HC Statistics International Health Care Systems

Why does the U.S. spend more on health care than other countries?

A paper in JAMA by Papanicolas, Woskie and Jha (2018) try to answer the question.  One reason could be that Americans are less healthy than people in other countries.  On the one hand, Americans do have the highest rate of obesity in the world; on the other hand, smoking rates are among the lowest.

Another explanation could be that we use more medical goods and services.  This turns out not to be the case.

The US did not differ substantially from the other countries in physician workforce (2.6 physicians per 1000; 43% primary care physicians), or nursing workforce (11.1 nurses per 1000). The US had comparable numbers of hospital beds (2.8 per 1000) but higher utilization of magnetic resonance imaging (118 per 1000) and computed tomography (245 per 1000) vs other countries. The US had similar rates of utilization (US discharges per 100 000 were 192 for acute myocardial infarction, 365 for pneumonia, 230 for chronic obstructive pulmonary disease; procedures per 100 000 were 204 for hip replacement, 226 for knee replacement, and 79 for coronary artery bypass graft surgery).

A third option is for that the prices of the health care goods and services we use may be higher than those of other countries.  This does indeed turn out to be the case.  In particular, administrative costs in the U.S. are 8% of health care spending whereas most other countries have administrative costs of 1%-3%.  Administrative costs could represent waste, but they also could be a symptom of more competition across health plans and potentially more effective treatment targeting.  In addition, costs for providers and pharmaceuticals are higher in the U.S. than elsewhere.

For pharmaceutical costs, spending per capita was $1443 in the US vs a range of $466 to $939 in other countries. Salaries of physicians and nurses were higher in the US; for example, generalist physicians salaries were $218 173 in the US compared with a range of $86 607 to $154 126 in the other countries.

One solution to this ‘problem’ would be to cut prices of pharmaceuticals as well as physician salaries.  However, higher pharmaceutical prices have incentivized more innovation.  As the Council of Economic Advisors writes, in fact other countries may be free-riding on American generosity and the solution may be a mix of (i) faster approval of generics after patent expiration and (ii) making other developed countries pay their fair share of pharmaceutical prices.  Additionally, lowering physician wages would save cost, but physician quality would also fall as the most highly intelligent individuals may leave for careers in technology, finance, or other areas.  In addition to potentially lowering quality, reducing physician compensation could lead to a physician shortage if physicians exit the market.

While the results of this study ultimately depend on the reliability of the cross-country data used, it is interesting to decompose how health care spending differs across countries.

 

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4 Comments

  1. Nice first step in trying to understand the high cost of healthcare in the US. I would like to see data on the cost of malpractice lawsuits as it relates to the overall cost. Perhaps one of the reasons US doctors’ salaries are higher is because they must cover the cost of malpractice insurance. Do patients in other countries sue as much?

  2. If you want to know why we pay more (very much more) than anywhere else in the World, get yourself a copy of “CEO’s Guide to Restoring the American Dream” by Dave Chase or “Casino Healthcare” by Dan Monro. There’s a lot more to the mess that is American healthcare than doctor salaries, malpractice lawsuits, or over-priced pharmaceuticals.

  3. Yes, there are targets throughout the sectors in healthcare (hospital infrastructure, the loss of independent physicians, the irreconcilable conflict of interest of for-profit insurance). As an independent internist/endocrinologist, I have focused on the artificial dichotomy that the Hatch-Waxman regime has wrought. It attempted a compromise between innovation and price competition that leads to marked price discrepancies between new and old (minus when Shkreli tactics intervene). This has fed the both “billion dollar baby” syndrome and the reactive third-party bureaucratic tangles that directly interfere with the patient-physician relationship. I am proposing a different scheme (long-term licensing; Medicare price negotiation) that would restore this balance.

    Charles, Thanks for the references.

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