The rising cost of healthcare

The biggest factor of rising costs in any market, be it healthcare, agriculture or any other type of trade, is inflation. In the last 20 years, inflation has resulted in the costs of everyday goods and services doubling. However, medical inflation has risen far more steeply – approximately twice the normal rate of inflation. To illustrate, a replacement hip cost approximately £230 in 1989; in 2009, it costs £880. This begs the question - what’s so different about healthcare from other markets?
The answer is that medical inflation isn’t just about inflation. Healthcare is in demand – we’re all getting older, living longer and indulging in unhealthy lifestyles. This inevitably leads to more people suffering chronic health conditions. Couple this with the costs of medical research and development, and it’s not hard to see where these price hikes come from.

We’re all getting older
 

We live in a world where the population has grown almost six fold in the last 100 years. This in itself puts a strain on healthcare, with the manifold increase in demand simply making it more expensive. But there’s a bigger issue here: part of the reason for our growing population is that people are living longer than ever before. This effect is felt twice; once in terms of increased headcount, and again with the increasing demands on healthcare that come with ageing. For example, in New Zealand it’s estimated that the average person aged 65 or over costs five times as much to care for than people aged under 65.

And we’re only just beginning to get a glimpse of what’s to come. There are currently 700,000 people in the UK with dementia. A recent report puts the cost of treating these people at £17 billion per year. As you get older your risk of developing dementia rises; at age 65 your risk is one percent, but by the age of 85 this jumps up to 20 percent, by 95 the risk is almost 33 percent. The financial consequences of such huge rises are self-evident.

…and fatter
 

The way we live our lives has a huge influence on our health. Lifestyle factors, such as eating an unhealthy diet, smoking, not taking enough exercise and drinking too much alcohol, all take their toll on our bodies and healthcare costs. We’re in the midst of a global obesity epidemic – ‘The Globesity Crisis’. The United States of America tops the charts, with one third of its adult population being obese. But obesity isn’t just a problem in the West – developing countries are also feeling the effects.
This may not seem like an immediate problem, but if you consider the numbers involved, the true size of the problem becomes clear. With a population of 1.5 billion, if just 10% of the Chinese population becomes obese (as is fast happening), that means 150 million people with significantly worse health.
Research from the US has highlighted the huge impact obesity has on healthcare costs. It was found that obesity accounts for 12 percent of all medical costs. These costs equate to a 38 percent increase in expenditure on obese people with diabetes, a 22 percent increase in those with high cholesterol and a 41 percent increase in costs for those with heart disease.

Obesity and poor lifestyle habits combined with an ageing population all lead to one inevitable conclusion – more people with long-term health conditions and higher healthcare costs.

Cancer is on the up

Not just in developed countries, but globally. The World Health Organisations (WHO) report into cancers around the world predicts that cancer rates will be up 50 percent by 2020. This rise is attributed to the emergence of cancers in developing countries where they were previously unheard of, ageing populations and unhealthy lifestyles.

In the past, for many a diagnosis of cancer was a death sentence. But rather than dying from cancers, we’re now living with them. Since I qualified as a doctor, I’ve seen for myself how the situation has changed. Chemotherapy, radiotherapy, innovative drug therapies and radical surgical techniques have meant that over half of people who develop cancer now survive. However, this all comes at a price. These treatments are extremely costly and often long courses of therapy are needed.

Medical advances

Medicine has made huge technological advances in recent years. There may be more of us with chronic health conditions, but we’re no longer dying from them. Previously a diagnosis of heart failure meant a very poor outcome for the patient, but not any more, people are now able to control their conditions and live with them.

However, the drugs and medical developments needed to make this possible doesn’t come cheap. In 2007 the US pharmaceutical industry spent almost $59 billion on drug research and development. However, only two out of every 10 drugs that make it to the market ever produce enough revenue to match their costs.

This is the case for many medical developments – they’re so expensive that they never pay for themselves. Funding to keep them available comes from a number of sources, one of them being medical insurers. At Bupa, we welcome such medical advances - our aim is to help people live longer, healthier, happier lives - but it’s not just the financial costs that are cause for concern. The new proton therapy clinic opened at the University of Texas Anderson Cancer Centre last year is a prime example. Given the cost of the technology, it’s been estimated that it will take 17 years of full occupancy for the clinic to break even. But will all the money ploughed into this venture improve patient outcomes?

More money doesn’t necessarily mean better quality of care. Research has shown that higher medical spend (in some cases up to 60 percent more) doesn’t equal better health outcomes or patient satisfaction.

Assessing new and upcoming health technologies and taking an evidence-based approach to patient care is vital in keeping medical costs sustainable. Full body CT scans may seem like a great way to catch diseases early, but what are the consequences of high level radiation exposure for healthy people? If the research doesn’t support its use, why put a patient through costly treatment that will be of no benefit to them and may actually put them risk? I actively encourage research and development, but only if it’s safe.

The medical community

Hospitals suffer by far the highest level of inflation of all healthcare goods and services. However, it’s the doctor who really controls the purse. This isn’t necessarily dictated by how much a doctor charges, rather by what they decide to do. A cardiologist acquaintance of mine illustrates this point perfectly. When a patient comes to see him, he will openly put them through every test – ECGs, treadmills, ECHOs, blood samples. Why? Well that way the patient thinks he is thorough, he avoids malpractice issues and, working on a fee-for-service model, he is able to sustain his substantial mortgage!

Our own perceptions of healthcare have also changed. The information revolution powered by the internet has made us all self-diagnosers who actively seek treatment from our doctors. In turn the medical community has responded by intervening earlier. The traditional ‘wait and see’ approach has been replaced with immediate action – a classic example is the over-prescribing of antibiotics. And the costs continue to rise and rise and…

Keeping premiums affordable

As a medical insurance company, we are undoubtedly affected by these rising costs. But our aim isn’t to increase premiums, rather to put in place strategies to control costs. Using hospital accreditation schemes, case managing patient care and looking at clinical outcomes, we’re trying hard to sustain costs without compromising on quality.

We’ve also employed innovative schemes to help members keep healthy. Online health checks and health assessments empower members to take control of their life and make necessary lifestyle changes. By using health coaches we’ve been able to help people manage their long-term conditions to ensure they stay well for longer. We provide supportive services that allow patients to be treated in their home rather than in a hospital. We also produce a vast array of health information to educate and inform members to make the right choice for themselves.

Continued medical inflation is unsustainable. But with our unique skills and expertise we’re tackling healthcare expenditure head on.