Higher Prices, Administrative Costs Drive U.S. Health Care Inefficiency

By Joshua Gordon

A new study in the Journal of the American Medical Association looks across the health care systems of the 10 highest-income countries around the globe to examine what makes our system uniquely inefficient -- spending almost twice as much per person, with worse population health outcomes on measures like life expectancy.

What the authors find -- that our health care prices and administrative costs are significantly higher than everywhere else’s -- isn’t a complete surprise. Yet the authors also were able to challenge some long-held assumptions about the reasons for our nation’s exceptionally poor health care value.

Relative to the other countries, our demographic characteristics don’t explain our higher spending and lower relative outcomes. We have the youngest population in the group with higher rates of obesity but lower rates of smoking.

Some researchers have suggested that perhaps lower U.S. social spending led to worse population health. The new study, however, found few differences in general social spending between the U.S. and other countries.

The study also found few differences in the mix of specialists relative to primary care doctors or in the utilization of health care services (thought to be incentivized in the U.S. via the fee-for-service system or the medical malpractice system). We also spend less on hospital care as a share of total health spending than other countries do.

Where the U.S. did differ was on its higher salaries for doctors and nurses that are not explained by the cost of medical education. The prices for brand-name drugs are higher in the U.S. and thus we spend more on prescription drugs even though our generic drug usage is higher than in other countries. Our administrative costs, at 8 percent of spending, are higher than the 1-3 percent range in the other countries.

We also have a larger population of uninsured along with the highest amount if dissatisfaction with the health care system in general.

Ultimately these results, in challenging common explanations and settling on others, should help policymakers refocus and act with urgency to address our inefficient and expensive system through new legislative ideas and through building on current reform efforts.

Those current efforts, spurred on through the Affordable Care Act (ACA) and the bipartisan changes to Medicare physician payments, are largely aimed at restructuring the misaligned incentives that encourage high utilization. The results so far have been mixed. Although utilization does not explain the differences between the U.S. and more efficient systems, we should be able to capture savings and efficiencies by aligning incentives. So building on what we learn is still important.

However, policymakers can’t ignore the variables driving our relative inefficiencies. There are bipartisan ideas for controlling pharmaceutical costs that both President Trump and President Obama proposed in their budgets. Increasing price and quality transparency could help consumer-based pressure reduce prices. Increasing regulation in instances of broken health care markets or greater provider consolidation can also be a possibility.

Most importantly, policymakers cannot continue to let arguments over the relatively small sliver of insurance spending represented by the ACA distract them from the need to confront the much greater problem of health care cost growth. Otherwise that growth will continue to push the federal budget in an unsustainable direction.

Joshua B. Gordon is Policy Director, The Concord Coalition.

Photo: Flickr creative commons

This article originally published at The Concord Coalition.