Friday, December 26, 2008

Americans Pay More for Healthcare - But Why?

The McKinsey report "Why Americans Pay more for health care" (free registration required for access to full report) provides useful insights into the spending patterns and some of the underlying reasons for the high cost of health care in the US

While the higher costs is expected in part due to the wealth of the country:
Across the world, richer countries generally spend a disproportionate share of their income on health care. In the language of economics, it is a “superior good.” Just as wealthier people might spend a larger proportion of their income to buy bigger homes or homes in better neighborhoods, wealthier countries tend to spend more on health care.
Despite taking account of this the US spends some $650 Billion more than might be inferred from its wealth. As for the where this spending goes
The research also pinpoints where that extra spending goes. Roughly two-thirds of it pays for outpatient care, including visits to physicians, same-day hospital treatment, and emergency-room care. The next-largest contributors to the extra spending are drugs and administration and insurance.
But do we receive value for money - not based on outcome measures as compared to other OECD countries where we lag in many areas (more here and here where the US ranked last in a group of 19 countries). The report looks at possible reasons for the additional costs including the possibility that a less healthy population would mean higher treatment costs........survey said no.

So where does this additional expenditure go? Two thirds of this goes to outpatient care and while the US is doing well by shifting care and cost from in patient treatment to outpatient (and the legacy of President Bush's community clinic outreach has been a positive component of that as detailed here) this has actually added to the cost of health care in the US because of much higher utilization. Unfortunately not only was the utilization up but so too was the cost visit in part due to increasing use of expensive diagnostic testing (CT and MRI's being major contributors). The system is structured in such a way as to incentivize this type of care with the delivery of more services offered that are more expensive.

After outpatient care the next highest contributor is pharmaceuticals and not because of increased usage of drugs but because the mix is of more expensive and and the higher cost of drugs in the US
the price of a statistically average pill is 118 percent higher than that of its OECD equivalents
Even taking account for the possible explanation that the US pays more for a "superior product" and the high prices that subsidize the R&D for the rest of the world this still does not explain the large differential
But none of these factors, by itself, can explain the gap between the price of drugs in the United States and the rest of the OECD. When we adjust for US wealth, we find that the country’s branded-drug prices should carry a premium of some 30 percent, not 77 percent for branded small-molecule drugs.
Finally administration and insurance costs are the third highest but although these costs are significantly higher than other countries, the good news it
.....we find that given the structure of the US system, its administrative costs are actually $19 billion less than expected, suggesting that payers have had some success in restraining costs
The possible solutions are wide and varied but must involve all the stakeholders. Despite the high spend the US continues to lag behind in the general health of the population and as such "reformers should therefore focus on the preventative efforts" which represent a potential big win. Community clinics as supported by President Bush's administration are one such effort. In addition the consumer must be more engaged and informed and this requires the sharing of health care information that is structured so as to provide real information and not just make the medical haystack bigger. Technology plays an important part in the sharing of data and the ability to structure and make it available quickly and in meaningful ways to allow decisions and choices to be made.

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