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It's the Prices, Stupid

In a recent article in the May/June 2003 issue of Health Affairs, health economists compare U.S. health care spending to other industrialized countries. After slicing and dicing the inputs, capacity, utilization and payment systems, they conclude that the reason U.S. spending is so much higher than elsewhere is, "it's the prices, stupid."

It's not exactly news that the U.S. spends more on health care than any other country. What is surprising is that Americans actually receive less health care than people in other countries that spend considerably less than the U.S. Compared to the median country in the Organization for Economic Cooperation and Development (OECD) survey, the United States has fewer physicians per 1,000 population, fewer physician visits, hospital admissions, acute care beds and days per capita.

Drilling down further, other researchers found that "Americans paid 40 percent more per capita than Germans did but received 15 percent fewer real health care resources." A comparison to the British system revealed much the same thing: the U.S. system used 30 percent more inputs per capita than the Brits, but spent 75 percent more per capita on higher prices.

Economics explains part of this. While other industrialized nations have centralized health care systems of one sort or another, the American system is highly fragmented and decentralized. The government-controlled systems of Canada, Europe and Japan allocate huge market power to the buy side of the equation. Since they pay for most of the services, they can influence prices to a much larger degree than a system with multiple and uncoordinated payers. As distinct from a monopoly on the sell side, they have a "monopsony" on the buy side. Even with Medicare and Medicaid programs, as well as large private insurers, the U.S. market is still relatively fragmented by international standards.

But it's more than just economics. It's politics and culture as well. Everything's bigger in America, and that includes disparities in income, access to health care and community resources. A U.S. surgeon doesn't compare his $300,000 income to his counterparts in Canada and Britain. He compares it to the incomes of other U.S. specialists, major hospital execs, insurance CEOs, major league ballplayers, corporate presidents, big time lawyers and entertainers. He's a bargain by comparison - he actually saves lives - while the rest gorge themselves in the excesses of the "free" market.

Meanwhile, an elderly woman on a fixed income hops on a bus to pick up cheap prescription drugs in Mexico, and wonders why she can't get the same prices in the U.S. Small employers watch their health premiums jump 40 percent in one year and then get a slick brochure touting the renewed profitability of their health plan. People with serious mental illnesses are told they can't access community services because "there isn't enough money in the system."

Wrong. There's plenty of money in the system, a huge amount compared to other countries. The issue is how that money is distributed among fractured and contentious systems components. Some people in the health care system are doing quite well, thank you, while others are not.

In America we tolerate disparities in resources - even promote it to some degree - because we put our faith in the freedom of individuals to "get theirs" in competitive markets. We pay lip service to health care as a public good, but we treat it like a commodity. Yes, senior citizens and persons with mental illnesses ought to be able to obtain prescription drugs and necessary services, but not if it means those at the top of the food chain have to give something up in return. Darwin, not Marx, is running the show here.

Do higher prices translate into higher health care quality? It's hard to say, because we can't agree on what constitutes 'quality' in the health care arena in the first place. We do know that based on international surveys on the satisfaction of citizens with their health care system, "Canada and European nations have consistently earned higher marks than has the U.S. system." Perhaps Americans might rate their health care system higher if they, too, spent less and received more services.

If we had to spend more of our own money on health care, we might actually start paying attention to price. With more of the high costs being shifted to consumers, it looks like we're going to get the chance to find out.