TWO DIFFERENT KINDS OF MEDICAL "COSTS"

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We are told that one reason medical system reforms are needed is that medical costs are increasing so rapidly.

“Medical costs”, however, is an ambiguous term. “Costs” may refer to the total amount of money (or percentage of the GDP) being spent on medical care each year in the United States. Or “costs” may refer to how much is charged for a specific medical procedure such as an MRI, a colonoscopy, installation of a filling, or delivery of a baby.

The percentage of GDP going to medical care is up to 16% and rising. But there is no way to know how much of the GDP ought to be spent on medical treatments. As the population ages and new medical treatments and technologies are invented, it would not be surprising if total costs were to increase. This type of increase in medical costs is therefore not inherently alarming.

If the costs of specific medical procedures are increasing, however, this is something we really need to be concerned about.

There can be no doubt that the costs of many procedures are going way up. A few years ago I found an old receipt indicating that my grandfather, a dentist, had put in a filling back in the mid-1930s for $1. Adjusting that figure for inflation, the current charge for a filling would be about $14.

The hospital bill when our daughter was born in 1969 recently turned up. My wife and our new daughter were in the hospital six days. The total bill was $471.22. (We paid $47.50 and our insurance paid the rest.) If the real (constant dollars) price for delivering a baby hadn’t increased the charge today would be $2,733.27 (but only if mother and daughter stayed in the hospital for six days).

Typical charges for having a baby in 2009 at the Corvallis hospital average between $5,000 and $6,000 but may sometimes be as much as $8,000 according to a hospital official. (This does not include doctors’ fees, which was also the case with our hospital bill in 1969.) And this is assuming mother and baby are only in the hospital two days. .

Hospitalization to have a baby----a specific procedure----now costs at least twice as much (in constant dollars) as it did in 1969.

The breakdown of costs in our 1969 bill gives further food for thought. Back then the daily charge for a hospital room (including private room surcharge and “routine nursing”) was $33.64, or $195.42 in 2009 dollars. The 2009 daily charge for a private or semiprivate room at the Corvallis hospital is $1,357, or seven times as much.

One would expect the costs of specific services and procedures to remain about the same (after adjusting for inflation) or even decrease thanks to efficiency improvements, improved technology, and economies of scale. But instead in many cases these costs have greatly increased. Somebody needs to figure out why this is and what might be done about it.

Perhaps too much attention is now being paid to the costs of medical insurance and too little to the costs of the medical services and procedures for which insurance pays. If the costs of the procedures can be gotten under better control, insurance premiums will reflect this fact and themselves become more manageable, whatever insurance system we then have.

[This article has appeared in the Portland Oregonian, The Detroit Free Press, The Adrian (Michigan) Daily Telegram, and elsewhere.]