New technologies, not physician salaries, account for greatest rise in healthcare costs, report says

January 15, 2013

Contrary to popular belief, a new report reveals that new technologies account for more new healthcare spending than physician salaries.

Despite being blamed for years for rising healthcare costs, physician salaries are not the chief contributor to cost increases, according to a new study from the Physicians Foundation. Instead, new technology is the culprit.

Other factors-including chronic disease, lifestyle, defensive medicine, obesity, addictions, administrative expenses, pharmaceuticals, and mandated insurance benefits-also had moderate to significant effect on healthcare cost increases, according to the report. Chronic conditions are believed to account for roughly 75% of healthcare costs alone.

The Physicians Foundation cites numerous reports, including one from the Robert Wood Johnson Foundation (RWJF) that names technologic change as the most important driver of healthcare spending increases over time. The Centers for Medicare and Medicaid Services (CMS) even has been advised that about half of real health expenditure growth can be attributed to medical technology.

The RWJF report also notes that new technologies rarely must have demonstrated effectiveness before being used broadly. A 2008 estimate from the Congressional Budget Office (CBO) estimated that new technology eats of 38% to 65% of all new healthcare expenses.

Decreasing out-of-pocket expenses play a large role, too, the Physicians Foundation notes, citing a study that claims out-of-pocket costs dropped from 40% to 14% from 1970 to 2010.

As far as how much physician salaries contribute to overall healthcare costs, the Foundation cites healthcare economist Uwe Reinhardt, PhD, who debated a figure often thrown out that physician salaries account for 80% of healthcare spending. In reality, he says, a physician’s net take-home pay amounts to closer to 10% of healthcare spending.

The full report can be found here.

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