hospitals can steer patients toward any of those hospitals. This power over admissions is one of the most important forces in the hospital. Physician control over admissions also affects nursing home admissions, home care agency patient referrals, and referrals to other physician specialists.
Cost Shifting
The popular practice of cost shifting, whereby health care providers raise prices for the privately insured to offset the lower health care payments from both Medicare and Medicaid as well as the often nonpayment of health care premiums from the uninsured, continues to raise the cost of health care. Medicare and Medicaid payments are less than 50% of what private insurers pay. Health care providers shift charges for health care costs to the private insurance sector. Some estimates of the cost shift are being valued at $6 billion annually. Cost shifting increases the cost of all health care. The health care facility or the health care professional shifts the cost of health care to other patients with health insurance or to those patients who can afford to pay. Costs to the public for these programs continue to increase. Almost two‐thirds of all Medicaid spending for services goes to the elderly and those with disabilities. The elderly and those with disabilities made up less than one‐quarter of all Medicaid enrollees as of 2014 (Rudowitz, Orgera, & Hinton, 2019). Dual eligible beneficiaries alone account for almost 40% of all spending, mostly for long‐term care. The 5% of Medicaid beneficiaries with the highest costs drive more than half of all Medicaid spending (Rudowitz et al., 2019). The high costs are due to their needs, acute care, long‐term care, or often both. Higher costs for prescription drugs, long‐term services and supports, and behavioral health services, as well as state policy decisions to implement targeted provider rate increases, have been recently cited as factors putting upward pressure on Medicaid spending (Rudowitz et al., 2019).
Administrative Costs
According to Boddenheimer (2005a), the cost of administration of U.S. health care in 1999 was 24% of the nation's health care expenditures. In an attempt to reduce these costs, providers such as practitioners' offices, clinics, hospitals, and so on, have invested in Information Technology (IT). IT has played a role in improving quality through availability of the electronic medical record, aiding with HIPAA compliance, and streamlining insurance coding and billing services. Because of the increased demand for such systems, the administrative cost of implementation has also gone up.
It may seem to Americans that U.S.‐style free enterprise (i.e., private‐sector, for‐profit health insurance) is naturally the most cost‐effective way to pay for health care. But, in fact, many other countries' payment systems are more efficient than ours. U.S. health insurance companies have the highest administrative costs in the world. The CMS (2019) estimates project that $496 billion will be spent on administrative costs in the U.S. alone. Himmelstein (2014) reports that administrative costs account for about one‐fourth of the US hospital spending and this is more than spent in Canada (12%), England (16%), and the Netherlands (20%). Interestingly, Himmelstein found that there is no apparent link between higher administrative costs and better quality care (2014).
U.S. hospital administrative costs rose from 23.5% of total hospital costs ($97.8 billion) in 2000 to 25.3% ($215.4 billion) in 2011. During that period, the hospital administration share of national GDP rose from 0.98% to 1.43%. Canada spends 0.41% of their GDP on health care administrative costs. The rising spending on administrative costs need to be addressed at every level and corporate greed addressed.
Real World Interview
Several years ago, I went to the hospital with excruciating pain. They admitted me to the hospital, and I had tests and X‐rays for 9 days before they found the cause. I had cancer in my left kidney, and I needed immediate surgery. I had the surgery and was discharged on my 18th hospital day. Thank heaven, I was now cancer free.
The hospital bill for this stay was $18,689.20. The radiologist and surgeon submitted additional bills. I was glad that I had Medicare and Blue Cross insurance, which paid it all. The only charge I had to pay was $25.00 per day for a private room. When I looked at the hospital bill, there were many charges for medications and treatments I never received. There were even charges for the day after I was discharged. I wonder how the hospital makes out the bill. I also wonder how people with no insurance pay these kinds of hospital bills.
Leona McGuan
Patient
Schererville, Indiana
Other Factors Contributing to Rising Health Care Costs
Americans could narrow the life‐expectancy gap between the United States and other countries by adopting a healthier lifestyle. It is estimated that sticking to five low‐risk lifestyle‐related factors could prolong life expectancy at age 50 years by 14.0 and 12.2 years for female and male US adults, respectively, compared with individuals who adopted zero low‐risk lifestyle factor (Li et al., 2018). The five lifestyle related factors include diet, smoking, physical activity, alcohol consumption, and body mass index (BMI). Unhealthy lifestyles counterbalance the gain in life expectancy, particularly the increasing obesity epidemic and decreasing physical activity levels. Three‐quarters of premature CVD deaths and half of premature cancer deaths in the U.S. could be attributed to lack of adherence to a low‐risk lifestyle (Li et al., 2018). Prevention should be a top priority for national health policy, and preventive care should be an integral part of the US health care system. A healthy diet pattern, moderate alcohol consumption, nonsmoking, a normal weight, and regular physical activity are each associated with a low risk of premature mortality. Smoking is a strong independent risk factor of cancer, diabetes mellitus, CVDs, and mortality (Li et al., 2018). Physical activity and weight control significantly reduce risks of diabetes mellitus, cardiac disease, and breast cancer. Changing lifestyles is the most cost‐effective way to prevent illness and increase quality of life, yet it seems to be the most difficult for Americans. Note other factors that can both increase and decrease utilization, as listed in Table 2.6.
Table 2.6 Forces that Affect Overall Health Care Utilization
| Force | Factors that may decrease health services utilization | Factors that may increase health services utilization |
| Financial incentives that reward practitioners and hospitals for performance (e.g., pay for performance (P4P) programs that reward quality practice) | Changes in clinician practice patterns (e.g., encouraging patient self‐care and healthy lifestyles; reduced length of hospital stay) | Changes in clinician practice patterns (e.g., more aggressive treatment of the elderly) |
| Increased accountability for performance | Consensus documents or guidelines that recommend decreases in utilization | Consensus documents or guidelines that recommend increases in utilization |
| Technological advances in the biological and clinical sciences | Better understanding of the risk factors of diseases and prevention initiatives (e.g., smoking‐prevention programs, cholesterol‐lowering drugs) | New procedures and technologies (e.g., hip replacement, stent insertion, magnetic resonance imaging (MRI)) New drugs, expanded use of existing drugs Increased supply of services (e.g., ambulatory surgery centers, assisted living residences) |
| Increase in chronic illness | Aging of the population Discovery and implementation of treatments that cure or eliminate diseases Public health and sanitation advances (e.g., quality standards for food and water distribution) |
Growing elderly population:more functional limitations
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