updated 4/15/2005 5:46:14 PM ET 2005-04-15T21:46:14

Health costs have run amok in the U.S.

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General Motors pays more on health care than steel. A Harvard study indicated that half of personal bankruptcies in the U.S. are health related. Even as the ranks of uninsured Americans are swelling, Americans' $1.7 trillion annual doctor bill continues to grow by at least 7 percent each year. What, exactly, are Americans paying for?

To find out, we decided to look at which diseases are costing the system the most money and which ailments had the most skyrocketing health costs.

This itemized version of the U.S.' health bill is based on data provided by the Agency for Health Care Research and Quality, a U.S. government outfit charged with figuring out where Americans' health care dollars are going. AHRQ conducts an annual survey of medical expenditures, including both government spending, such as Medicare, and private spending by insurance companies.

Joel Cohen, a researcher at the agency, helped us drill into the agency's database, providing a clearer picture of the makeup of broad categories such as "heart conditions." We also looked at what diseases and their related treatments, such as high cholesterol and anxiety, were causing the biggest cost runups.

Real reasons behind price hikes
The data tell a story that backs up some of the most important conclusions in health research. First, as much as groups like AARP like to complain about how the price of brand name drugs outpaces inflation, price increases aren't the main thing eating our money. Of the ten fastest-growing diseases identified from the AHRQ data and ranked by percentage increase in cost, only one — hemorrhoids — was caused by an apparent increase in the cost of care per patient. Instead, the overall tab rose because more and more people were diagnosed with a disease such as acid reflux, not because the treatment got pricier.

Second, preventative medicine gives people better lives and prevents illnesses, but it doesn't save money — because patients who would never have been treated before will still opt to pop pills or get screenings. "The number of people you're treating will far outweigh any savings," says Mark Fendrick, a noted health economist and doctor at the University of Michigan.

Take, for example, the use of drugs to lower blood pressure and cholesterol. There is no doubt that these medicines save lives — cholesterol pills such as Pfizer's Lipitor and Merck's Zocor have been shown to cut heart attacks by one-third. It's not surprising that more diagnoses of high cholesterol made it the second fastest-growing disease, with costs tripling to $13.6 billion. But while AHRQ data show the number of heart attacks dropping 3 percent, the cost of treating them rose 8 percent to $15 billion. Saving lives doesn't always save money — sometimes it costs.

How to trim the bill
So how can the U.S. trim its ballooning health care bill? Experts generally agree that the answer lies in changing the financial incentives surrounding health care, to make it more efficient. One idea, being championed by Fendrick, is to make drugs free in cases where the benefits are so huge that they translate into money in the bank. For instance, cholesterol drugs are so good at preventing second heart attacks that giving them to people who have had heart attacks or persistent chest pain might save money.

Then, Fendrick argues, patients should be made to pay more as cost-effectiveness decreases. That means many people would still take Lipitor and Zocor, but many would have the same co-pays as they do now.

However, drugs are only a tiny sliver (about 11 percent) of overall costs. Elliott Fisher, a professor of medicine at Dartmouth University's influential health costs group, says that the two most expensive decisions a doctor makes are to send a patient to the hospital and to schedule a new appointment. Yet the benefit of more doctor visits is pretty much unproven, he argues. In fact, switching from specialist to specialist may just provide more opportunities for doctors to "drop the ball," he says. Areas with more intensive health care often wind up with patients who are less healthy.

"The U.S. could theoretically send one-third of the health care workforce to Africa," says Fisher, "and improve the health of both continents."

Even the most proven, effective treatments are only given to patients half of the time. Giving more of these basic treatments — such as administering blood thinners to prevent stroke or ensuring that patients undergo regular cancer screenings — might increase the efficiency of the health system. Says Fisher, "There are lots of failures to do the right thing when we know what the right thing is."

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