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Paying so Much for so Little

Edward Hoffer, MD

Post By Edward Hoffer, MD

July 20, 2020

It’s the Prices, Stupid.

This was how the late noted health economist Uwe Reinhardt explained why U.S. healthcare costs were so much higher than those in the rest of the world.  Our per capita healthcare spending in 2018 exceeded $11,000 while the average of spending by eleven comparable western democracies was about $5,300 per capita.  We spend about 17% of our GDP on health care while Switzerland spends 12%, France and Germany 11%.  We do not spend so much because we spend our lives seeing doctors; the average European sees the doctor 50% more often and spends about 40% more days in the hospital.  Nor do we get much value for our bloated spending.  By almost every measure of health system effectiveness, whether it be measured by average life expectancy, access to care or equity, the U.S. ranks near the bottom among OECD countries.

There is blame aplenty for our miserable performance.  Foremost is the enormous administrative overhead in the U.S.  An estimated 25% of all health care spending goes to the insurance companies and to the cost of billing and collection and meeting demands for data of no proven benefit to patients.  We pay roughly twice as much for our medications as do residents of other countries.  The malpractice system enriches lawyers but serves injured patients poorly and adds both direct costs and the cost of “defensive medicine.”  Hospitals are often short-staffed in nurses, but never in multiple levels of well-paid administrators.  As independent physicians tire of the increasing non-clinical demands on their time and sell their practices to hospitals, prices go up by an average of 40% with no discernible improvement in patient outcomes.  Our payment system is dominated by the specialists who control the Relative Value Scale Update Committee, and procedures are grossly overvalued compared to time spent listening to and counselling patients.

There is no rational basis for the prices charged for services in this country.  A study reported in Archives of Internal Medicine in 2012 found that hospital charges for a routine appendectomy in California hospitals ranged from $1529 to $182,955 (no that is not a misprint)!  More recent data has shown a 10-fold difference between the lowest and highest charges for coronary artery bypass surgery. In neither of these instances was there any correlation of charges and quality.

A final, and major, reason for the dismal quality of healthcare in this country is that the largest factor determining a nation’s health is not the quality of its hospitals, doctors and nurses but the so-called “social determinants of health:” living conditions, access to healthy foods, exercise and poverty.  It has been well-stated that a living wage is the best medicine.  Providing essential healthcare services to the 10% of Americans still uninsured has got to be made a priority.

Single payer may or may not be the best way to improve the value Americans receive for their health care dollar, but we must do better than we are doing now.

Dr. Hoffer is a guest writer for InCrowd. Click here for more information on Dr. Hoffer’s work on this topic.

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