international analysis and commentary

The troubled story of the US healthcare system

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Any foreigner who has ever had to deal with the American healthcare system knows how inefficient it is: the long phone calls with the insurance company to figure out what procedures and drugs are covered by one’s plan; the endless hours spent online trying to find specialists who are “in-network” and accepting new patients; the unintelligible bills coming from the doctor’s office after a visit, with the price of services never what you had expected in the first place. There is plenty of anecdotal evidence that medicine in America is premised on an overly complicated and sometimes nightmerish  organization. Countless studies and reports support this notion and show that, despite only average outcomes, it is also far more expensive than its counterparts in the developed world.

“The US health system is best characterized not so much as being good or bad, but rather mixed,” says Mark Pearson, Head of the Health Division at the Organisation for Economic Co-operation and Development (OECD). If cancer care is just as good if not better than in other countries, acute care, as measured for example in survival rates after a stroke or heart attack, is only of average quality while primary care is all around poor. “But there is absolutely no doubt that the American system is more costly than others,” says Pearson. “Indeed, if you add up what is spent on Medicaid, Medicare, Veterans and other public health in the US, government expenditure alone is higher than in most European countries, and this despite the fact that such spending only covers a minority of the population.”

According to OECD data, in 2011 the US spent 17.7% of GDP on healthcare, both public and private, compared to 11.6% in France, 11.3% in Germany and 9.2% in Italy. At the same time, life expectancy at birth for the total population was 78.7 years, versus 82.2 years in France, 80.8 years in Germany and 82.7 years in Italy. Other health outcomes, such as infant mortality and the overall morbidity rate, are also disappointing. This is in no way a healthy picture for the richest country in the world.

Unfortunately, there is no single driver, and therefore no easy solution, for the gap in the cost of medicine in the US versus other developed countries – a gap that is still increasing. Rather, multiple factors are at play.

For one, the fact that the US government does not set prices like others do, and neither is able to negotiate on behalf of all citizens with pharmaceutical companies, hospitals and other providers, means that medical services are simply more costly in America. Secondly, doctors and nurses, and in particular specialists, make a lot more money here than they do elsewhere. According to a 2007 report by the Congressional Research Service, in 2004 general practitioners in the US made on average $161,000 a year (adjusted for purchasing-power parity), while their colleagues in Canada made $107,000 a year and those in Sweden $66,000. Additionally, because of how pay incentives are set up, rewarding quantity of medical treatments over quality, US doctors tend to administer a much higher number of costly tests, for example CT scans and MRIs, than doctors in other developed countries, even when their real need and effectiveness is in doubt. Finally, bureaucratic overhead, the amount of money that goes to cover administrative costs, is also higher in America. According to one study published in Health Affairs in 2009, American physicians spend, on average, “forty-three minutes per workday – equivalent to three hours per week and nearly three weeks per year – on interactions with health plans,” meaning insurance companies. If we translate time into dollars, “practices spent an average of $68,274 per physician per year interacting with health plans.”

The one thread running across all the data is the inefficiencies inherent in a system that is highly fractured among different providers, insurance companies and health care plans, each setting its own requirements, standards and prices. “In other countries, someone – be it the health minister, or the head of the insurance system, or some combination – is responsible for costs,” says Pearson. “In the US, the system is so fragmented that no one is really in charge, and ultimately, this is why wages, prices, and everything else are allowed to get so high.”

The results are stunning. According to an investigation by the New York Times, a simple colonoscopy costs a few hundred dollars in most countries, whereas in the US the price of this relatively routine examination easily runs into more than $6,000. The New York Times also found that a hip replacement is about four times as expensive in the US than in Switzerland and France and a Caesarean section three times as expensive than in New Zealand and Britain. “When we look at a sample of about 50 surgeries and medical in-patient treatments, US prices are 80% higher than the average,” says Pearson.

There is of course a long-running argument that explains away the US’ sky-high medical costs with investments in cutting edge medical research and the development of new revolutionary drugs. According to this theory, other developed countries can afford to more cheaply maintain their healthcare systems by free riding on American innovation. Though there certainly is something to this argument, critics say that it doesn’t really tell the whole story. “Germany is trying to experiment with a system in which truly innovative drugs are priced higher,” says David Squires, Senior Researcher in the International Program in Health Policy and Practice Innovations of the New York-based The Commonwealth Fund. “At the end of the day it is a matter not of who is spending more but how, how you find the balance between quality and prices, and the US system is not very rigorous in terms of making sure we get that better value”.

Despite its rocky rollout, the healthcare reform known as Obamacare is generating some degree of optimism among experts. They hope some of the tweaks contained in the law (in particular measures that aim to determine payments to hospitals more on the basis of actual outcomes than simply of the number of services rendered) might help not only to make the system fairer but also more efficient. But Obamacare’s cost-curbing measures are limited in scope and are unlikely to completely change American healthcare’s inconsistent nature. What is needed is a shift in the terms of the debate and especially of the false, but widely held dichotomy between socialized medicine and the free-market. “There is real diversity in the healthcare systems of foreign countries, which go well beyond the ideological way in which we view this issue in the US,” says Squires. “The more Americans understand this, the more they will be open to looking overseas for ideas.” Seemingly unbeknown to Americans, countries like the Netherlands, Switzerland, Germany and Israel have been able to guarantee universal coverage and a high quality of care within the framework of a system that is largely privatized and which encourages competition among providers. There is no reason why the US shouldn’t be able to do the same, if only it put its mind to it.