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January 30, 2013

We Have a Health Care Price Problem Not a Volume Problem

Posted in: healthcare

hospital hallway

Hospital Hallway

The reason the United States spends so much more on health care than the rest of the world is not because Americans tend to consume significantly more health care services. The problem is almost entire that we pay dramatically more for the exact same service. The data is overwhelmingly clear but the point is rarely mentioned in the media and almost never in Congress. So it is worth highlight whenever it is pointed out in a big forum like Bill Keller did in the New York Times:

The first problem with P4P [pay for performance] is that it does not address the biggest problem. Americans spend more than twice as much per capita as other developed countries on health care — a crippling 18 percent of the country’s economic output, and growing. Before studying the statistics, I assumed the root of the problem was doctors who, paid piecemeal for the services they provide, load up patients with marginal tests and treatments. In fact, America’s health care system is not much different from other developed countries in the volume of service. Our doctors prescribe more or less the same number of pills and X-rays, perform similar numbers of blood tests and surgeries, as doctors in the best European countries. While there are undoubtedly savings to be had by cutting unnecessary services (shortening hospital stays, for example), the main problem is that our system charges far more for each service — each office visit, each hip replacement, each day in a hospital bed, each dose of antibiotic. “The facile explanation is that doctors do too much,” said Peter Bach, a doctor at Memorial Sloan-Kettering who studies quality of cancer care. “But if you compare us to other countries on volume, we’re not leading in any category. The flip side is, we pay double for a lot of stuff.” (Actually, we lead in tonsillectomies and knee replacements, but his point is generally right.)

Doctors cite a number of reasons our medical treatments cost more — the high price of malpractice insurance being a favorite, and genuine, culprit. But the main reason everything costs less in other countries is that other countries tend to have one big payer — usually the government — with the clout to bargain down prices.

Almost all the cost control reform idea talked about during the Affordable Care Act where premised on this myth that we have a volume problem. Things like increasing co-pays, electronic records, higher deductibles and adopting pay for performance are designed to address a volume problem, but since we don’t have a volume problem they are likely to either do relatively little or even be counterproductive to improving health.

We could radically reduce our health care spending and basically eliminated our deficit if Congress simply acknowledge that hospitals, drug companies and doctors should not be allowed to charge prices way approve international norms. Since there is no political will to take on those lobbyists Congress instead focused on adopting more “politically palpable” solutions for a mostly nonexistent problem.

Photo by Frenkieb under Creative Commons License


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