A Look at Why Medical Care Costs So Much

The issues raised in the This American Life program on health care reform resonated with me as they are common issues in my practice. As a dermatologist, one of the most common problems my patients have is psoriasis, a red, scaly rash that can affect different parts of the skin. These spots on the skin are caused by inflammation; in other words, they are caused by an overactive immune system. When psoriasis is particularly severe, the inflammation causes internal problems. Psoriasis is associated with arthritis, heart disease and depression.

Psoriasis can help us better understand the costs in our health care system. A patient with relatively mild psoriasis (a few red, scaly spots on the elbows and knees) has several options for treatment, the first being a high-potency topical cortisone medication, which typically clears up the spots if the patient uses it regularly. The topical cortisone medicines are reasonably safe; however, with persistent long-term use, cortisone medicines can cause some thinning of the skin. 

• The high potency topical corticosteroids have been around a long time. Generic versions are available in creams and ointments and can be purchased for only a few dollars a tube; however, they can be messy.
• If patients prefer less mess, they can choose newer formulations of topical corticosteroids, including a spray or foam. These are easier to use but significantly more expensive, costing $100 to $200 per container.
• Patients also have the option of a vitamin D cream or ointment. These drugs are considerably more expensive than generic topical cortisones, but have fewer long-term side effects. One company developed a combination cortisone/vitamin D ointment that contains both products. While this is a convenient way to get the benefit of both drugs at once, a large tube of the medication can cost $800 or more.

The newer options may perform better on a patient’s psoriasis than the first, but patients tend to choose the drug based on the type of insurance they have: 

• If patients are uninsured, have no prescription benefit or have a high co-payment for medications, they will often choose one of the low cost, generic topical cortisone medications.
• If patients have good prescription coverage as part of their insurance, they may choose a branded cortisone medication. I had one patient who had terrific drug coverage in their insurance plan. When offered the choice of a low-cost generic cortisone, the less messy/more costly high strength cortisone in the spray, and the highest cost combination cortisone/vitamin D medication, the patient said, “Doc, give me the spray and the combination drug. I’ll try them both and see which I like better. My insurance covers the cost of my medications.”

The cost of medical care doesn’t follow the rules of cost that apply to most consumer goods because the people who consume the medical care aren’t the ones directly paying for it. If well insured patients are given a choice between a $10 drug that may work reasonably well and a $10,000 drug that might work 10 percent better, the patient is quite likely to choose the $10,000 drug. That kind of thing doesn’t happen at a place like Best Buy. People won’t pay a 100 times higher price for a computer that offers just 10 percent more RAM or a camera that has 10 percent more pixels.

If people were paying for care out of their own pockets, they wouldn’t buy $50 aspirin pills in the hospital —they would pay for less expensive products that met their needs. They would search for the best deals on medical care. Providers of services would be forced to compete on price, and the price of health care services would drop, making care more affordable for everyone.

There are people who argue that medical care is inherently different from other services we purchase, that we need health insurance companies to make decisions for us and to pay for things that we can’t afford. Certainly the growth in the cost of health care is different from other goods, but much of the high cost is caused by health insurance, not solved by health insurance.

Yes, there are emergencies and complexities that make purchasing health care somewhat different from purchasing other products. But it isn’t completely different — there are non-health care emergencies and other incredibly complex products and services that we purchase regularly.

The difference is that when we buy those products with our money, our tendency to search out low prices and only pay for those things that are worth the price.