Finances as a Social Determinant of Health in Surgery

Introduction

Cost in healthcare is a complex, multifaceted topic that affects every stakeholder differently. Understanding the financial implications of surgical care as a social determinant of health (SDH) has become an increasingly crucial aspect of this field of study. Patients undergoing surgery and perioperative care face rising costs of healthcare that impact their lives well beyond the acute recovery phase. The World Health Organization's (WHO) Commission on the Social Determinants of Health has defined SDH as “the conditions in which people are born, grow, live, work and age and the fundamental drivers of these conditions.” During the past two decades, a compelling body of evidence has demonstrated that socioeconomic factors such as income, wealth, and education are fundamental drivers of health outcomes. As the US healthcare system moves toward value-based care models incentivizing “well care” over “sick care,” SDH are crucial components of efforts to enhance health outcomes and improve value-based care delivery. Characterizing the impact of finances as an SDH in the surgical patient will promote the provision of equitable, high-quality care to all, from initial diagnosis to post-op follow-up visit.

In this chapter, we will begin by exploring the key principles of health economics and how they impact national spending on healthcare in the United States. This will lead to a discussion of patient out-of-pocket (OOP) spending on both surgery and associated perioperative care and the resulting potential impact of the cost-related burden on patients, also known as the financial toxicity of surgical care. We will then explore the indirect financial consequences of surgical care including bankruptcy and employment disruption. Finally, we will define high-value surgical care and highlight the initiatives of the American College of Surgeons and other groups to recenter surgical care on high-value, low-cost, effective treatments. This summary of the complex topic of healthcare costs as related to surgical care will allow for a better understanding of how finances are an independent and vital SDH that requires additional research and attention in a coordinated attempt to minimize healthcare disparities.

A Brief Overview of Health Economics and the Complexity of Cost

Economics is the study of how societies choose to allocate scarce resources, given the combination of near unlimited demand for, and constrained supply of, valuable goods and services. Health economics, a field of study pioneered by Kenneth Arrow in the 1970s, aims to understand efficiency, trade-offs, value, and behavior in the production and consumption of healthcare. Arrow's analysis highlights characteristics that differentiate the healthcare market from other markets, including (1) irregular and unpredictable demand as patients cannot predict when and how much medical care they will need; (2) an expectation that physicians act in their patients' best interests, with diagnosis and treatment based on science instead of personal interest; (3) uncertainty of treatment outcomes, even with modern medical advances; and (4) strict regulatory frameworks controlling supply and raising costs of hospital construction and expansion, drug and device development, and training of physician and allied health professionals.

The healthcare market has additional aspects that contribute to its financial complexity. Numerous externalities can stem from individual decisions. For example, patients who get vaccinated benefit both themselves and everyone around them by contributing to lower transmission rates (positive externality). Meanwhile, those who choose to smoke harm those around them who are exposed to secondhand smoke (negative externalities). Asymmetric information is another challenge defined in health economics that applies to surgical decision-making. Most patients lack medical training and may have limited insight into how financial costs are balanced against the risks, benefits, and recommendations that impact treatment decision-making, as a patient may not fully understand why an expensive intervention is needed. Physicians too, despite their training, cannot always know exactly what benefit or cost a specific procedure will have for a given patient. Furthermore, insurers have only limited knowledge of their beneficiaries' health risks and behaviors and thus depend on broad rules based on the average patient; this may prevent certain patients from receiving the treatment or intervention that they need.

Healthcare systems today are also marked by mergers that increase consolidation, leading to regional gaps in access to care (e.g., towns and cities with fewer hospitals and insurers), which research shows can reduce competition, raise prices, and negatively impact healthcare delivered. When subspecialty care is limited to a small number of facilities, these healthcare settings have more leverage to charge higher prices. For example, prices at monopoly hospitals have been found to be 12% higher than in markets with >4 hospitals providing the same services. In contrast, mergers may also be an opportunity to improve quality of care by bringing together partnerships of subspecialty expertise and generalists or academic medical center programs into the community.

