Medical Billing and the Discrepancy Paradox of the Rising Healthcare Costs

Health care spending continues to rise at the fastest rate in our history. In 2005, total national health costs rose 6.9 percent — twice the rate of inflation – reaching $2 trillion, or $6,700 per person [Catlin, Cowan, Heffler, et al, 2006]. Currently, total spending represents 16 percent of the gross domestic product (GDP). In the next decade, U.S. health care spending is expected to increase at similar levels, reaching $4 trillion in 2015 [Borger et al, 2006].

While some experts maintain that our health care system is costly because it is riddled with inefficiencies, excessive administrative expenses, inflated prices, poor management, waste, inappropriate care, and fraud [Health Insurance Cost, 2008], at least three remaining key factors, namely, aging population, expensive medical innovation, and defensive care, contribute substantially, to the overall cost picture.

Aging population – In the United States, the proportion of the population aged >65 years is projected to increase from 12.4% in 2000 to 19.6% in 2030. The number of persons aged >65 years is expected to increase from approximately 35 million in 2000 to an estimated 71 million in 2030, and the number of persons aged >80 years is expected to increase from 9.3 million in 2000 to 19.5 million in 2030 [Public Health and Aging: Trends in Aging — United States and Worldwide, 2008; Kaiser Family Foundation, 2006]. “The growing number of older adults increases demands on the public system and on social services. Chronic diseases, which affect older adults disproportionately, contribute to disability, diminish quality of life, and increased costs.” [UN, 2002] 125 million Americans have one or more chronic conditions (e.g. congestive heart failure, diabetes.) Chronic diseases account for 75% of all health care expenditures. Source: Burrill & Company, 2006

Expensive innovation –
The American biotechnology industry has surpassed pharmaceutical companies for the third straight year as the primary source of new medicines, and biotech revenue jumped nearly 16 percent to a record $50.7 billion in 2005. Source: Ernst & Young LLP, 2006

The USA is the world’s largest and wealthiest pharmaceutical market, accounting for around 48% of the world total. Per capita expenditure on drugs is US $1,069 in 2006, nearly double the level found in the rest of the world. Source: Espicom Business Intelligence, 2006

… an estimated 30% of new products under development are “combo products” – involving medical devices embedded with pharmaceutical or biologics components. [Combination Products- Navigating Two FDA Quality Systems, Microtest White Paper, 2007]. The combination products market is estimated at $5.9B in 2004, and will continue to grow at a compound annual rate of 10% through 2009. By 2009, the market is expected to reach approximately $9.5B worldwide with a majority of these revenues from drug-eluting stents and steroid-eluting electrodes. Source: Navigant Consulting, Inc. In 2004, the US held approximately 65% of the drug-device combination product market. By 2010, the US is projected to hold 57%. Source: Business Communications Inc.

“Defensive” Medicine -“One of the major cost drivers in the delivery of health care are these junk and frivolous lawsuits. The risk of frivolous litigation drives doctors — and hear me out on this — they drive doctors to prescribe drugs and procedures that may not be necessary, just to avoid lawsuits. That’s called the defensive practice of medicine… See, lawsuits not only drive up premiums, which drives up the cost to the patient or the employer of the patient, but lawsuits cause docs to practice medicine in an expensive way in order to protect themselves in the courthouse. The defensive practice of medicine affects the federal budget. The direct cost of liability insurance and the indirect cost from unnecessary medical procedures raise the federal government’s costs by at least $28 billion a year.” [US President George Bush, Arkansas, January 26, 2004]
Now let us observe the paradox:

On one hand, the participants of every ancillary industry, including insurance companies, hi-tech and pharmaceutical engineers and scientists, as well as lawyers, have increased their profits in step with the rising costs at ever accelerating pace.

On the other hand, the medical and chiropractic office owners – the actual providers – have not only failed to keep up with raising costs but have lost a significant part of their income. In fact, between 1995 and 1999, at a time when most wages and salaries in the United States rose 3.5 percent after adjusting for inflation, average physician net income from the practice of medicine, adjusted for inflation, dropped 5 percent [Reed and Ginsburg, 2003]. In 2006, the median compensation for specialty and primary physicians grew only 1.7 ($322,259) and 2 ($171,519) percent respectively, slower than consumer price index of 3.2 percent [MGMA Physician Compensation and Production Survey: 2007 Report]. In comparison, health care costs beat the inflation by 3.5% reaching the annual growth rate of 6.7 [Spending, 2008]
Diverting our focus away from trying to find solutions to the problem of rising health care costs, we ask a different question: How such a paradoxical situation is possible without a deliberate and systematic strategy against the providers?


Catlin, A, C. Cowan, S. Heffler, et al, “National Health Spending in 2005.” Health Affairs 26:1 (2006): 142-153.
Borger, C., et al., “Health Spending Projections Through 2015: Changes on the Horizon,” Health Affairs Web Exclusive W61: 22 February 2006.
Health Insurance Cost, National Coalition on Health Care as of January 4, 2008
Public Health and Aging: Trends in Aging — United States and Worldwide, as of January 4, 2008
United Nations. Report of the Second World Assembly on Aging. Madrid, Spain: United Nations, April 8–12, 2002.
Kinsella K, Velkoff V. U.S. Census Bureau. An Aging World: 2001. Washington, DC: U.S. Government Printing Office, 2001; series P95/01-1.
U.S. Census Bureau. International database. Table 094. Midyear population, by age and sex. 2008
The Henry J. Kaiser Family Foundation. Employee Health Benefits: 2006 Annual Survey. 26 September 2006.
President Bush Calls for Medical Liability Reform, Baptist Health Medical Center, Little Rock, Arkansas, January 26, 2004
Marie C. Reed, Paul B. Ginsburg, Behind the Times: Physician Income, 1995-99, Data Bulletin No. 24, March 2003
Medical Group Management Association (MGMA) Physician Compensation and Production Survey: 2007 Report
MEDICARE SPENDING – United States Government Accountability Office (GAO), Testimony Before the Subcommittee on Health, Committee on Energy and Commerce, House of Representatives, March 6, 2007, Healthcare Costs 101