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Why Are U.S. Health Costs The World's Highest? Study Affirms 'It's The Prices, Stupid'

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Why is U.S. health care by far the most expensive on the planet? At more than $10,000 a year per person, and nearly 18 percent of all goods and services, health care in America consumes roughly twice as much as it does in other well-off countries.

Fifteen years ago, the late Princeton economist Uwe Reinhardt authored a paper called "It's the Prices, Stupid." Now, using considerably better data that allow more meaningful comparison among health systems, Harvard researchers affirm that he was right.

They say the overriding reason for our out-of-whack costs is the exorbitant price tag attached to everything from doctors' time to prostatectomies to brand-name drugs. Not extra or wasted care. Not red tape or a half-dozen other frequently blamed factors.

"All the evidence is that we haven't paid enough attention to prices," says Dr. Ashish Jha of the Harvard T.H. Chan School of Public Health. "And prices are where we are truly exceptional. We're just higher for everything — drug prices, physician prices, nursing prices, hospital prices, MRI prices."

For example, the report, in this week’s Journal of the American Medical Association, finds:

• The U.S. has the world's highest spending on pharmaceuticals — $1,443 per person. Switzerland is next-highest, at $939. The average for all 11 prosperous countries included in the study is only $749.

•  A U.S. heart bypass operation costs on average $75,345, according to recent data, compared to $15,742 in the Netherlands and $36,509 in Switzerland.

•  A CT scan costs $896 on average in the U.S., versus $97 in Canada, $279 in the Netherlands and $500 in Australia.

Some of the biggest disparities are in physicians' incomes, too.

The average U.S. general-medicine physician makes $218,173 a year — nearly double the average of all 11 countries. American specialists make $316,000, while their counterparts take home $98,452 in Sweden and $202,291 in Australia. American nurses make considerably more than elsewhere, too.

Jha says he hopes the new study will spur "a more honest conversation about what drives much higher health spending in the U.S. — more time thinking about getting high prices in line, less time focusing on things that don't seem to be much different."

What's Not Driving Up Prices: Too Much Care

The question of why our costs are so astronomical has bedeviled the nation’s debate over health care for decades, without much progress toward a definitive answer.

Foremost among the conclusions of the new Harvard paper is that unnecessary care — tests and procedures that do nothing to promote health — is not the biggest driver of America’s high health spending.

There’s an impressive stack of evidence to suggest otherwise, including a frequently cited calculation that a third of U.S. health spending is wasted.

The Harvard study acknowledges that Americans get more medical care of some types — coronary bypass operations and angioplasties, total knee replacements, caesarean births and others — than patients in the other countries. Our rates of fancy scans (MRIs and CTs) are also among the highest.

But the stark fact remains that the U.S. does not have better measurable health outcomes. So many have drawn the inference that a good percentage of Americans' higher "utilization" of health services, as experts call it, is not necessary (and sometimes harms patients).

The problem with this is that Americans don't have especially high rates of medical care across the board, the study finds. Hospitalization for heart attacks, mental illness, pneumonia and chronic lung disease is middling among wealthy nations.

Other countries have higher rates of total hip replacements and hysterectomies. Americans don't generally spend more time in the hospital once admitted. And in fact, the U.S. spends less overall on hospital care than 9 of the other 10 wealthy countries, the data show. (The exception is Canada.)

Thus excess care, the Harvard researchers say, "did not appear to explain a large part of the higher spending in the United States."

Their report also contradicts some other prominent theories about excessive U.S. health costs, asserting that:

The U.S. does not have a specialist-heavy complement of doctors. 

In fact, the U.S. percentage of specialists "doesn't look that different" from other rich countries, Jha says. "I was very surprised by that."

Low spending on social determinants of health doesn't explain higher medical costs.

There's broad consensus among American policy experts that the U.S. spends too much on health and too little on social services — education, housing, retirement, welfare — that demonstrably promote good health. But the new analysis shows that U.S. social spending is similar to other high-income countries.

• The aging of the U.S. population doesn't explain America's world-beating health costs.

In fact, the U.S. ranks lowest among the 11 wealthy countries in the proportion of citizens over 65. Japan and Germany have far larger percentages of elderly citizens than the U.S., but they spend less than a third (Japan) to about half as much (Germany) on each citizen's health care.

• Medical school debt is high, but not enough to explain high salaries.

In previous discussions about disparities in doctor incomes, many have pointed to the fact that Americans graduate from medical school with crushing educational debt — $300,000 or more is not rare — while other countries subsidize medical education.

But the Harvard researchers cite data indicating that the annual debt burden from doctors' education ranges between $21,300 and $24,400 a year over 35 years — not enough to account for much of the $200,000 difference in annual pay between American doctors and their counterparts in other high-income countries.

• Malpractice costs are unlikely to be a "huge factor."

The researchers didn't examine the impact of malpractice premiums on higher U.S. costs. But Jha says the malpractice impact should mainly show up in "defensive medicine" — the ordering of more diagnostics tests to stave off claims that doctors didn't do enough. "You do see more diagnostic testing in the U.S.," Jha says, "but I don't think that's a huge factor."

• Red tape add only a few percentage points.

The new study does note that the U.S. spends much more than anywhere else on the administrative stuff of health care — complicated paperwork and crazy reimbursement rules. The U.S. spends 8 percent on administration, while most nations spend between 1 and 3 percent.

Why Should We Care?

So far, the past decade of national debate over expanding access to health care has barely touched on what to do about controlling costs.

Some ask: Why shouldn't the U.S. allow health care spending to increase from the current 17.8 percent of gross domestic product to 25 percent, or even 30 percent?

"The answer is simple," writes Dr. Ezekiel Emanuel, of the University of Pennsylvania, in an editorial accompanying the new paper. "High health care spending takes money away from spending on other worthy, and arguably more valuable, goods and services."

Education is particularly threatened by unrestrained health costs. Emanuel notes that last year Medicaid, the state-federal program for lower-income citizens, consumed 29 percent of state budgets — up nearly 10 percentage points over the past decade. Meanwhile, elementary and secondary education has been declining, to less than 20 percent currently.

It's Tricky, But ...

It's tricky to compare different countries' health systems, as I discovered in 1991 when I wrote a book on Germany's health system, the world's oldest, and then later revisited it in 2008.

Nobody can accuse Germany of stinting on care or technology. As the new analysis found, Germany still has more doctors and nurses per capita than we do, about the same number of MRI and CT machines and considerably more hospital beds. Yet it spends half of what the U.S. does on health care per capita, and bests us on measures of population health such as life expectancy, infant mortality and maternal mortality.

Nobody seriously thinks one nation's system could be imposed on any other's. Still, these international comparisons make the instructive point that America's fiercely defended reality is not the only way to provide for citizens' health-care needs. But it is certainly the most expensive way.

Related:

Richard Knox Twitter Senior Correspondent, CommonHealth
Richard Knox is a senior correspondent for WBUR's CommonHealth.

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