Ken Alltucker at USA Today recently published a piece titled Seven reasons why Americans pay more for health care than any other nation. It starts off:
Americans spend far more on health care than anywhere else in the world but we have the lowest life expectancy among large, wealthy countries.
A lot of that can be explained by the unique aspects of our health care system. Among other things, we reward doctors more for medical procedures than for keeping people healthy, keep costs hidden from customers and spend money on tasks that have nothing to do making patients feel better.
“We spend more on administrative costs than we do on caring for heart disease and caring for cancer,” said Harvard University economist David Cutler. “It’s just an absurd amount.”
The article notes that the whole system is skewed towards high costs. It is not just profiteering insurance companies. Seven factors are listed. I will excerpt them in italics below, and close with a few of my comments.
Reason 1: Lack of price limits
U.S. hospitals have more specialists than do medical facilities in other nations. Having access to 24/7 specialty care, particularly for hospitals in major metro areas, drives up costs… Patients have more elbow room and privacy here. U.S. hospitals typically have either one or two patients per room, unlike facilities abroad that tend to have open wards with rows of beds, Chernew said. He said differences in labor markets and regulatory requirements also can pack on costs.
Of the $4.5 trillion spent on U.S. health care in 2022, hospitals collected 30% of that total health spending, according to data from the Centers for Medicare & Medicaid Services. Doctors rank second at 20%. Prescription drugs accounted for 9% and health insurance − both private health insurance and government programs such as Medicare and Medicaid − collect 7% in administrative costs.
Reason 2: Hospitals and doctors get paid for services, not outcomes
Doctors, hospitals and other providers are paid based on the number of tests and procedures they order, not necessarily whether patients get better. The insurer pays the doctor, hospital or lab based on negotiated, in-network rates between the two parties.
Critics of this fee-for-service payment method says it rewards quantity over quality. Health providers who order more tests or procedures get more lucrative payments whether the patients improve or not.
Reason 3: Specialists get paid much more ‒ and want to keep it that way
Doctors who provide specialty care such as cardiologists or cancer doctors get much higher payments from Medicare and private insurers than primary care doctors.
Some see that as a system that rewards doctors who specialize in caring for patients with complex medical conditions while skimping on pay for primary care doctors who try to prevent or limit disease.
[My comment: There is a saying in management science that your system is perfectly designed for the results you are getting. In other nations with a fixed pot of money, doled out by the government, to mainly non-profit health providers, there is (in theory, at least) an incentive system that would work towards minimizing overall health expenses. In the U.S., though, we have a mainly for-profit system, that collects more moolah the more health problems we have, and the more expensive are the treatments. Most healthcare providers try to be noble-minded and work for the good of their patients, but still the overall financial incentives are what they are. The health insurance companies are one of the few forces working against endless upward spiraling of healthcare costs. ]
Under the current system, doctors are chosen or approved by the American Medical Association to a 32-member committee which recommends values for medical services that Medicare then considers when deciding how much to pay doctors. Some have compared the idea of doctors setting their own payscale to the proverbial fox guarding the henhouse.
Reason 4: Administrative costs inflate health spending
One of the biggest sources of wasted medical spending is on administrative costs, several experts told USA TODAY….Harvard’s Cutler estimates that up to 25% of medical spending is due to administrative costs.
Health insurers often require doctors and hospitals to get authorization before performing procedures or operations. Or they mandate “step therapy,” which makes patients try comparable lower-cost prescription drugs before coverage for a doctor-recommended drug kicks in. These mandates trigger a flurry of communication and tasks for both health insurers and doctors.
Reason 5: Health care pricing is a mystery
Patients often have no idea how much a test or a procedure will cost before they go to a clinic or a hospital. Health care prices are hidden from the public. …An MRI can cost $300 or $3,000, depending on where you get it. A colonoscopy can run you $1,000 to $10,000.
Economists cited these examples of wide-ranging health care prices in a request that Congress pass the Health Care Price Transparency Act 2.0, which would require hospitals and health providers to disclose their prices.
Reason 6: Americans pay far more for prescription drugs than people in other wealthy nations
There are no price limits on prescription drugs, and Americans pay more for these life-saving medications than residents of other wealthy nations.
U.S prescription drug prices run more than 2.5 times those in 32 comparable countries, according to a 2023 HHS report…. Novo Nordisk charged $969 a month for Ozempic in the U.S. ‒ while the same drug costs $155 in Canada, $122 in Denmark, and $59 in Germany, according to a document submitted by Sanders.
[My comment: Yes, this disparity irks me greatly].
Reason 7: Private Equity
Wall Street investors who control private equity firms have taken over hospitals and large doctors practices, with the primary goal of making a profit. The role of these private equity investors has drawn increased scrutiny from government regulators and elected officials.
One example is the high-profile bankruptcy of Steward Health Care, which formed in 2010 when a private equity firm, acquired a financially struggling nonprofit hospital chain from the Archdiocese of Boston.
… Private equity investors also have targeted specialty practices in certain states and metro regions.
Last year, the Federal Trade Commission sued U.S. Anesthesia Partners over its serial acquisition of practices in Texas, alleging these deals violated antitrust laws and inflated prices for patients. …FTC Chair Lina Khan has argued such rapid acquisitions allowed the doctors and private equity investors to raise prices for anesthesia services and collect “tens of millions of extra dollars for these executives at the expense of Texas patients and businesses.”
[ This also concerns me. That anesthesia monopoly should never have been allowed, in my opinion. The reason the PE firm paid to acquire all those individual practices was so that they could raise prices while minimizing services. Duh. That is the PE gamebook. When they do a corporate takeover, they nearly always fire employees and raise prices on products, to goose profits. This would not be a problem if the business were, say, selling pet rocks, but healthcare is different.
In many metro areas now, nearly all healthcare providers (even if they seem to retain their private practices) have become part of one or two mega conglomerates that cover the area. I feel fortunate because at least on of the mega conglomerates in my area is a high-quality non-profit, but I pity those whose only choice is between two for-profits.]
Final comments: I think another factor here is in our private enterprise system, it is so costly to become a doctor that they have to charge relatively high fees to compensate. This leads to a system where there are layers and layers of admins and nurses to shield you from actually seeing the doctor. As an example, I sliced my finger a couple of years ago, and went to an urgent care facility. There was an admin at the desk who took down my insurance info and relayed my condition to the back. Some time later, an aide took me back and weighed me and took my blood pressure. I think a nurse swung by as well. Finally, The Doctor Himself sailed in, to actually patch me up. And of course there were layers of administrative paperwork between me, the care facility, and my insurance company, to settle all the charges.
In contrast, a friend told me that when he broke his arm in the UK, he went to the local clinic, which was staffed by a doctor, and no one else. The doc set his arm, charged him some nominal fee, and sent him on his way.
There are other factors, I’m sure, such as the unhealthy lifestyle choices of many Americans. Think: obesity and opioids, among others. I suspect that is to blame for the poorer health outcomes in this country, more than the healthcare system.
In favor of the current U.S. system, although we pay much more, I think we do get something in return. It seems that with a good health plan, the availability of procedures is better in the U.S. than in many other countries, though I am open to correction on that.
Economist Writing Every Day 