The Journal of the AMA (JAMA) on March 21 released the most comprehensive study to date on U.S. healthcare spending. It confirms that Americans are spending too much, and getting too little. But it also gives us some new insights on what’s driving up costs.
The study has been widely reported in mainstream media – ABC, American Public Media, Fox News, New York Times, Time (online), and MSNBC Money – and healthcare, business, and public policy publications. The study was authored by health economics researchers Irene Papanicolas PhD, Liana Woskie M.Sc., and Ashish Jha MD, MPH from the London School of Economics and Harvard Chan School of Public Health.
The study’s conclusions:
The United States spent approximately twice as much as other high-income countries on medical care, yet utilization rates in the United States were largely similar to those in other nations. Prices of labor and goods, including pharmaceuticals, and administrative costs appeared to be the major drivers of the difference in overall cost between the United States and other high-income countries.
The authors rebutted several widely believed claims:
- U.S. spending on “social determinants” of health is only slightly less than the average for 10 other high-income countries, thus is not a major driver of healthcare costs or outcome disparities;
- “The ratio of primary care physicians to specialists was similar between the United States and other high-income countries,” thus also not a valid explanation for differences from the other countries
- By most measures, the quality of care delivered is on par with that in other rich countries, and in some cases shows better outcomes, such as treatment for heart attacks and strokes.
The study did confirm, however, that
- all other high-income countries provide access to virtually all citizens, whereas the U.S. still has 10% uninsured. Even after passage of Obamacare lack of access affects mostly lower income citizens. Since these citizens often have greater health needs, lack of access, in turn, explains disparities in U.S. public health measures such as infant mortality and life expectancy.
The study also confirmed that
- wait times for care are shorter in the U.S. than in other high-income countries
- high pharmaceutical prices subsidize innovation, but innovation in turn drives even higher prices
- the fragmented U.S. insurance system does account for administrative costs in the U.S. amounting to 8% of the entire national GDP, compared with 1% – 3% in all other countries.
This study calls into question the claim by this Fixing U.S. Healthcare blog that fee-for-service payments directly drive up utilization volumes and spending. But fee-for-service does drive up doctors’ income and spending in other indirect ways, as pointed out by an editorial critique of the study by Ezekiel Emanuel MD, PhD (available by subscription only), one of the architects of Obamacare. And the study does substantiate other factors that contribute to higher prices in the U.S. for labor, goods, services, and pharmaceuticals, as identified in Why So Expensive?
This new study in the Journal of the AMA singles out prices, pharmaceutical costs, and administrative complexity as principal drivers of soaring healthcare spending in the U.S. Thus, the original approach of the Oregon Health Plan of rank ordering treatments and eliminating the least cost-beneficial would be overly simplistic and would not be expected to fully constrain costs in the whole system. Yes, the cost-benefit approach would help drill down on overpriced healthcare services. And yes, the cost-benefit approach would also bring to light overpriced drugs. But this study (and a commentator on previous blog post) suggests that attention must also be directed at the administrative structure of the system. Americans pay $1.5 trillion annually to maintain a “free market” insurance system, giving us only paperwork headaches for subscribers and providers alike to show for it. Another blog from a British commentator recommends a single-payer system or a hybrid, such as exists in the other 10 high-income countries. Dr. Emanuel (cited above) thinks that a streamlined electronic record and billing system could do the trick.
There can be honest disagreement on ideas about simplifying the healthcare payment system, but there can be no disagreement with the key conclusion of this new study: “Given that other high-income countries are able to spend less and achieve better health outcomes, a more nuanced, data-driven understanding of all aspects of health care cost are needed to assist in reform of the US health care system.” I claim that cost-benefit analysis can provide just that kind of data as a starting point. And I claim that an Oregon-style cost-benefit approach can stir the political will to act.
Now take action.
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