This blog post was written by Dr. Nathan Moore, a SteadyMD team member and the author The Health Care Handbook: A Clear and Concise Guide to the United States Health Care System. Dr. Moore is a graduate of the MD program at the Washington University School of Medicine in St. Louis, Missouri and is a practicing physician.

Everybody knows health care is expensive. The U.S spends about twice as much on health care as other industrialized countries, and the amount we’re spending continues to rise.  Unfortunately, despite spending almost a fifth of our GDP on health care, Americans aren’t healthier than folks in other countries; and the outcomes of the care we receive aren’t any better.

How did we end up spending so much for so little?

Although there are many reasons, one of the primary contributors is the screwed-up financial incentive structure known as “Fee for Service”.  In this system, doctors (and hospitals, physical therapists, clinics, and nearly everyone else) get paid every time they do something.

This seems pretty straightforward at first – do one knee replacement and you get paid $20,000; do three and you get $60,000. On the surface this makes a lot of sense; after all, car mechanics get paid when they fix your car, and home builders don’t get paid if they don’t build a home.

Like everything else in medicine, things get more complicated in practice. Many treatment decisions are not clear cut – often it’s not clear if the patient will benefit more from a knee replacement than from physical therapy, for example.  But the doctor gets paid 100 times more to perform a knee replacement than to refer to physical therapy.  One hopes that financial incentives don’t cloud the medical decision making process but doctors are only human and respond to the financial incentives that they’re given, if only subconsciously.  This leads to many problems.

In essence, doctors and hospitals are incentivized to treat patients when they are sick, not to keep them healthy and out of the hospital. Healthcare is big business and investment decisions are made at the corporate level; and not always with the patients’ best interest in mind.  Procedures and testing are profitable, so hospitals build more testing centers and operating rooms, and try hard to get patients in the door to get tested and operated on.

Think about hiring an electrician to wire your house and paying for each outlet installed rather than an hourly rate – would you be surprised if your home ended up with 50 outlets in each room? Then you shouldn’t be shocked to find out that Americans receive more procedures and tests than almost anyone else in the world. Many of these aren’t needed and may in fact be harmful to patients.

The Institute of Medicine (think the Avengers in white coats) concluded that 30% of U.S. health care spending ($750 billion a year!) is waste, and the major source was unnecessary testing, procedures and other services.You can also blame fee for service for the 12 minute appointments at your primary care office; the physician is paid per appointment and is therefore incentivized to see as many patients per day as possible, even if it’s not in the best interest of the patient.