The Real Cost of the US Health Care System

It is well known that the health care system in the United States is excessively costly. Addressing the reasons why involves 3 connected questions: (1) what are the real drivers of high costs, (2) what policies have the highest probability of reducing those costs, and (3) what are the consequences of not reducing excessive health care costs? This article examined each question, starting with the drivers of high health care costs. Health care costs essentially are prices multiplied by volume. No category of spending accounts for as much of the cost difference between the United States and other high-income countries as pharmaceuticals. Papanicolas et al report that total US pharmaceutical expenditures are $ 1443 per capita. In comparison, total spending on drugs in Germany is $ 667 per capita; in the Netherlands, $ 466 per capita; and in Sweden, $ 566 per capita. These differences are almost all a result of prices, not volume. A second major driver of cost differences between United States and similar countries is high-margin, high-volume procedures such as angioplasty and hip or knee replacement. The cost difference between countries for these procedures is a combination of high prices and high volumes. For instance, the United States performs the second highest number of angioplasties worldwide, and total per-capita costs for the procedure are $ 69.20, compared with the Netherlands' similar rate of angioplasties with per-capita costs of $ 13.10. The difference in this example also results from prices, not volume. A third area of difference is imaging, which accounts for approximately 7% of the cost difference between the United States and the Netherlands and again is the result of both high prices and high volumes. Finally, administrative costs contribute significantly to the cost difference between the United States and other countries. Policies directed at reducing these costs should include regulating drug prices; initiating various combined solutions to address the handful of high-volume, high-margin procedures and imaging; and streamlining administrative costs. For example, reducing average computed tomography and magnetic resonance imaging scan prices by 33% could reduce overall health care costs by an estimated $ 118 per capita. Moving toward a more automated process based on electronic health record data would streamline administrative costs. High health care spending takes money away from spending on other worthy and arguably more valuable goods and services. Individuals do not decide how much to spend on health care as they do for consumer products. The bill for health care products and services is largely paid collectively by society through insurance and taxes. Thus, the high spending on health care by one person takes away money from the rest of society. The same is not true when an individual decides to spend personal money on a new smartphone or automobile. Whether we can decrease the cost of health care in the United States will depend on the medical profession, health systems, payers, and policy makers.