Why is Healthcare Expensive?

The United States has the most expensive health care system in the world [1]. This has led to extensive discussions and debates on how best to finance it and what kind of insurance system will be preferred to ensure access to everyone. While healthcare financing is an important aspect of this discussion, the root cause of why healthcare is expensive and whether we should address this root cause are usually not at the forefront of national or public discussion. While insurance billing and administration costs are a large contributing factor, pediatricians should educate themselves on other root causes of why healthcare is expensive and advocate for broader discussions about the  salaries of healthcare professionals and the cost of pharmaceuticals and medical devices. 

The reason why healthcare is expensive is complicated, but it mainly comes down to the fixed cost that is charged for each service provided. When it comes to basic human needs such as food and clothing, people usually have a wide range of options in terms of what they can pay for a given item. Expensive food types and  famous brands of clothing are not a necessity for everyone, and there are options for cheaper alternatives. With healthcare, there are no options. Hospitals, clinics, pharmaceutical and medical device companies set the prices for the service and the therapeutics provided, which are mostly standard across the board. The only thing that comes close to a cheaper alternative in medicine is the availability of generic drugs. While the prices for generic drugs decline, the average price for  brand-name prescription drugs increased 164% between 2008 and 2016 [2]. 

Salaries are another component of the expense of U.S. healthcare. On average, European physicians get paid much less than physicians in the United States: in Germany they make about one-third less [3]. The salary of healthcare professionals is one of the least discussed contributors to the healthcare cost in the United States. While most physicians, including pediatricians, are strong advocates for increased access to healthcare, most of their focus has been on changing healthcare financing [4]. Salaries of physicians, particularly for some specialties and for those in private practice, play a significant role in increasing the healthcare cost. The high student loan debt for medical education  fuels the need for medical graduates to factor in the salary when choosing their future career. While salary is not the only factor, generally the lesser paying specialties attract less interest from medical graduates while the higher paying specialties are the most competitive. Because asking physicians not to worry about their salaries in the face of the large amount of student loans they carry would be unreasonable, addressing the cost of medical education could be one step to begin tackling one of the root causes of the increasing healthcare costs. 

Rising prices for pharmaceuticals and medical devices is another complicated aspect of healthcare cost. While research and advances in new technologies continue to lead to novel diagnostic and treatment methods, they have  come with significantly higher cost [3]. The prices of these new therapeutics and devices are solely set by the industry. Patients usually have no alternative options, particularly when it comes to the most advanced treatments that are protected with patents with no generic alternatives. While many of the governments in Europe have mechanisms in place to negotiate drug prices with pharmaceutical companies, there is no such current practice in the U.S.[3]. Moreover, diagnostic tools such as CT scans or MRIs do not have generic forms that patients can choose from. Unless we find a way to reduce the continued escalation in price that comes with advances in technology,  healthcare costs will not stop increasing. 

Pediatricians should  lead discussions about ways to address the root causes of increasing healthcare cost. We are  caring for children who deserve options to access the best diagnostics and treatments available. Advocating for public health insurance such as Medicaid and CHIP  is necessary, but the sustainability and further expansion of such or new programs will require reducing the direct cost of healthcare. Pediatricians should engage in broader discussions on these topics to generate sustainable solutions at the local and national level. 

Tewodros (Teddy) Mamo, M.D.,Ph.D.


[1]: Landrigan CP, “Cutting Children’s Health Care Costs.” Pediatrics. 2018 Aug;142(2). https://pediatrics.aappublications.org/content/142/2/e20181549#ref-1 

[2]: Galea S., “The Cost of Pharmaceuticals, the Role of Public Health”, Dean’s note, ethics & human rights, health law, pharmaceuticals, Jun, 2016.  http://www.bu.edu/sph/2016/06/05/the-cost-of-pharmaceuticals-the-role-of-public-health/ 

[3]: DPE Fact Sheet, “The U.S. Health Care System: An International Perspective” 2016. https://dpeaflcio.org/programs-publications/issue-fact-sheets/the-u-s-health-care-system-an-international-perspective/ 

[4]: “Understanding the Economics of the Healthcare Environment – Financing and Utilization”, AAP article on Practice Transformation, accessed on 8/18/2019.https://www.aap.org/en-us/professional-resources/practice-transformation/economics/Pages/Financing-and-Utilization.aspx


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