Prices are only part of the problem of high US health costs. A review of research for CAHC on U.S. health costs indicates that unexplained variation in health care delivery – unnecessary or inefficient care – accounts for much of the waste in Medicare spending and nearly half of excess private health care costs.
Our goal is to shed light on the contribution medical practices make to the crisis in American health care costs. This review of the literature highlights evidence that the utilization of care is responsible for almost all cost variation under the Medicare program and roughly half of variation in commercial markets. It also reviews the track records of delivery models designed to curb waste, such as Medicare’s Hospital Value-Based Purchasing incentives and Oregon’s Coordinated Care Organizations.
The literature review indicates that unnecessary and inappropriate medications and procedures account for a large share of the nation’s health bill. This, in part, is because medical professionals and organizations are financially incentivized to do so.
- Medicare costs vary widely due to quantity of services, not price or demographics
- Half of regional variation in costs under private insurance is due to practice patterns
- price variations account for the other half of regional variations in costs
- Excess supply tends to create demand for health care products and services
- Best practice evidence is too slowly developed and widely ignored
- Government efforts to control the price of health care items and services alone
will not fix the problem
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