What Makes a Person Expensive in Healthcare? Not What Most People Think.

Posted 4/4/12 on the HCMS Blog

A question from the audience last month: “We spend the most in healthcare on a small portion of really sick people. You don’t expect them to shop for care during an emergency do you?”

I was giving a presentation about the important role that cost-conscious consumers can and should play in healthcare. The person asking the question, as everyone could tell, disagreed with the idea. While I doubt anything changed her mind, her loaded question illustrates some common misconceptions in healthcare: 1) high costs are driven by catastrophic medical events; and 2) treatments for these severe conditions leave little room for discretion and often require quick medical  decisions.

In this context, it’s no wonder many people jump to an extreme conclusion when they hear the term “consumerism,” because they assume it means patients need to stop and compare prices in the height of an emergency. Further, how can consumerism demand that everyday people participate in decisions about serious illnesses when such issues are best left to professionals? Certainly, one would not want to disrupt critical care during a life-and-death situation by asking about price.

More medical care means more risk and more potential for unsafe care, not less.

So, is the question totally unfounded? No. To be fair, part of her comment was absolutely correct. Several of our blogs have illustrated that the majority of dollars are spent by a small minority of cases. Approximately 50% of costs are incurred by 5% of people. So, it is true that the healthcare expenditures are disproportionately (and increasingly more) spent on an expensive few… the 5%.

However, this is where the misunderstanding begins. It is important to understand what contributes to the cost of those few. The relevant data are found in the following table (click to enlarge):

In this table, we see a typical distribution of integrated costs (medical, disability, and workers’ compensation) from HCMS RDDb 2010 data. The top 5% average a dozen different medications and more than a dozen different diagnoses, treated by an average of nine different providers.

Most people in the “expensive” 5% group do not have a single, catastrophic medical event. Instead, they have a combination of more common health needs for which they are receiving a variety of services. In fact, our data show that individuals who have a single, serious event are much less likely to be in the top 5% the following year (1).

Coordination of care, or lack thereof.

What does this analysis tell us? It’s not which illness you have, but how many different illnesses you have and medications you take that seem to drive costs. Really expensive medical cases almost always involve multiple conditions and coordination of multiple treatments, often over several years. In many cases, none of them are life-threatening or urgent, but rather an ongoing set of health decisions over time.

When studying and supporting high-cost people, we frequently find that each additional disease adds more doctors (mostly specialists), medications, and tests. This produces greater challenges for coordinating care, avoiding redundancy, and preventing complications from drug interactions. With this many visits, tests, medications, and procedures, the likelihood of medical errors and complications is very high.

From this perspective, a patient who faces a dozen conditions, treated by ten doctors, while filling prescriptions for a dozen different medications each year, has a greater need and ability to be involved in making decisions about care than a person with just one condition or an urgent event that takes him to the hospital in an isolated occurrence.

When we suggest that individuals take an active role in healthcare decisions, it is not simply to shop for the best price on specific services. The purpose is to encourage people to understand their health conditions and medications, to decide what preferences and values are important to them, and then use these priorities to weigh the risks and benefits of their options. We can all be a part of decisions about side effects, treatment efficacy, and safety. We can also compare the price of those options and decide whether the cost of yet another medication, test, or treatment is worth the value. There are significant risks of overtreatment and invasive procedures that can be avoided or minimized by asking about alternatives.

Assessing consumer involvement under normal circumstances, not extremes.

Too often, discussions about patient involvement in treatment decisions focus on extreme, nonsensical situations. None of us would expect to delay treatment of an accident victim while we search for a less expensive CAT scan. In some cases, these comments reflect a personal fear that care might be withheld, or a belief that cost considerations will inevitably lead to a system that discriminates against poor people.

Actually, the opposite is rarely considered, and is much more common! There is extraordinary harm, not only to our nation’s financial solvency, but to individual health, resulting from over-utilization, excessive, or poorly-coordinated medical treatments. It is vital that each of us recognize the difference between “more care” and “good care” and understand that “expensive care” doesn’t mean “better care.” Cost and quality transparency are the only way to give all consumers the decision power they need to participate in the health decisions that are best for them and for the healthcare system.

Putting consumers in charge is not an unfair burden; it is a role that is vital to their safety and well-being.


1. Lynch, W.D. and Gardner, H. H. Aligning Incentives, Information, and Choice: How to Optimize Health and Human Capital Performance. Health as Human Capital Foundation, Cheyenne, WY: 2008, pp. 46-50.

One thought on “What Makes a Person Expensive in Healthcare? Not What Most People Think.

  1. Nice. A few observations that add to or perhaps differ from your posting, but might fall under the category of “advancing the discussion.”

    First, that “5% accounting for 50% of costs” rule has one invalidating flaw: that’s last year’s 5%, only a small fraction of whom also become this year’s 50%. The industry has been trying to “go after” that 5-50 thing for years with no success.

    Second, in my forthcoming book (excerpts may be viewed free and with no “cookies” at www doe dismgmt dot com), I note that “everything in life has an 80-20 rule… In population health management, the 80-20 rule is that 80% of the time there is no 80-20 rule. On any given day, maybe 2% of the population (the 2% in the hospital, getting expensive tests, filling expensive scripts etc.) account for 80% of spending that day. However, over a much longer period of time, the CDC says the 50% of people with chronic disease account for 75% of spending. This is the exact opposite of what you are describing — costs are very diffuse.

    What is the implication? The implication is that all these pollyannas who think that “doing disease management” or “incentivizing people to stay healthy” or anything else and showing massive cost savings as a result, are smoking something. That’s why my book is called “Why Nobody Believes the Numbers.” Virtually all that money is wasted.

    The other irony is that another blog today pointed out exactly the opposite — that what you are advocating about “taking an active role” is m important at end-of-life…and yet that’s exactly where this type of patient-centered care is most discouraged by the government.

    So while I hope that your position becomes consensus someday, there are a lot of headwinds, both analytical and political, holding it back.

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