Compared to other Western democracies, Americans pay significantly more for medical services without garnering higher quality.
Several factors are contributing to the low value of services in U.S. healthcare, with high pricing among the strongest drivers, a Harvard Medical School professor says.
Americans spend significantly more on healthcare services than other industrialized countries—healthcare spending in most Organization for Economic Co-operation and Development nations ranges from 10% to 11% of gross domestic product, but U.S. spending is about 18% of GDP and rising. Despite spending more on healthcare than its peers, the United States is lagging in many health-related measures, including life expectancy and risk of death among infants and children.
In the recently published first installment of a series of articles on the broken economics of U.S. medicine, Edward Hoffer, MD, an associate professor of medicine at Harvard Medical School in Boston, says American patients are getting an awful deal on their healthcare.
"The one area in which the United States does lead the world is in healthcare causing enormous financial hardship to many of its citizens. Unlike in most developed countries, where adequate healthcare for all is routinely available and rarely causes financial hardship, medical debt is a huge problem in the United States," Hoffer wrote in the American Journal of Medicine.
The series of articles Hoffer is publishing in the American Journal of Medicine is based largely on his 2018 book, "Prescription for Bankruptcy."
'It's the prices, stupid'
Pricing for U.S. healthcare services is the largest contributing factor to the country's high medical costs, Hoffer recently told HealthLeaders.
"As the late Princeton economist Uwe Reinhardt put it so well, 'It's the prices, stupid.' We in the United States see doctors less often and spend fewer days in the hospital, yet we spend about twice per capita as do the citizens of peer Western democracies," he said.
Payers account for a major portion of the pricing problem, Hoffer said. "It is estimated that about 25% of U.S. healthcare spending goes to administrative overhead, both directly to the insurers and on the costs of billing, pre-authorization, and other expenses to the providers."
But he said there are "ample villains to go around," including physicians and hospitals:
Physicians: The high cost of medical school and crushing debt leads physicians to try to maximize their revenues. Malpractice insurance costs are much higher in the United States than anywhere else, and defensive medicine adds to costs. The country has too many specialists and not enough primary care physicians. The fee-for-service payment system encourages doing rather than thinking, and it adds to low-value care utilization.
Hospitals: There is grossly excessive administrative personnel. In many cases, the prestige of large hospitals or health systems allows them to essentially charge whatever they want—they know insurers need them in-network. Hospitals are increasingly employing physicians, which increases overhead and boosts charges for the same service. Many high-tech services are needlessly duplicated in the same geographic area because each hospital wants to be viewed as full-service. There is no incentive to drop prices even when costs go down.
Prescription to heal healthcare's broken pricing of services
Three strategies would help address the high pricing of U.S. medical services, Hoffer said:
1. Site neutral payment: "If a private cardiology group can make a living charging about $800 for an echocardiogram, why should a hospital get paid $1,500?"
2. Bundled payments: "Most surgical procedures should be paid on a bundled basis, and patients should be directed to the hospitals and doctors who provide quality results at low cost."
3. Transparency: "Insist that true informed consent, using proven teaching aids, be used before any elective procedure."
Christopher Cheney is the senior clinical care editor at HealthLeaders.
Spending on healthcare is nearly twice as high in the United States compared to other Organization for Economic Co-operation and Development countries.
Pricing is a key driver of high costs for U.S. healthcare services, with payer overhead accounting for a major portion of the problem.
Strategies to improve U.S. healthcare include site neutral payments, transparency initiatives, and bundled payments.