Healthcare spending, not costs, rising

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Amid a last-ditch effort that postponed the fiscal cliff--and a doc pay cut--this week, industry experts have been calling for a relabeling of "healthcare spending," rather than "healthcare costs." Recent opinion pieces noted that healthcare "costs" may be a misnomer when the industry talks about healthcare that has been, presumably, the cause of the federal deficit.

Hospitals, patients and others inside and outside the healthcare industry interpret the terms "spending," "costs" and "price" differently, The Atlantic noted. For instance, hospitals talk about healthcare costs in terms of the money they spend on resources, while employers might consider healthcare costs the price of health insurance for their employees' plans.

It's important to distinguish costs from spending, the article noted.

"Given ... increasing use of high-tech services, it should be easy to see why the 'rising healthcare costs' frame is misleading. If we're using more and more services each year, it's hardly reasonable to blame rising costs of production," according to The Atlantic.

Further aggravating the problem, health consumers are shielded from even knowing the prices, according to a Bloomberg opinion piece.

"Our entire healthcare system suffers from what I call the cost illusion--the idea that a service has a long-term fixed cost." For example, if Medicare reimburses for a hip replacement at $15,000, and a newly invented drug reduces the need for such hip replacements, a free market would naturally reduce the price. However, the current Medicare system attaches a fixed administered price, viewed as costs, according to the opinion piece.

Peter Orszag, former head of the Office of Management and Budget, asserted Medicare costs--more than any other healthcare costs--have decelerated in recent years, contrary to expectations, Business Insider reported. Orszag said, "If this slower growth continues, the impact on our long-term fiscal gap will be much more meaningful than any plausible outcomes of the fiscal cliff negotiations."

Still, even with slowed growth, healthcare spending will amount to $2.9 trillion this year, CNN reported.

News of increased healthcare spending isn't promising, considering that more dollars doesn't necessarily mean better quality, according to research in this month's Annals of Internal Medicine. Higher costs were associated with better care in 34 percent of the studies reviewed, but in 30 percent of the studies, better care was associated with lower costs, suggesting inconsistent links between the two.

For more information:
- read the Atlantic article
- see the Bloomberg opinion article
- here's the Business Insider article
- read the Annals of Internal Medicine study
- here's the CNN article

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