The World’s Most Expensive Care
I remember when a bottle of soda pop cost a dime. It came in an icy cold glass bottle with a cork-lined cap. Over time, the bottle and cap gave way to a can, and the price rose to a quarter, then half a dollar, and even a buck. But what if that soda had risen to twenty dollars? Would there have been a public outcry? At what point do we decide that the rate of cost escalation for an item or an industry is absolutely out of control?
There’s a fitting irony to the fact that health care costs were first “officially” analyzed and recorded in 1929, [i] when the economy tumbled and the stock market crashed. Over the next two decades, prices remained relatively stable and consumed approximately four percent of the nation’s gross domestic product (GDP).[ii] Then all hell began to break lose. In 1950, health care costs were a “meager” $12.7 billion.[iii] Three generations later, in 2012, those costs had risen to $2.6 trillion. That’s more than a two-hundred fold increase in the nation’s health care bill! Based upon that same 20,000% increase in price, our proverbial bottle of Coca-Cola would now cost twenty bucks!
Today, health care purchases consume more and more of every dollar we spend. The nation’s health care bill has risen from 4.4% of GDP in 1950 to nearly 18% in 2012. If you are wondering how that compares to the spending levels of other industrialized nations, the next highest OECD country, the Netherlands, spent 12% of its GDP on health care.[iv]
Before you conclude that our spending levels are merely a reflection of the size of our population, take a look at average per capita spending. In the US in 2012, we spent $8,233 for each citizen. That’s approximately $5,000 more per capita than the average expenditures among all thirty OECD nations.[v]
The lowest spending OECD nations (New Zealand and Japan) consume approximately $3,000 per capita in health care services. Japan achieves this remarkably low level of spending despite the fact that it actually uses a tremendous amount of health care resources per capita. It simply manages costs far better than the US.[vi]
Americans are awakening to the fact that we have a system whose costs are out of control, and journalists are sounding the warning claxon. In an article published in the Atlantic in 2013, entitled “Why is American Health Care so Ridiculously Expensive,” author Derek Thompson opined: “The U.S. medical system is absurdly expensive. You know that already. But you probably didn’t realize just how absurdly expensive it is compared to other countries.”[vii]
While consumers’ overall confidence in US health care may be unfaltering, their growing awareness of its escalating costs is growing, as was revealed by a series of focus groups funded by the Robert Wood Johnson Foundation. The research, conducted in four major American cities, explored consumer sensitivity to health care costs.
The unambiguous conclusion drawn by the researchers was that “Universally, participants were aware of the effects the rising cost of care had on their pocketbooks and the accelerating speed at which costs have rising in recent years. That said, they didn’t know why costs are going up or how to decipher them.”[viii] Perhaps most alarming, based upon the respondents’ feedback, researchers further concluded, “Across the board, there was a sense that participants were nearing the breaking point.”[ix]
Even a cursory review of articles written about health care costs over the past forty years suggests that we’ve been at or near “the breaking point” for decades.[x] The term conjures powerful images of a runaway train, but will the train ever truly derail? More importantly, why is our nation’s health care bill so high, and what can we do about it?
Where Our Money Goes
Our astronomically high national tab for health care is driven by many factors, not the least of which is the high price we pay for health care products and services. Let’s begin by breaking down the bill.
For every health care dollar we spend, approximately 31% goes to hospital care. Twenty percent is spent on the professional services rendered by physicians and clinics, and 10% buys drugs. The remaining 30% is spread across a number of categories.[xi]
If we dig even deeper, it’s amazing what we uncover. Take hospital charges, for example. When compared to other developed nations, our hospital costs are almost 2.7 times greater ($19,319 versus OECD median costs of $7,180 per discharged patient). That helps explain why the US had 54% as many hospital discharges as Germany, and yet our health care tab was still 190% greater per capita than Germany’s.[xii]
We also hit pay dirt when we dig into the issue of pharmaceutical costs. US pharmaceutical spending per capita was nearly $1,000 in 2010—two times the OECD median.[xiii] That’s not terribly surprising in light of the fact that we pay more for the top 30 pharmaceuticals—nearly three times as much as New Zealanders and twice as much as people in the U.K.[xiv]
The sad fact is that the difference between US drug prices and the price for exactly the same drug in other countries can be staggering. In the US, the average cost of Lipitor, a commonly prescribed drug to treat high cholesterol, was approximately $100 in 2012. It was $6 in New Zealand.[xv]You don’t have to travel halfway around the world to experience this phenomenon. Anyone who has traveled across the border to Mexico has seen many of our prescription drugs sold over the counter for pennies on the proverbial dollar.
In essence, Americans are subsidizing lower drug prices in every other corner of the world, allowing pharmaceutical manufacturers to nonetheless maintain their historically high levels of profitability by charging us more.
Patients in Glass Houses Shouldn’t Cast Stones
The data proves irrefutably that most industrialized countries have healthier populations based upon numerous metrics, and they accomplish this feat while spending a mere fraction of the US health care bill.
There’s no greater illustration of this phenomenon than Japan, one of the most prolific consumers of health care services on the planet. Its population visits physicians with more than three times the frequency of Americans, yet Japan’s total health care bill, on a per capita basis, was only 37% of the US per capita spend.[xvi] As a country long enamored with technology, it is not surprising to learn that Japan has nearly five times as many MRI units as the average OECD country, yet the cost per scan, and thus overall contribution to the nation’s health care bill, is quite low.
