What Makes Health Care Costs So High?

Dear Readers,

While the jury is still out on whether "Obamacare" will increase or decrease per capita health care costs in the U.S., this post identifies two cost drivers that have absolutely nothing to do with the controversial 2010 health care reform legislation known as the Affordable Care Act (ACA).

First, let us observe the Hospital CEO Pay And Incentives as recently reported by Kaiser Health News and ABC.  Most of the information on salary and bonuses received by sample Hospital CEOs and Presidents was obtained from IRS filings, so it would seem that the data are accurate.

While I have general concerns that hospital executive pay shouldn't be tied to profit and unsustainable expansion, I have more specific concerns about the amounts being paid to CEOs and Presidents of U.S. Hospitals.  Here are some examples of a year's pay, courtesy of Kaiser Health News:

George Halvorson of Kaiser Permanente (CA) - $7,936,510
Dr. John Koster of Providence Health & Services (WA) - $6,379,455
Jeffrey Romoff of UPMC, Pittsburgh (PA) - $5,975,462
Lloyd Dean of Dignity Health (CA) - $5,136,883
Michael Tarwater of Carolinas HealthCare System (NC) - $4,760,026

The compensation for these executives far exceeds the two million and change earned by Dr. John Noseworthy of the Mayo Clinic, arguably one of the best performing medical facilities in the country as measured by patient outcomes (that would seem to be a better driver of medical incentive pay).  But in my own subjective view, I tend to feel that two million is a bit on the high side anyway.

Click here to view Kaiser Health News' CEO compensation tracking chart

Second, I am watching much less television these days due not only to the diminishing quality of the programming, but also to the pervasive "ask your doctor" advertisements.  Encouraging consumers to speak with their physician about every medicine that comes on the market has a direct impact of increasing doctor's office visit costs, not to mention lining the pockets of pharmaceutical company executives.  Furthermore, medicines that are new to the market and rife with adverse side-effects carry their own risk of increasing patient morbidity and ultimately U.S. health care costs as well.

So, short of not using health care services, is there anything Americans can do?  Here are a few suggestions that I feel could go a long way:

For Consumers

• Shop for medicines & services like other consumer goods; i.e. compare quality, cost, outcome
• Minimize use of medications by improving diet, exercising more and trying stress reduction techniques such as professional massage, tai chi or yoga
• Turn the television off

For Doctors

• Place your patients before your pocketbook
• Reject incentives offered by the pharma companies, no matter how attractive
• Resist any temptations to add-on unnecessary services, medical testing and/or expensive prescription medication due to presence of insurance benefits

For Hospital CEOs

• To the hospital executives in the listing above, give some thought to the fact that you earn more than 100 times what your average patient makes in a year
• Focus on quality of services rather than growth of your empire
• Eliminate any bonus structure based on growth and profit; and instead follow the lead of your noteworthy peers such as Dr. John Noseworthy (Mayo Clinic) and Dr. Delos "Toby" Cosgrove (Cleveland Clinic) who reportedly do not receive any bonus compensation

Now that I've said my piece, I'm on my way to create a healthy concoction with my new juicer!

Until next time,

Andrew Herman, President
AH Insurance Services, Inc.