High Prices Are Not the Only Driver of US Healthcare Costs

The four biggest sources of excess healthcare costs account for two-thirds of the overall per-capita spending gap, and should be the prime targets of cost-reduction policies.

High drug prices, the excessive use of imaging and surgery, and excessive administrative burdens are the bulk of this country’s healthcare overspending, says healthcare policy expert Ezekiel J. Emanuel, MD.

In an essay this week in JAMA, Emanuel, chair of the department of Medical Ethics and Health Policy at the Perelman School of Medicine at the University of Pennsylvania, says Americans average $9,403 per person in annual health care spending. By comparison, Germans and Dutch, average $5,182 and $5,202 respectively.

While America's higher prices tend to get most of the attention, there are also big differences in the volumes of healthcare purchases.

"There are twice as many caesarean deliveries per capita in the United States compared to the Netherlands, for example," Emanuel said. "That difference in volume clearly is a major contributor to the overall spending discrepancy—$62 per capita for caesareans in the US vs. $9 in the Netherlands."

Administrative costs are another big contributor, Emanuel said, accounting for $752 per-capita of Americans' annual healthcare spending, versus just $208 in the Netherlands, and $232 in Germany.

If healthcare policy in America reduced these major drivers of excessive spending, he said it would free up hundreds of billions of dollars for better social uses.

The editorial referenced a new analysis from other researchers in the same issue of JAMA which included a comparison of healthcare expenditures in the U.S. and ten other wealthy countries, most in Europe.

That study showed that, on per-capita basis, the U.S. spends roughly twice as much as these peer countries. Using the data from this analysis as well as from other sources, Emanuel highlighted several key drivers of this huge spending difference.

One consists of high-price, high-volume surgical procedures such as caesareans, knee and hip replacements, coronary artery bypasses, and angioplasties. Americans per-capita spend 2 to 6 times more on these procedures than their peer country counterparts.

"Just the top 25 of these high-margin, high-volume procedures, with cost differences of $20-$40 per capita, explains approximately 20% of the per-capita healthcare spending difference between the U.S. and other high-income countries," Emanuel said.

Administrative bloat in this country is another major spending driver, with per-capita costs that are three- to five-times higher than costs in peer countries, he said.

Medical imaging procedures, meaning mostly CT scans and MRIs, are a third major driver of spending differences, and also involve both high prices and high volumes.

"CT scans alone account for $220 in annual per-capita spending in the U.S., compared to $23 per-capita in the Netherlands," he writes.

The fourth major driver, pharmaceuticals spending, is the only one where high prices are the dominant factor. Americans spend $1,443 per capita on pharmaceuticals, versus $566 for Swedes, for example, yet this huge excess is almost entirely due to higher U.S. prices, not higher volume.

Doctors cost more in America and their average salary is higher than the averages in most peer countries. Yet Americans’ net per-capita spending on doctors’ salaries isn’t much greater than in peer countries, because there are proportionately fewer doctors in the U.S.

"There are just 2.6 physicians per 1,000 citizens in the U.S., whereas in Germany the ratio is 4.1 per 1,000 and in Sweden 4.2 per 1,000," Emanuel said. "The difference in per-capita spending on doctors' salaries accounts for only 4% of the overall health spending gap."

Emanuel emphasized that the four largest drivers of excess U.S. spending should be the prime targets of cost-reduction policies.

Such policies should include government regulation to force down drug prices; mandatory shared decision-making among doctors to reduce the overuse of expensive procedures and imaging; Medicare-style reference pricing to lower per-procedure costs; and automated/electronic record-keeping to reduce administrative costs.

Even if such policies were to achieve proportionately only a modest amount of reduction, they would liberate very large sums, given the scale of the problem.

"If we in the United States could lower the prices and per-capita volumes of our CT scans, MRIs, and just the top 25 high-volume-high-price surgical procedures to those of the Netherlands, for example, we would see savings of about $425 per capita, or a total of $137 billion," Emanuel said.