Insurance also introduces a unique challenge to healthcare economics. When payers primarily pay for healthcare, rather than the individual receiving the healthcare services, purchasing behavior may be altered. This “moral hazard” among insured patients has been well described; if the entire cost is covered by your insurance, there arguably is less reason to be cost-conscious when making healthcare decisions. ^, Insurers attempt to mitigate moral hazard through the implementation of copays, deductibles, coinsurance, and preauthorization approval rules. While a detailed discussion of insurance is deferred to a later chapter, insurance is inextricably linked with healthcare finances. As such, certain key definitions are needed to understand the impact of finances on surgical patients as an SDH. In the United States, many patients are covered by insurance plans that require individuals to pay a portion of their healthcare costs directly via so-called “cost sharing.” Common forms of cost sharing include copayments (a flat fee charged for drug prescriptions, office visits, or procedures), coinsurance (a fee equaling a percentage of total spend on drugs, visits, or procedures), and/or deductibles (a set amount that the enrollee has to pay out-of-pocket (OOP) before insurance contributions begin). High-deductible plans are defined by the IRS as an individual deductible > $1400 and family deductible >$2800.

Due to this extensive system of cost sharing, even insured patients in the United States are often underinsured and have significant direct spending costs. Research shows that underinsurance impacts patients up to 400%–600% above the federal poverty line (defined as $30,000/year for a family of 4 in 2023); this population has been shown to have increased rates of OOP spending. In 2023, the IRS defined in-network OOP maximum spending, including deductibles, as $9100 for individuals and $18,200 for a family. These costs can be prohibitively expensive for patients. Despite recent national efforts to expand insurance coverage through Medicaid expansion and passage of the Affordable Care Act (2010), individuals who remain uninsured face even greater challenges with health-related finances. Recent predictions find that more than 30 million people in the United States still lack health insurance, which was exacerbated by the COVID-19 global pandemic. The confluence of both uninsurance and underinsurance contributes to the complexity of healthcare costs in the United States, both at a national and individual level, and shows how finances impact patient outcomes as an SDH.

Healthcare Finances—a Ballooning Cost in the United States

To fully understand finances as an SDH in surgery, it is important to acknowledge the significant societal costs of healthcare in the United States. Since 1970, total healthcare costs as part of gross domestic product (GDP) have tripled to 18.3% ( Fig. 5.1 ) and totaled $4.3 trillion USD. Contemporary healthcare expenditures include direct spending on healthcare services and related activities such as public health initiatives and medical research. The primary driver of cost increases has been the development of new therapeutics, combined with an aging population, growing prevalence of chronic diseases, and expanded access to insurance. ^,

Spending on hospitals, physicians, and prescription drugs currently represents 60% of total US healthcare expenditures with growth rates exceeding that of overall GDP ( Fig. 5.2 ). ^, Increases in healthcare spending are due to some combination of increases in price and the quantity and “intensity” of health-related products (i.e., use of drug-eluting stents vs. bare metal). A 2021 national spending breakdown by the Centers for Medicare and Medicaid Services (CMS) delineated that the 10% growth in personal healthcare spending was not due to price increase but was instead overwhelmingly driven by the quantity and intensity of services. Most healthcare is funded by the US federal government (34%), with the remainder supported by households (27%), businesses (17%), and state and local governments (15%). Total US healthcare spending includes several interrelated sectors, which all contribute to finances; hospital-based care accounts for the plurality of US health expenditures, followed by physicians and clinics, and prescription drugs ( Fig. 5.3 ).

Compared with peer-industrialized countries, the United States spends approximately twice as much on healthcare without improvements in health as measured by outcomes and quality (e.g., life expectancy, infant mortality). ^, While wealthier countries tend to spend more on healthcare compared with poorer countries, the United States is an outlier even when adjusting for its greater wealth ( Fig. 5.4 ). Higher spending may reflect unmeasured differences in quality, such as higher rates of subspecialty visits or greater use of novel technology; whether such quality improvements are commensurate with higher costs—that is, whether they provide real value—is a more complex question than simply knowing a country's healthcare expenditures. An additional major driver of cost differences between the United States and peer nations is the lack of a centralized single payer reimbursement; specifics of different insurance structures will be discussed in a later chapter.

As detailed earlier, it is clear that rising healthcare spending in the United States remains a major societal challenge due to (1) disproportionate spending on treatment vs. prevention; (2) loss of funds to potentially beneficial social spending; (3) risk of growing tax burdens to fund public insurance programs like Medicare and Medicaid; and (4) increased costs to patients and families. These trade-offs illustrate the importance of ensuring high value for every healthcare dollar spent, a goal we continue to work toward.