Conventional wisdom is that the high cost of health care in the United States is principally caused by overutilization—that is, excessive volume of tests, procedures, and treatments, much of which may have marginal clinical effectiveness.
But if higher spending is the result of higher volume, then it would stand to reason that Americans get more health care services than other countries with lower costs, right? Not so, writes Washington Post columnist Robert Samuelson, citing data from the Organization of Economic Cooperation and Development (OECD):
“Indeed, by some indicators, Americans get less medical care than do people in other advanced countries. The number of practicing U.S. doctors (2.4 per 1,000 population) is less than the OECD average (3.1 per 1,000), as is the number of annual doctor consultations (3.9 per capita in the United States versus 6.5 for the OECD average).”
If we aren’t getting more health care, then why do we spend more on it? The answer, Samuelson argues, is higher prices:
“What propels U.S. health spending upward? The . . .answer comes in two parts: steep prices and abundant provision of some expensive services. In 2007, an appendectomy cost $7,962 in the United States, $5,004 in Canada and $2,943 in Germany. A coronary angioplasty cost $14,378 in the United States, compared with $9,296 in Sweden and $7,027 in France. A knee replacement was $14,946 in the United States, $12,424 in France and $9,910 in Canada. Knee replacements in the United States were almost twice as common per 100,000 population as in the rest of the OECD. So were MRI exams and angioplasties.”
In other words, the higher the price, the more services we get, and the greater the cost. Throw in the lack of price transparency and competition, low patient cost-sharing, and a whole lot of lawsuits, and it is not hard to understand why the United States spends more on health care than just about anyone else.
Samuelson offers two options to drive down prices: “a voucher system that, through tax credits and fixed Medicare premium subsidies, would allow patients to shop for the best health plan. Competition, the theory goes, would force hospitals and doctors to restructure the delivery system; health plans would compete on the basis of price and quality. The other way is a government-run, single-payer system that would — somehow — include strict budget limits on doctors, hospitals and other providers.”
But both of these options have their own problems, practical and political. Vouchers shift more costs onto the individual, making them responsible for the costs of care that exceed the voucher amount, yet they don't really give patients the levers to control the cost of the care they receive. And where is the evidence that insurance company competition will lower costs? Plus, voters don’t want vouchers—look at the intense public opposition to Rep. Paul Ryan’s proposal to replace Medicare with a voucher program. A single payer, government run health care system runs against the grain of American individualism and distrust of government (now at an all-time high), and likely would carry with it price and capacity controls that would limit individuals’ access to care (rationing, anyone?).
There are other alternatives that might be considered. Instead of competition among insurance companies, how about we eliminate price controls, get insurance company middleman out of the equation except for catastrophic care, enroll people in high deductible health savings accounts, and allow doctors and hospitals to compete based on price and quality? Sounds good—in theory—but the reality is that patients are not likely to shop around to find the cheapest care at a time when they are seriously ill and have the greatest need for it. Also, knowing the price charged for an office visit or procedure tells little about the actual cost. (See my October blog about why buying health care isn’t like shopping for a can of soup).
Another approach would be to give health plans and government the tools to drive down prices. Allow Medicare to negotiate drug prices with pharmaceutical companies. Pay physicians based on the value to the patient of the care being provided, instead of their relative costs (RBRVS). Allow Medicare to use “dynamic pricing” so that it could pay more for therapies with "superior" clinical results and less for therapies with poorer results. These options could potentially lower the price of care—and overall costs—but would be difficult to fairly administer (how can value to the patient be measured?) and would face intense opposition from providers who benefit from higher prices.
There you have it: high health care spending in the United States has more to do with higher prices than higher volume, yet the policy tools to lower prices all carry with them significant political and practical challenges. But as Samuelson concludes, “One way or another, if we don’t act, we’re surrendering our future to runaway health spending.”
Today’s questions: Do you agree that the price of health care is the biggest reason why the United States spends more than other countries? If so, what should be done about it?