Well, it looks like big trouble for the governments who committed to providing healthcare to some or all of their population. After all, who could have predicted all of the expensive advances that would be made in diagnostics and therapeutics? How governments began to deal with this depended on how their population were insured. In European social democratic countries, universal coverage meant government was responsible for insuring and paying for everyone’s healthcare.
This meant that these governments were the sole buyers of healthcare services and thus able to set prices.
Therefore, price controls became the main tool these governments used to control the escalation of healthcare costs. Also, in the last decade, these governments have begun doing comparative analysis research, where they determine if the new treatments are more effective than the existing ones.
If the new treatment costs more, it needs to show what justifies this price premium. This means many new treatments that are “me too” could not get premium pricing. That’s how the rise in healthcare costs has been controlled in many of these counties. In United States, these price controls have not been the norm. Most Americans have private insurance. This means that there is not one buyer for new diagnostics and therapeutics.
That has made it easier for pharmaceuticals and medical device companies to commercialize their products in the United States at healthy margins. Also, competition in healthcare between providers has resulted in escalation of costs as they try to match each other in having the latest technologies and best treatments.
Another factor has been the large number of uninsured Americans who use emergency departments and other expensive healthcare services result in unreimbursed costs to provider institutions. These costs gets passed on to insurance companies and eventually to all of us.
All of this means double digit increases in the cost of healthcare in US for the last few decades. This is now reaching a point where it can no longer be ignored as Medicare trust fund only has a few years left.
Next, we will discuss the steps that are now being taken to bring this fast rise in healthcare costs under control.