What makes American health care so expensive?
By Paul Wilson
Americans can — and do – argue all day long about the ins and outs of Obamacare. The right to voice your opinion, no matter how little time you've spent researching it, is part of what makes our country great. And boy, do we take advantage.
But no matter one's thoughts on PPACA, it's getting harder and harder to argue for our health care system in its current form. Study after study have found that Americans live shorter lives than people in other developed nations, that our infants die more often and of more causes, and that our women face a high risk of complications during pregnancy and childbirth. We also have the second-highest rate of death among wealthy nations from both coronary heart disease and lung disease.
To add insult to injury, we spend far more than any other nation for these decidedly mediocre results. The U.S. spends nearly 20 percent of its gross domestic product on health care, almost double the amount spent by most other developed countries. According to the Congressional Budget Office, if medical costs continue to grow unabated, “total spending on health care would eventually account for all of the country’s economic output.” The CBO has identified federal spending on government health programs as a primary cause of long-term budget deficits.
But why? What makes American health care so expensive?
Elisabeth Rosenthal, a correspondent for the New York Times, is spending an entire year investigating that very question through a series of articles titled "Paying Till It Hurts." "The purpose of the series," she says," is to make Americans aware of the costs we pay for health care."
So far, she has published three articles detailing some of the underlying problems that have led to these out-of-control costs.
Through her research, Rosenthal has found that while exorbitant drug prices and an obsession with extending patients' lives contribute heavily to the nation's nearly $3 trillion annual health care bill, one of the most significant factors is the cost of simple, everyday services.
Her first piece, "The $2.7 Trillion Medical Bill," is subtitled, "Colonoscopies Explain Why U.S. Leads the World in Health Expenditures." In a recent interview on NPR's "Fresh Air," Rosenthal told Terry Gross, "In many other developed countries, a basic colonoscopy costs just a few hundred dollars, and certainly well under $1,000. That chasm in price helps explain why the United States is far and away the world leader in medical spending."
Another everyday procedure, childbirth, is the topic of the second article in the series, "American Way of Birth, Costliest in the World."
"Childbirth in the United States is uniquely expensive, and maternity and newborn care constitute the single biggest category of hospital payouts for most commercial insurers and state Medicaid programs," Rosenthal writes. "The cumulative costs of approximately four million annual births is well over $50 billion." Between 2004 and 2010, the price paid by insurers for childbirth rose 49 percent for vaginal births and 41 percent for Caesarean sections, according to a study by Truven, commissioned by three health groups. The study found the average total price for pregnancy and newborn care for a vaginal delivery was $30,000, while a C-section averaged $50,000.
By comparison, free or extremely cheap maternity care is considered a given in the majority of developed countries, all part of ensuring the health of future generations and the country as a whole, Rosenthal explains.
Her third article, "In Need of a New Hip, but Priced Out of the U.S.," examines the incredibly high rates paid in the U.S. for joint replacements, and features the story of Michael Shoppen, a Boulder, Colo. resident who traveled to Europe several years ago to have an artificial hip installed.
Although Shoppen had health insurance at the time of his surgery, the insurer wouldn't cover his joint replacement because of a degenerative disease that was considered a pre-existing condition. After conducting a large amount of research, Shoppen was able to arrange for an implant through a friend in the medical industry at a "list price" of $13,000, with no markup. However, once his hospital's finance office estimated additional charges of $65,000, not including surgeon's fees, Shoppen decided to look elsewhere.
Eventually, he decided on a private hospital near Brussels. The surgery was a success, and cost just $13,660. That price included all doctors' fees, operating room charges, crutches, medicine, a five-day hospital stay, a week in rehab and his round-trip plane ticket from the U.S.
But what is it that makes these common procedures so expensive in the U.S.? How did the system get so out of whack? Unsurprisingly, there isn't one simple answer.
In the case of colonoscopies, Rosenthal explains that "the high price … mostly results not from top-notch patient care … but from business plans seeking to maximize revenue; haggling between hospitals and insurers that have no relation to the actual costs of performing the procedure; and lobbying, marketing and turf battles among specialists that increase patient fees."
In recent years, colonoscopy procedures have increased in frequency by 50 percent, often recommended when other, less expensive procedures would suffice. And although the procedure has long been performed in doctors' offices, colonoscopies are now outsourced to "centers," which means charges to the consumer have risen exponentially. "If the American health care system were a true market, the increased volume of colonoscopies … might have brought down the costs because of economies of scale and more competition. Instead, it became a new business opportunity," Rosenthal writes. In the article, Dr. Cesare Hassan, an Italian gastroenterologist who chairs the Guidelines Committee of the European Society of Gastrointestinal Endoscopy, says the U.S. is paying too much for too little. Or to put it more bluntly, we are victims of "opportunistic colonoscopies, done for profit rather than health."
