Not very many people got a 30% pay raise in the last five years, but pharmaceutical companies and hospital ERs did. The health care cost inflation conflagration continues. Providers burn through patient income unchecked.

Axios Vitals from January 23, 2018, offers insight into the challenges of health care cost inflation in the United States.

“It’s (still) the price, stupid.”

Health care spending is up 4.5% per year, driven by rising prices, not more consumption (utilization in policy wonk-speak).

In the five years from 2012-2016, emergency room prices rose 30%, drug prices 27%.

Reproduced from HCCI 2016 Health Care Cost And Utilization Report. Chart: Axios Visuals

“Health care spending is up. Way up. That’s because prices are up — and not because we’re using more health care, according to newly published data from the Health Care Cost Institute.”

Consumer Wages

Consumer wages? Not so much. Median wages rose less than 3% on an annualized basis, 14% over the five years.

This is the challenge faced by programs like Medicare and Medicaid and by individuals trying to plan for retirement. Or live within limited incomes in retirement.

When health care costs rise faster than patient income, providers burn through patient income.

Patient raises, such as they are, are being more than consumed by rising health care costs.

Pharmaceutical companies and hospital ERs received a 30% pay increase in the last 5 years. Did you?

Retiree Income

Relying upon Social Security? It’s even worse for those in retirement. During the same five-year period, the annual average cost-of-living adjustment (COLA) was 1%. Over the five-year period, Social Security payments increased 5.3%.

Compare that to the runaway drug cost or emergency room price increases of 27-30%.

No surprise, but as a result, retirees are paying more out-of-pocket for health care.

Health care inflation is one of the challenges in guessing how much savings is enough for retirement. For more on this see,

— our review of Teresa Ghilarducci’s book, “How to Retire with Enough Money: And How to Know What Enough Is

Can’t spend it all on health care

There’s a limit on how much of our income we can spend on health care. We still have to eat, live somewhere out of the weather, and get around. We might even want a little education and fun.

The hard part is that my expense is someone’s income. Who should say no to unreasonable price increases? Consumers? Insurers? Government regulators? Who can stop this inflation spiral in health care?  Today, providers burn through patient income in an uncontrolled conflagration.



Although some price hikes may be attributable to interruptions in global manufacturing supply chains, others can be attributed to opportunistic hikes in the face of steep increases in demand.

1/15/2020 AXIOS: A new effort to cut hospital costs

12/22/2019 AXIOS: The health care debate we ought to be having

The U.S. spent $3.6 trillion on health care last year, and almost every part of the system is pushing its costs up, not down.

Hospitals collect the biggest piece of the health care pie, at about $1 trillion per year.

  • Their incentive is to fill beds — to send as many bills as possible, for as much as possible.
  • Big hospital systems are buying up smaller ones, as well as physician practices, to reduce competition and charge higher prices.
  • And hospitals have resisted efforts to shift toward a system that pays for quality, rather than volume.

Drug companies, meanwhile, are the most profitable part of the health care industry.

  • Small biotech companies usually shoulder the risk of developing new drugs.
  • Big Pharma companies then buy those products, market them aggressively and develop a fortress of patents to keep competition at bay as long as possible.

2/01/2018 New York Times: Is technology the answer? Berkshire Hathaway, Amazon and JP Morgan Chase plan to find out.

“In an effort to tackle the ballooning costs of healthcare, Warren Buffett of Berkshire Hathaway has joined forces with Jeff Bezos of and Jamie Dimon from JPMorgan Chase to launch an “independent company that is free from profit-making incentives and constraints.” – Former Apple CEO Speaks Out About Berkshire Hathaway,, and JPMorgan Chase’s Disruptive Healthcare News

HMcKinsey & Co estimates there is about $900 billion of waste, fraud, abuse, misuse, and avoidable medical costs. We know from experience in other industries that cloud-based platforms, smart automation, and actionable analytics are revolutionizing how work gets done. So why not healthcare too? While the stated goal of their new corporation is to save 20% of their health spend for their own employees and companies, I believe what their new corporation learns will have an even larger potential impact if it can accelerate the adoption of transformative innovation in terms of patient cost and quality care. If the health plans modernize their entire operation through enterprise process automation and implement medical intelligence and value-based care models, there is about 20% to 25% reduction in healthcare costs possible.

Health plans are not making 20% to 25% profits, they make only 3% to 5% profits. But there is 20% to 25% wastage there, but they don’t know how to cut the wastage due to their antiquated technology that is still widely prevalent in the healthcare industry.

-John Sculley, who held the top chair at  Apple

I’d love to hear your reaction or stories.