We’ve all heard that the U.S. spends a great deal on health care. It only takes a glance at the statistics comparing costs for health care in America to other countries to realize the madness in the numbers.
The US spends 2.5 times the international average on health care costs, yet our outcomes are no better than in other countries. Much of the cost is driven by the high cost of emerging new procedures, the cost of prescription drugs and high number of procedures and routine care being performed.
Consider the costs on everything from common procedures to prescription drugs for countries in the Organization for Economic Co-operation and Development (OECD). A report released by the International Federation of Health Plans revealed that a colonoscopy in the U.S. averaged $1,185. The same procedure in Argentina costs $413. In Switzerland, it runs about $655.
In fact, colonoscopies provided a compelling case study in a June 2013 New York Times article “The $2.7 Trillion Medical Bill.” Using data from the Centers for Disease Control and Prevention, the article stated that 10 million people get the procedure each year, adding up to more than $10 billion in annual costs.
With that many being scheduled, one could certainly call it routine, yet the process has become more complicated over the past couple of decades. Once performed out of the doctor’s office, today the procedure is treated like a “quasi operation” with patients reporting to surgery centers – and being billed according.
More damming is the claim that colonoscopies are prescribed and performed more frequently than medical guidelines recommend and are given preference over less invasive tests that screen for colon cancer. Those tests are not only routinely performed in other countries, they’ve also been proven to be just as effective by the U.S. Preventative Services Task Force.
“We’ve defaulted to by far the most expensive option, without much if any data to support it,” said Dr. H. Gilbert Welch, a professor of medicine at the Dartmouth Institute for Health Policy and Clinical Practice in the Times article.
But medical costs are not just higher for procedures like colonoscopies. Americans also pay more for prescription drugs, even when they’re developed and manufactured in the U.S. In fact, prescription drugs often cost double and sometimes more. Nexium, a popular acid-reflux drug, retails for $202 in the U.S. The same drug sells for $18 in Spain, $30 in France. A brand-name asthma medication costs $250 in the U.S. In Britain, the same drug costs $20 – and the government hands it out for free.
|United States||Argentina||Spain||United Kingdom||France||Australia|
|Routine Office Visit||$95||$10||$11||NA||$30||NA|
|Cost of Hospital Day||$4,287||$429||$476||NA||$853||$1,472|
|Hip Replacement Surgery||$40,364||$3,365||$7,731||$11,889||$10,927||$27,810|
|High Cholesterol Drug||$124||$39||$13||$43||$48||NA|
|Nasal Allergy Drug||$108||$22||$21||$12||$17||NA|
|Acid Reflux Drug||$202||$21||$18||$32||$30||NA|
|2010 Health Spending as Percent of GDP||17.6%||NA||9.6%||9.6%||11.6%||9.1%|
NA – not available
Table figures from International Federation of Health Plans 2012 Comparative Price Report
Why Are The Costs So High?
There’s been plenty of speculation about why health care spending in the U.S. outpaces other counties: Americans are sicker. They visit the doctor more frequently. America has “the best health care in the world.”
Unfortunately, the data doesn’t back up any of those claims.
According to a report from the Commonwealth Fund, Americans are younger and smoke less than people in other developed countries. People in Japan have more doctor consultations. People in Switzerland and Canada are hospitalized more frequently. Americans do rank poorly for obesity and access to care for lower income.
However, the U.S. does do more testing than other countries. For instance, the number of MRI and CT tests for every 1,000 people in 2010 was double the average in other OECD countries. Comparatively, there were also more tonsillectomies, caesarean sections and knee replacements.
Regardless of how much more nearly every procedure, scan and drug costs, it’s nothing compared to how out-of-whack the medical heroics thrown at Americans in the last stages of life cost.
According to a Pittsburgh Post Gazette article, Carnegie Mellon professor Paul Fischbeck figured that by the time American patients are 85-years old, health care costs between $40,000 – $45,000 per person, each year. Germany, the next highest nation for end-of-life care, only spends $10,000 on their citizens of the same age.
But what’s really depressing is that despite paying more, there’s no evidence that our health care is any better. In fact, according to the report USA, Inc from Mary Meeker, countries like Japan and the UK spend over $4,000 less per capita for health care, yet their life expectancy is significantly higher.
So how much is this all for Americans? OECD data shows that for 2010 (last year figures were available), the U.S. spent $8,233 on health per person. Norway, the next highest, spent about $3,000 less than that. The average spending on health care among the other 33 developed OECD countries was $3,268 per person.Ezra Klein wrote in his Washington Post article “If we had the per-person costs of any of those countries, America’s deficits would vanish. Workers would have much more money in their pockets. Our economy would grow more quickly, as our exports would be more competitive.”
What Isn’t America Doing?
There is plenty of blame to go around for the high cost of health care in America. Patients demand expensive tests. Doctors order unnecessary procedures to maximize profits. Pharmaceutical and medical device companies put doctors on the payroll to push their products. And hospitals charge exorbitant costs for nearly everything.
In truth, you could blame unchecked costs on the American culture. As a nation, there is strong skepticism for government solutions. Indeed, much of the early opposition to the Affordable Care Act focused on “death panels,” committees that would decide which critically ill patients received care and which wouldn’t. The claims weren’t based in fact, but nonetheless they set off a firestorm that still flares from time to time.
In fact, the only price setting government undertakes is for its Medicare and Medicaid programs. Outside of that, Klein describes health care pricing as a “free-for-all.” American insurers typically negotiate prices with providers – creating a wide variation in cost to an individual, even in the same hospital.
“Providers largely charge what they can get away with, often offering different prices to different insurers, and an even higher price to the uninsured,” Klein writes.
Indeed, the pharmaceutical industry had profit margins that neared 20 percent in 2013, according to Yahoo! Finance. Medical device industry margins were above 16 percent. Hospitals, on average were at 5.5 percent, but the largest hospitals had profit margins above 25 percent. On the other hand, health insurers had 3 percent profit margins. That suggests sellers have the upper hand over buyers.
This isn’t allowed to happen in other countries. In Canada and Britain, the government sets prices. Other countries, like France and Germany, have insurers and providers negotiate prices, but intervene if prices start to rise precipitously.
All the variables in plans and providers lead to complex pricing with little to no transparency for patients or doctors. Luckily, the tide is shifting. Most health insurers are offering cost estimators for patients. The ACA is mandating hospitals to publicly report their prices. Even alternative care facilities like urgent care centers and retail clinics are routinely posting their prices upfront.
There will always be critics on how much each has raised the consciousness of cost among consumers, but the message is clear. We’re nearing the end of secrecy in health care pricing. And that’s an important first step in being able to start controlling costs.