In her piece on maternity and newborn care, Rosenthal notes that the average cost for childbirth in Europe is $5,000 or less, while average costs in the U.S. are closer to $20,000.
It turns out that we may have no one to blame but ourselves for this one. Americans tend to get far more medicalized care than other countries, according to Rosenthal. "Why not check and see if the baby's in good position? Why not check and see if the baby's growing?" Other countries still use scans; they just don’t get as many as we do. Americans tend to use them because they'd "like to know rather than need to know, which gets very expensive," Rosenthal told NPR.
In addition, other countries utilize non-MD providers such as midwives, doulas and general practitioners for the early stages of pregnancy, leaving OBs to take the more complicated cases.
In other words, many of the differences come down to cultural ideas of what's proper and what's needed.
In addition, Rosenthal points out that the U.S. is the only country in which pregnancy is billed item by item. Charges that were lumped together even 20 years ago are now broken out and charged individually.
But again, increased costs have not translated into better care. The U.S. has one of the highest rates of both infant and maternal death among industrialized nations.
And what about joint replacements? How is it possible that someone could fly to Belgium, have surgery, receive excellent care and rehab and then fly back, all for the cost of the joint hardware here in the U.S.?
Rosenthal found that one key factor is regulation — or a lack thereof. In many parts of the world, joint hardware is priced by the country as part of a national negotiation, while other countries set an allowed rate that can be charged for a particular joint within that country. These prices are then made available to the public. In other words, rates are set "as if health care were a public utility or negotiate fees with providers and insurers nationwide."
Not so here in the U.S. We are the only industrialized nation that does not generally regulate or intervene in medical pricing, aside from Medicare and Medicaid.
Rosenthal quotes Dr. David Blumenthal, president of the Commonwealth Fund and a former advisor to President Obama: “In the U.S., we like to consider health care a free market. But it is a very weird market, riddled with market failures.” American patients don't see the prices they will be charged until after a service is provided, if then. In addition, they have little or no access to data on hospitals and doctors that would enable them to be smart consumers. They also pay just a small fraction of the total bill, which gives a skewed impression of the total costs.
Rather than basing payments on a standard formula or scale, they are instead often determined in negotiations between doctors, hospitals, pharmacy and insurers, in which the end result depends on "their relative negotiating power," Rosenthal writes. And "insurers have limited incentive to bargain forcefully, since they can raise premiums to cover costs."
To help control costs in the United States, Rosenthal says that patients may need to alter their expectations. For example, is the presence of an obstetrician at every prenatal visit and delivery really necessary?
She quotes Eugene Declercq, a professor at Boston University who studies international variations in pregnancy: “It’s amazing how much patients buy into our tendency to do a lot of tests. We’ve met the problem, and it’s us."
When Michael Shoppen first walked into the hospital in Belgium prior to his joint replacement surgery, he was "immediately scared because at first I thought, 'This is really old.' The chairs in the waiting rooms were metal, the walls were painted a pale green, there was no gift shop. But then I realized everything was new. It was just functional. There wasn’t much of a nod to comfort, because they were there to provide health care.”
The pricing system in Belgium may not encourage amenities, but the country has some of the lowest surgical infection rates in the world, Rosenthal points out.
As Americans continue to debate the best path forward, there are no simple answers. What's clear is that the old system is broken and must be left behind. It's not only bankrupting our country, but individual Americans, as well. At times, misplaced patriotism and a history of success has led us to believe that simply putting the word "American" in front of something will automatically make it the best in the world. But an unrelenting dose of reality has showed us this isn't the case when it comes to health care. As Rosenthal's series points out, we can't continue down this path, and there are many alternatives to consider as we swallow our pride and adapt to make things better. But it won't be easy.
"What makes it so hard to solve is that it's everywhere," Rosenthal told NPR. "Certainly there are way too many administrative layers … It's partly our expectations. We want a private delivery room with good Wi-Fi and great coffee. Some of these hospitals are competing the way universities compete. 'We have a great gym, we have room service.' … That's not really the essence of health care. If that's what we demand, we're tracking our health care dollars in the wrong direction. Every part of the system needs to rethink the way it's working. "
Paying Till It Hurts
The $2.7 Trillion Medical Bill
American Way of Birth, Costliest in the World
In Need of a New Hip, but Priced Out of the U.S.