POLICY: Yup, it costs more here

Two studies out. Not exactly new news. I did a study looking at laproscopic cholecystectomy between Japan and the US for my master’s thesis in 1992. The result then was that it cost twice as much here, when in those days everything else in Japan (land, food, cars, golf club memberships, hookers) cost twice as much. Outcomes seemed to be similar even though patterns of care were very different overall.

Now a similar study (albeit done in a major journal and not for some punk’s masters thesis) is showing the same thing about the costs of CABGs between the US and Canada. They cost twice as much here too. Outcomes again seem to be similar.

The in-hospital cost of CABG in the United States is substantially higher than in Canada. This difference is due to higher direct and overhead costs in US hospitals, is not explained by demographic or clinical differences, and does not lead to superior clinical outcomes.

Finally, in a repeat/update of an article he wrote with Uwe Reinhardt a while back called "It’s the prices, stupid" Gerald Anderson shows that we spend more money here because in general we pay more for the same thing.

U.S. citizens spent $5,267 per capita for health care in 2002—53 percent more than any other country. Two possible reasons for the differential are supply constraints that create waiting lists in other countries and the level of malpractice litigation and defensive medicine in the United States. Services that typically have queues in other countries account for only 3 percent of U.S. health spending. The cost of defending U.S. malpractice claims is estimated at $6.5 billion in 2001, only 0.46 percent of total health spending. The two most important reasons for higher U.S. spending appear to be higher incomes and higher medical care prices.

So we’re shopping at Nordstroms and the rest of the world goes to K-Mart. Of course if you can’t "afford" Nordstroms, you’re SOL.

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6 replies »

  1. I’m scratching my head over Bob’s point about our drug costs being out of control because there’s no incentive to choose less costly drugs.
    Virtually all private insurers and pharmaceutical benefit managers in the US now use triple-tier formularies, which in theory penalize use of expensive me-too drugs. The reality is much less impressive, however. Patients will generally defer to their physician’s judgement, even if the drug is more expensive. Do we really want to argue that they shouldn’t? And many times the formulary drugs are more expensive, not less, because the insurer or pbm got a special rebate from the drug company.
    It would be helpful if a well-constructed formulary could influence physician prescribing behavior. But don’t count on it under the present system. Physicians typically see patients from several different plans, and each plan has a different formulary.
    The empirical question Bob raises is whether we can devise market incentives to make patients more price-conscious without discouraging them from seeking needed care, and whether those incentives save a lot of money apart from the cost shift involved. We don’t really need a conservative vs. liberal foodfight on this. Let’s just agree to look at the evidence and be guided by it.

  2. “Doesn’t sound like much of a system to me.”
    Why yes! Health care coverage for everyone, hospital care that compares favorably to that in the USA, better health status indicators, and all at less cost. What kind of system is that? Just give me twice as much money and I can find a way to lower life expectancy, raise infant mortality, and exclude tens of millions from health coverage.

  3. The point holds here as well. Most (but not all) employer plans incorporate Rx copays. Every year those copays are increased and many plans add deductibles that must be satisfied before the copays kick in.
    Overall, meds are about 17%+ of total claims paid by carriers . . . in some cases meds run as high as 25% of total claims.
    Don’t have figures on heart surgery but I can say (with some certainty) that heart surgerys is not anywhere near 17% of claims paid.
    If you want to “fix” the current system and lower premiums you have to start with the underlying cause . . . the cost of healthcare.
    The article mentions 9% of healthcare costs is for defensive medicine. That’s a significant figure for tests that are done without real medical justification.
    I don’t know that you can eliminate, or even significantly reduce redundant testing and defensive medicine, but you can certainly try.
    My point was, and still is, when almost 1/5 of healthcare is attributed to meds, and the consumer has no idea how much those meds really cost, a good way to lower overall healthcare costs is to look for less expensive ways of treating illness.
    In the example above almost 80% of the current cost for monthly meds could be eliminated with no loss of effectiveness. That is significant.
    As for the Canadian system, well yes, the consumer is just as insulated (if not more so) than consumers here. When your health care is “free” (covered by tax dollars) the trade-off is rationing. In the Canadian system the government decides what kind of healthcare you will get and when it will be available.
    Doesn’t sound like much of a system to me.

  4. Bob, your point might hold for drugs which Canadians do pay for out-of-pocket (although let’s not forget that they have price controld), but I don’t think it flies when you’re talking about surgery. The Canadian system seems to be designed in a way that makes the end consumer/ patient less conscious of the cost. Do Canadians have to pay 20% of the cost of their heart surgery?

  5. There are numerous reasons why healthcare (and health insurance) costs more here than in other places. It is easy to point fingers here, or there, but one of the big problems is the detachment from the true cost of services.
    Case in point is a prospective client. Currently covered under an employer plan with low copays. Mother & daughter have psych conditions treated effectively with medication. Mom’s meds run about $200 a month (wholesale pricing); daughter over $300. Copays bring the out of pocket down to less than $75.
    Someone is paying the $425+ differential. Guess who?
    There are meds that could treat the issues as effectively for about $100 a month. Because the patient did not ask, they are not being offered.
    Because someone else (the carrier, and in turn those who pay the premiums) is bearing the brunt of the true cost, no one really cares about seeking lower cost, but just as effective alternatives.

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