Prices, inefficiency, and paperwork: the 3 key cost drivers of U.S. health care

The three reasons why health spending is higher in the U.S. than in any other country are: prices, inefficiency, and insurance administration.

Medical technology and obesity are key cost drivers. Malpractice costs and demographic shifts are not (these add to overall costs but not as significantly to cost increases as tech, obesity, prices, inefficiency, and paperwork).

In a comprehensive report, High and rising health care costs: Demystifying U.S. health care spending, the Synthesis Project of the Robert Wood Johnson Foundation.

The report reviews the key data points on the $2.1 trillion U.S. spending on health:

U.S. spending on health care as a percent of GDP is over 6 points higher than the average developed nation

The average health spend as % of GDP in other developed countries is less than 9% vs. over 15% in the U.S.

The U.S. pays 70% higher prices for prescription drugs and six times more on insurance administrative costs, according to an OECD study.

The Project offers 3 major prescriptions to address health cost increases in the U.S.:

Fund and research effectiveness.

Reform provider payment systems.

Increase use of consumer financial incentives and support.

Health Populi’s Hot Points: In a seminal piece in Health Affairs written 5 years ago (!), Uwe Reinhardt pointed out that, “It’s the Prices, Stupid,” as a response to the question: “Why is the United States so different from other countries.” In that essay, Dr. Reinhardt showed that the difference in spending between the U.S. and the UK, Italy, Japan and Canada, was caused mostly by higher prices for health care goods and services in the United States.

I and others have pointed out that prices = revenues for stakeholders: physicians, hospitals, insurers, technology companies.

In the Synthesis report, technologies, broadly define — which includes medical devices, prescription drugs, durable medical equipment, and virtually any external input or resource used in patient care — drives up health costs in the U.S. Thus, the call for comparative effectiveness. What really works? It’s a salient, simple, powerful question.

The American search and lust for new-new has taken a back seat to the question that’s been whispered for decades: what’s appropriate technology, what’s useful?

In the middle of the Health 2.0 conference last week, the mantra was echoed: Use simple tools to do great things. It’s something important to keep in mind.

The 3 prescriptive recommendations of the Synthesis team would bolster each other — knowledge about effectiveness would inform patients’ and clinicians’ decisions to improve outcomes, and aligning payment for performance and patient benefit would rationalize costs and optimize population health.

For another insightful lens onto this study, see Maggie Mahar’s post, Covering Everyone –and Rationing Care.