Friday 9 January 2015

20+ Facts About Healthcare Costs in the U.S.

General Healthcare Spend*
  1. The U.S. spends nearly 20% of its yearly GDP on healthcare. Other developed countries spend about half that, but the additional spend in the U.S. does not generally result in improved patient outcomes
  2. The healthcare-industrial complex spends more than 3x the amount of the military-industrial complex on lobbying each year
  3. Prices for U.S. prescription drugs are ~50% higher than those in other developed countries
  4. McKinsey estimated an annual healthcare overspend of $750 billion in the U.S.
  5. Company financials seem to indicate that if the U.S. payed for healthcare at similar levels to other developed countries, the profit margins for medtech and pharma companies would remain high enough to continue encouraging innovation

Image Courtesy of

Hospital Economics
  1. Hospital chargemaster prices are often capricious, and reach levels 10-15x higher than Medicare reimbursement rates
  2. Medicare price models are imperfect, but they are cost-based, and attempt to factor in all direct costs and allocated expenses required to provide a given product or service
  3. Hospitals around the U.S. market aggressively to Medicare patients
  4. The average hospital collection rate is ~35% of the total amount billed
  5. Average operating profit for non-profit hospitals is ~12%
  6. Medtronic sells its products at a 4x markup to COGS, and hospitals routinely sell devices to patients at a 2.5x markup to the wholesale price
  7. Pharma companies commonly offer wholesale prices at 10x to COGS, and hospitals routinely sell these drugs at a 4-5x markup to the wholesale price
  8. Hospitals routinely double- and triple-charge for items on the chargemaster that could reasonably be included under their general facility and room charges
  9. Doctor groups with in-house IVD labs seem to order more tests than those using outside labs
  10. A typical PET / CT piece of equipment will pay for itself within 1 year by carrying out 10-15 procedures per day. The equipment has an expected life span of 7-10 years
Patient Economics
  1. 60% of personal bankruptcy filings in the U.S. per year are related to medical bills
  2. Patients are often delivered large portions of medical bills not covered by their insurance plans
  3. 'Medical billing advocates' often achieve discounts of 30-50% on medical bills just by calling in to negotiate on behalf of patients

Image Courtesy of The Atlantic

Payer Economics
  1. Healthcare insurance premiums under ObamaCare will rise mainly due to 3 provisions: 
    1. Prohibitions on exclusion of pre-existing conditions
    2. Restrictions on co-pays for preventive care
    3. End of annual or lifetime payment caps
  2. The largest payers have historically negotiated reimbursement rates at 30-50% higher than Medicare rates, but increasing hospital consolidation is shifting more collective buying power back to the providers, so that the final negotiated reimbursement rates are moving closer to chargemaster prices
  3. FDA-approved drugs are reimbursed by Medicare at 'average sales price' + 6%. The manufacturer calculates and provides the average sales price

*All facts in this post are from Steven Brill's article Bitter Pill: Why Medical Bills are Killing Us, and his newly published book, America's Bitter Pill: Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Healthcare System . They represent only a small portion of his findings, but are among the most objective and meaningful to me.


  1. Very interesting to learn about. Thanks for sharing this information with us.
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  2. Hello Austin,
    Thank you for your nice sharing. The health care cost is a big fact in US. Not only US its all over the world its a major fact. Specially for the rural areas people can't bear this.

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