Blog | Thursday, June 28, 2018

How did American health care get so expensive? Perhaps it was Ronald Reagan's presidency


The New York Times has pointed out a very interesting coincidence. It was during the presidency of Ronald Reagan that health costs and outcomes began to diverge from the rest of high income countries with which we compare ourselves.

In an article by Austin Frakt, a health care economist, physicist and mathematician, he points out that America began to abandon health care cost controls, except for Medicare, when Ronald Reagan took the helm from Jimmy Carter, who had steadfastly backed limiting public and private health care spending. Deregulation of many institutions followed. Regulation of industries related to health were rolled back and new regulations which helped control spending in Europe were not introduced.

In the early 1980s insurance companies began to change the way they paid hospitals for their services, introducing DRGs (diagnosis related groups). Hospitals responded to this change in payment methods, being paid according to diagnosis rather than time or intensity of treatment, by increasing their size and leverage and mobilizing other cost centers to bolster their profits and economic viability. To be fair to hospitals, this was a difficult time for them and many failed. Nevertheless, in a successful change in strategy, they did begin eating up more health care dollars.

Other developments that came with this conservative sea change included support for medical spending to the exclusion of social spending and the success of big drug companies in marketing their more expensive products to consumers.

These are some very compelling associations and definitely worth exploring further. In addition to helping explain our high health care costs, these observations suggest some remedies that might gain traction in the post-Trump era. The article is short and sweet and I encourage you to read it. I am looking forward to a more detailed look at what actually happened from this or other authors with suggestions for concrete changes in our future direction.

Janice Boughton, MD, FACP, practiced in the Seattle area for four years and in rural Idaho for 17 years before deciding to take a few years off to see more places, learn more about medicine and increase her knowledge base and perspective by practicing hospital and primary care medicine as a locum tenens physician. She lives in Idaho when not traveling. Disturbed by various aspects of the practice of medicine that make no sense and concerned about the cost of providing health care to every American, she blogs at Why is American Health Care So Expensive?, where this post originally appeared.