The high price of health care

Health care costs too much. The U.S. spends twice as much as other wealthy nations and yet we have poorer outcomes. Patients in this country visit physicians less frequently and spend less time in hospitals than residents of other wealthy countries. So, why such high costs? It’s a complex issue with no simple answer.

Experts have identified three major factors contributing to this situation. The most significant is higher prices, followed by costly administrative complexity and finally, the use of ineffective or overly aggressive medical interventions that provide little benefit to patients.

What about prices? The average U.S. hospital discharge costs more than $29,000 compared to $18,000 in the Netherlands and $16,000 in Canada. The average MRI price in Australia is $350 compared to $1145 in the U.S. Prices, especially drug prices keep going higher. Lantus insulin introduced nearly 20 years ago at about $35 per vial now sells for $260. The U.K. price is $26. Gleevec, a remarkably effective drug for leukemia, introduced in 2001 at $26,000 per year, more recently sells for $120,000. The generic form sells for $96,000.

Trying to control costs in the U.S., both the government and insurance companies have applied complex regulations resulting in the addition of administrative staff and steadily increasing expenditures. Studies show that 20 to 30 percent of health care expenditures now go to cover admin costs, a much higher rate than other countries.

What to do? As a society we have depended on market forces to control prices. This is effective when selling groceries and gasoline but in health care it has failed. The simple explanation is that health care providers do not compete based on price.

Even when patients have comparative cost information, they all too often do not select the most cost-effective approach.

Too little incentive exists for providers, especially physicians, to seek out the most efficient approach to care. In fact, existing financial incentives often push physicians and other providers in the opposite direction – the more you do the more you are paid.

Bottom line: As a society we in the U.S. have never figured out where health care fits in the spectrum of economic activity. Is it a commercial product like automobiles and blue jeans where those with more resources can purchase more elaborate products, or is it a basic human service like public education or fire protection to be made available to everyone?

In the words of the late Professor Uwe Reinhardt, one of the giants of health policy analysis, what we have is a philosophical and ethical challenge not an economic one.

Tom Dean, MD of Wessington Springs, S.D., is a contributing Prairie Doc® columnist who has practiced family medicine for more than 38 years. He served as a member of the Medicare Payment Advisory Commission.


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