It's the prices, but why are they high?

Why the U.S. Spends So Much More Than Other Nations on Health Care

By Austin Frakt and Aaron E. Carroll
The New York Times, January 2, 2018

The United States spends almost twice as much on health care, as a percentage of its economy, as other advanced industrialized countries — totaling $3.3 trillion, or 17.9 percent of gross domestic product in 2016.

But a few decades ago American health care spending was much closer to that of peer nations.

What happened?

A large part of the answer can be found in the title of a 2003 paper in Health Affairs by the  Princeton University health economist Uwe Reinhardt: “It’s the prices, stupid.”

The study, also written by Gerard Anderson, Peter Hussey and Varduhi Petrosyan, found that  people in the United States typically use about the same amount of health care as people  in other wealthy countries do, but pay a lot more for it.

Ashish Jha, a physician with the Harvard T.H. Chan School of Public Health and the director of the Harvard Global Health Institute, studies how health systems from various countries compare in terms of prices and health care use. “What was true in 2003 remains so today,” he said. “The U.S. just isn’t that different from other developed countries in how much health care we use. It is very different in how much we pay for it.”

Did we do more for patients in each health visit or inpatient stay? Did we charge more? The JAMA study found that, together, these accounted for 63 percent of the increase in spending from 1996 to 2013. In other words, most of the explanation for American health spending growth — and why it has pulled away from health spending in other countries — is that more is done for patients during hospital stays and doctor visits, they’re charged more per service, or both.

Though the JAMA study could not separate care intensity and price, other research blames prices more.

There are ways to combat high health care prices. One is an all-payer system, like that seen in Maryland. This regulates prices so that all insurers and public programs pay the same amount. A single-payer system could also regulate prices. If attempted nationally, or even in a state, either of these would be met with resistance from all those who directly benefit from high prices, including physicians, hospitals, pharmaceutical companies — and pretty much every other provider of health care in the United States.


NYT Reader Comment:

By Don McCanne, M.D.

Our very high per capita health care spending certainly has been associated with high prices. So why hasn't market competition (competing private health plans) or government price controls (Medicare and Medicaid) controlled prices? Simply it is what is built into those prices that is unique in the United States - our profoundly wasteful administrative excesses. Ratcheting down prices either through the market or through regulation would not change our fragmented, dysfunctional financing infrastructure with all of its waste and would result in intolerable underfunding of the actual health care delivery system.

Frakt and Carroll suggest that an all-payer system might work, but that would fall short since most of the dysfunctions of the current system would remain in place. On the other hand, a well-designed single payer system (an improved Medicare for all) would recover close to half a trillion dollars that is wasted on administration and other excesses.

It is likely that prices would be reduced for health care professionals and facilities, but only by the savings in administrative excesses that would no longer be required. The net income for the health care delivery system would remain about the same.

It has been about fifteen years since Anderson, Reinhardt and their colleagues told us, "It's the prices, stupid." We really are pretty stupid to have wasted trillions of dollars in administrative excesses since that time.

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