Japan does a great job of controlling its costs—and often does so in innovative rather than Draconian ways. One example is its purchase of MRI units. Because this imaging modality is heavily utilized by its physicians, Japan’s health care providers need to be able to deliver MRI services cost-effectively. They accomplished this goal by working hand-in-hand with major Japanese technology firms, such as Toshiba, to develop far less expensive MRI units than those deployed in the US. Though somewhat less sophisticated, these units nonetheless provide clinically satisfactory images for physicians.[xvii]
Americans love to loath the British health care system. Yet, a side-by-side comparison of costs for common surgical procedures shows the U.K. to be far more cost-efficient: The average cost for an appendectomy in the US is $13,851 versus $3,408 in the U.K. A normal delivery in the US is $9,775 versus $2,641 in the UK.; and a C‑section costs in excess of $10,000 more in the US than in the UK. Finally, the total cost for bypass surgery averaged $73,420 in the US In the UK, it cost $14,117. In France, it cost $22,844.[xviii] Every time we say derisive things about socialized medicine, the Brits are laughing all the way to the bank.
Technologically advanced procedures may show an even greater difference in price. Fifty years ago, a Swiss physician performed the first percutaneous coronary angioplasty (a minimally invasive procedure for opening up clogged arteries). Today, the average cost of that procedure in Switzerland is $5,295. In the US, the average cost is more than five times as much—$28,182.[xix]
If you are wondering who’s making all the money, the answer is everyone associated with health care delivery in the US. I’m only being somewhat facetious, as we shall see in the remaining chapters of this book. For now, let’s take a look at just physician fees.
Professional or Profiteer?
Medicine may be recognized as a noble profession across the globe, but nowhere is it more remunerative than in the US, where physicians enjoy phenomenally strong earnings when compared to their international brethren, which translates into higher fees for American patients. Average physician fees in the US for a routine office visit in 2012 were $95 versus $30 in Canada and France.[xx]
Surgical specialists in the US fare particularly well. Surgeons in the US receive fees almost three times greater than their counterparts in Canada for hip replacement surgery.[xxi] US orthopedic surgeons make more than twice as much as their Canadian counterparts (with cost of living adjustments factored in). Most notably, American obstetricians were paid more than five times as much to deliver babies as their foreign counterparts in Canada and France in 2012.[xxii]
Most Americans don’t mind paying more for a measurably better product or service. The question, again, is: Are we getting value for each of the 2.6 trillion dollars we spend annually? Not according to global health researchers Docteur and Berenson, who state, “In the light of the fact that the United States spends twice as much per person on health care as its peers, those who question the value for money obtained in US health expenditures are on a firm footing.”[xxiii]
They are far from alone in their belief. Another powerful voice in this choir belongs to Arnold Relman, Editor Emeritus of the New England Journal of Medicine. Relman wrote: “Considering that we spend so much more on medical care than any other advanced country, we ought to expect health outcomes to be at least as good, and our citizens ought to be at least as satisfied with the system. But we can claim neither.”[xxiv]
[Excerpted from The Myths of Modern Medicine: The Alarming Truth About American Health Care, by John Leifer. Publisher: Rowman & Littlefield, 2014]
[i]George D.Lundberg, Severed Trust (New York: Basic Books/Perseus, 2000).
[ii] Ibid., 19.
[iv]“OECD Health Data 2012: How Does the United States Compare,” Organisation for Economic Cooperation and Development, http://www.oecd.org/unitedstates/BriefingNoteUSA2012.pdf.
[v] Davis et al., Mirror, Mirror on the Wall.
[vi]DavidSquires, Multinational Comparisons of Health Systems Data, 2010 (The Commonwealth Fund, 2012), http://www.commonwealthfund.org/Publications/Chartbooks/2011/Jul/Multinational-Comparisons-of-Health-Systems-Data-2010.aspx.
[vii]DerekThompson, “Why Is American Health Care So Ridiculously Expensive?,” Atlantic,March27, 2013, http://www.theatlantic.com/business/archive/2013/03/why-is-american-health-care-so-ridiculously-expensive/274425/.
[viii]Robert Wood Johnson Foundation, Consumer Attitudes on Health Care Costs: Insights from Focus Groups in Four U.S. Cities (January 2013), http://www.rwjf.org/en/research-publications/find-rwjf-research/2013/01/consumer-attitudes-on-health-care-costs–insights-from-focus-gro.html.
[xi]AnneMartin et al., “Growth in US Health Spending Remained Slow in 2010; Health Share of Gross Domestic Product Was Unchanged from 2009,” Health Affairs31, no. 1 (January 2012): 1-13, doi:10.1377/hlthaff.2011.1135.
[xii] Squires, Multinational Comparisons.
[xv]International Federation of Health Plans: 2012 Comparative Price Report(International Federation of Health Plans, 2012), http://hushp.harvard.edu/sites/default/files/downloadable_files/IFHP%202012%20Comparative%20Price%20Report.pdf.
[xvi] Squires, Multinational Comparisons.
[xvii]T. R.Reid, The Healing of America (New York: Penguin, 2010).
[xviii]International Federation of Health Plans.
[xxi] Squires, Multinational Comparisons.
[xxiii] Docteur and Berenson, How Does the Quality.
[xxiv]Arnold S.Relman, A Second Opinion (Cambridge, MA: Public Affairs/Perseus Books Group, 2007), 48.