As Democratic presidential candidates debate the state of U.S. healthcare, a common theme is the high cost of the system. Senator Bernie Sanders (I – Vermont), in particular, has made the claim that the U.S. spends twice as much on healthcare, per capita, as any other nation in the world.
According to the Organization for Economic Cooperation and Development (OECD) the U.S. spent $10,586 on healthcare per capita in 2018, about twice the average of $5,280 among peer nations. While Sanders’ claim is erroneous, he’s pointing to a serious problem.
Total healthcare spending is a function of both prices paid for and volume of healthcare services and technologies provided. Higher prices – “it’s the prices, stupid” – rather than utilization explain the higher per capita spending in the U.S. relative to other high-income countries. Utilization of many healthcare services is in fact lower in the U.S.; for example, fewer physician visits and fewer hospital days upon admission.
According to a report by the International Federation of Health Plans on prices of healthcare services in 2017, the U.S. was an outlier across the board: Whether it was an orthopedic intervention, such as a hip replacement, or an outpatient procedure, such as a colonoscopy, or an imaging scan, such as an MRI, or cardiac care, such as an angioplasty, or a prescription drug, such as Herceptin (trastuzumab), the U.S. deviated significantly in terms of services being priced (often much) higher than in all other comparator nations.
The $32,000 cost of angioplasty in the U.S. has been highlighted in news reports as a particularly egregious example. By contrast, the cost of an angioplasty in New Zealand is about half of what it is in the U.S., while it is four to five times lower in Switzerland and the Netherlands. For that matter, the average price of a night in a U.S. hospital is six times higher in the U.S. than in Australia.
Even when compared to similar multi-payer healthcare systems that have a dominant private component, such as Switzerland, hospital costs are considerably higher in the U.S.
Certainly, the fact that angioplasties and hospital stays are much more expensive in the U.S. is not reflective of angioplasties or hospital stays being any better in the U.S. Hospitals in the U.S. charge $32,000 for an angioplasty in part because their costs – for example, physicians – are higher, but also because they can, at least with respect to certain insurers or patients. They operate in suboptimal markets characterized by non-competitive features. Here, different prices charged by the same hospital to different customers with the same condition are not a reflection of different values.
In 2017, Gaynor, Mostashari, and Ginsburg wrote: “Driven by lack of competition, ever higher prices are being paid to hospitals, doctors and insurers without leading to better outcomes.” In recent years, the continued merger and consolidation frenzy hasn’t improved the situation. Hospitals are getting bigger, but not better.
Likewise, wildly divergent prices charged by different hospitals in the same region are not a reflection of different values. In fact, there is a persistent unexplained variance in hospital costs intra-regionally, which the Dartmouth Atlas Group and the federal government have cited numerous times. In some instances, hospitals charge up to tens of thousands of dollars more for the same medical procedure than other hospitals located in the same area.
What all this points to is an extraordinary misalignment between price and value in the U.S., especially for hospital-based services, where outcomes measured in terms of mortality and morbidity are in the bottom tier of OECD countries.
On the campaign trail and in debates Democratic presidential candidates have focused nearly all their attention on prescription drugs. Given how the various health insurance systems operate in the U.S., patient out-of-pocket costs tend to be relatively high for pharmaceuticals. But, a much larger driver of high healthcare costs is the hospital sector. It’s a pity that candidates are mostly silent on this.
There’s a caveat to point out regarding healthcare and health outcomes. While a key determinant, health is a function of more than just healthcare resources. There are, for example, many socioeconomic determinants of health which have a bearing on outcomes. Ironically, healthcare spending in the U.S. is possibly crowding out other social expenditures and investment that in some cases could have more positive influence on health outcomes than healthcare resources.