is that the United States shifts more of its care to an outpatient setting than other countries (I’ll talk about that tomorrow).  This does result in some cost savings for us.  Additionally, we spend fewer days in the hospital than people in other countries (121 admissions per 1000 people per year US versus 179 OECD average).  We also spend less days in the hospital for each admission, averaging 5.6 days versus 6.9 in other countries.  But then we go and blow it by spending way, way more per hospital day ($2271 versus $920).

    We also perform more than 25% more procedures than other countries, on average.  In fact, the increased numbers of percutaneous coronary interventions, knee replacements, coronary bypasses, and cardiac catheterizations alone accounts for an extra $21 billion in additional inpatient costs.  These procedures also increase the use of medical devices.  And, since no one gets spared in this series, we have to acknowledge that medical devices cost more in the United States than in outer countries.  In fact, we spend about $26 billion more than you would expect we would for such devices, given our wealth.

    The way we organize our hospitals doesn’t help, either.  Hospitals in the United States are smaller on average than those in other countries, and also are usually less filled than those in other countries.  Because each hospital has significant fixed costs such as machinery, administration, and upkeep, this results in costs that are higher than you would expect for our wealth.  This factor alone gives us $11 billion in extra costs.

    I grant you that the absolute amount of our extra spending on inpatient costs shows it isn’t the biggest offender.  But our organizational structure for inpatient care isn’t easily defensible.  If you want to defend, so be it.  I don’t think there’s a clear argument that involves better outcomes, but I hope I can be shown wrong.  If not, if you’re serious about improving the cost curve, as well as outcomes, you have to include inpatient care in any discussion of system reform.

    I will say this at the end of every one of these pieces.  None of this proves that this money is wasted or fraudently taken.  Nor am I saying that we shouldn’t spend more money than other countries.   But this is money that goes above what you’d expect us to spend based on our greater wealth.  We should at least be able to account for and explain this increased spending in some way.

    • Is the green portion of the last table “Remaining excess health care spending” or is the blue a percentage of total health care spending?

    • Kevin,

      The green portion is the rest of spending (extra and non-extra). Each day, that portion will get smaller as I define the other areas of “extra” spending. The blue is just extra inpatient spending.

    • Make sure you have enough ink when you get to outpatient care!

    • Aaron,

      Thanks, it makes a lot more sense after today’s post. Great series so far.

    • Dr. Carroll,
      Wouldn’t a justification for smaller hospitals be that then there are more hospitals and therefore people are closer to critical care? I recognize in urban environments it may be excessive to have say five hospital options within a 15 minute driving radius. However in rural settings, like where I grew up, there is a smaller hospital in pretty much every county mainly for their ER service I would believe. So I think that the size of the country could also be a consideration when thinking about health care cost. European nations may have a high GDP and expected health care cost associated, but as far as considering inpatient facilities it would be about the same as facilities in say California. Thoughts?

    • @Zach – I’m not even sure that I understand where you are going. Are you saying that the US is more rural or less rural than all other countries? These are also calculated per person costs, not over the entire country.

    • This piece neglects to mention the COST of the health care services. He’s talking about spending. You can spend all you want, but what do the services cost – to the hospital. Go to http://www.commonsense2.com and read “Hospital Accounting – It’s Complicated” or just google it.
      Hospitals dole out hundreds of millions – collectively billions – of dollars in bloated CEO salaries, bonuses (despite annual losses), world class travel, consultant fees, payouts to sports superstars in the millions, lobbying,..the list is endless. They spend 23% of their overhead on OFFICE SUPPLIES!
      One hospital in NJ paid its CEO $3.3 million including a $500,000 bonus. This while hospitals aggressively chase people who can’t pay forcing them into bankruptcy. The University of Chicago Hospital loaned its highly paid CEO $400,000 as a mortgage at a sweetheart rate. What, he can’t buy his own home at his million dollar salary?
      And OF COURSE we perform 25% more procedures. Most of them are totally unnecessary. It’s the recycling of medical procedures to those WHO HAVE INSURANCE.
      Hello? The more people lose their insurance, the more the medical community is FORCED to perform unnecessary procedures on those who have insurance.
      Frankly I expected more from Mother Jones.
      For shame.

    • @Lynn – I respect the passion, but not the tone. Yes, I am focused on spending. That’s what makes up the $2.5 trillion, and that’s what we need to cut. The cost is less than the spending. But the “cost” can’t really be cut. The spending can. And hopefully what’s cut would come from many of the things that make you so angry.

    • Dr. Carroll,
      I can see your confusion. In re-reading my comment I too was confused by my thought. But what I was trying to pose is that the US is a more rural country. So for all citizens, that are spread around a larger area, to have equal access to hospital care there is a need to have more hospitals. Then by matter of population density individual hospitals are serving less people than is economically sustainable due to overhead, but the need is there so every American has access to timely treatment. So I think per person cost is bound to be higher because some hospitals’ service area population is going to low, but they, the hospital, still provide a service that, I would think, most people wouldn’t want to go without. So that is why I would justify smaller hospitals in rural areas and that would be a factor in our more than expected cost when compared to European cost.

    • It seems like you’re only scratching the surface here? Why don’t you mention ‘Certificates-of-need?’ Why aren’t you mentioning the REASON specialty hospitals have been curtailed?

    • I hate to tell you this but in the science world an r2 of 0.76 is not a particularly meaningful correlation.

      and I don’t buy your assertion that we commit 25% more useless procedures than everybody. How do we correlate with Japan, which is another country with plenty of hypochondriacs? I’d like to see a breakdown of that

      • When dealing with complex, real-life data in the world of social science, a coefficient of correlation of .76 is noteworthy. But this is not the place for a statistics lesson. Just look at the chart; you don’t need a statistic to see the relationship.

      • My face is red. I noticed the stat is R², not r. Sorry. But my point is the same.

    • If I’m reading the chart correctly, inpatient spending in 2006 is lower than it might have been had it followed the 2003 trend. If that’s correct, what has changed? How has spending been reduced?

    • I’d second Zach’s point about the different character of the US settlement pattern and look at it from a slightly different angle, population density. We have 1/9th the population density of the EU and Japan. A less dense settlement pattern should generate smaller, more numerous hospitals.

      Unless you want to go to a forced concentration of population, some of that difference in hospital construction patterns is inevitable. But that doesn’t mean that we aren’t in trouble on this front.

      “Certificates-of-need”, where hospitals have the opportunity to kill their competitors are prime reasons why hospital construction is skewed. How much of the difference is one and not another is a subject for another day.

    • You keep saying that we should spend more on health care because we’re richer. I’d like to see some statistics to break that one down. Is it really true? Does the average U.S. citizen have a lot more wealth than average citizens in all of these other countries? Or is most of the wealth in the U.S. possessed by very few extremely rich people? I’m new to your blog so I’m sorry if I’ve missed information that is already here.

    • My one question is this; How long would it take to get Medicare out of the Red and into the Black if it was possible to eliminate all the Fraud, fraud is just another (SYNONYM) for the word (STEALING) from the public, for which I am one of the public I speak of, and also on Medicare! Very big question and a very difficult one to answer because it might be impossible to stop all the Fraud. I, personally, see this as the number one problem with Medicare and so many other problems we have in this country today!! How many people are with me in this trend of thoughts??? Sure would like to know that I’m not the only one thinking this way


    • Does this in-patient figure include preterm birth costs in the US estimated to be around 26+mm/year?

    • excuse me, 26 Billion/year?