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Health care prices are terrible, but we can control them

December 30, 2019

Topics: Quote of the Day

By Margot Sanger-Katz
The New York Times, December 27, 2019

Why does health care cost so much more in the United States than in other countries? As health economists love to say: “It’s the prices, stupid.”

The International Federation of Health Plans, a group representing the C.E.O.s of health insurers worldwide, publishes a guide every few years on the international cost for common medical services. Its newest report, on 2017 prices, came out this month. Every time, the upshot is vivid and similar: For almost everything on the list, there is a large divergence between the United States and everyone else.

Patients and insurance companies in the United States pay higher prices for medications, imaging tests, basic health visits and common operations. Those high prices make health care in the U.S. extremely expensive, and they also finance a robust and politically powerful health care industry, which means lowering prices will always be hard.

For a typical angioplasty, a procedure that opens a blocked blood vessel to the heart, the average U.S. price is $32,200, compared with $6,400 in the Netherlands, or $7,400 in Switzerland, the survey finds. A typical M.R.I. scan costs $1,420 in the United States, but around $450 in Britain. An injection of Herceptin, an important breast cancer treatment, costs $211 in the United States, compared with $44 in South Africa. These examples aren’t outliers.

The international survey focuses on prices paid by private insurance companies; in many countries, public health programs pay less, meaning the gap in prices for many countries may be even larger if it took account of every patient. The survey doesn’t have information from every country, nor detailed prices for every medical procedure. Drug prices do not include rebates. But the report’s overall message is clear. Prices in the United States are higher for nearly everything — by a lot.

The single-payer plans Senators Bernie Sanders and Elizabeth Warren have proposed would use a large government insurer to set prices for all medical services. Both campaigns assume substantial savings would result as that government system lowered prices across the board: for doctors, hospitals, medical devices and drugs.

Even plans considered more moderate, like those from Pete Buttigieg, the South Bend, Ind., mayor, and Michael Bloomberg, the media executive and former mayor of New York, would impose some controls on health care prices, by limiting the amount that doctors and hospitals could charge in the situations where they typically charge the most.

Higher prices are not new for the United States, but they have become newly salient, as more health insurance comes with high deductibles and other forms of cost sharing that require patients to pay a larger part of the bill or even the full cost of their care. The overall upward creep of prices has also led insurance premiums to rise, taking a bite out of tax revenue, wages and corporate profits, too.

Any successful effort to tamp down American prices, of course, will mean reducing someone’s paycheck. The uniquely high prices for drugs in the United States help make pharmaceutical companies profitable. The high prices paid for hospital care help keep large research hospitals and small rural providers afloat. The high prices help doctors pay off extensive education debt — but also help place them among the highest-paid professions in our economy. None of those groups particularly want a pay cut.


International Federation of Health Plans Comparative Price Report:

Health Care Cost Institute: iFHP Survey


By Don McCanne, M.D.

Yes, this report confirms once again that in the United States it’s the prices that account for much of our higher health care spending. But it is important to be clear what can be done that would make health care more affordable without creating barriers to care, that is, assuring adequate volume without excessive prices.

A well designed single payer model of Medicare for All would use economic tools such as rate negotiation and global budgeting to reduce excessive prices while ensuring adequate capacity in the system through separate budgeting of capital improvements. In contrast, a Medicare for those who want it would only add one more player to our fragmented, dysfunctional health care financing system and thus would have very little impact on overall prices.

Those who suggest that physicians and hospital administrators will be unhappy with the price reductions are failing to consider one of the greatest contributors to high prices in the United States: our egregiously wasteful administrative excesses due largely to the private insurers and the administrative burden they place on the delivery system.

Recovering this administrative waste by enacting and implementing single payer Medicare for All would reduce cumulative prices at our current volume of utilization by close to 500 billion dollars without reducing net income of physicians or hospitals. That does not mean that total spending would be reduced because much of the savings would be used to pay for care currently forgone by the uninsured and underinsured. Also capacity limitations would prevent an excessive volume of services of little value.

So prices would be lowered, total spending would not change much, adequate net incomes for physicians and hospitals would be assured, and capacity would be adequate for essential services. What more could we ask for?

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About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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