Prices and labor costs, not overutilization, set U.S. healthcare system apart

A new study published in JAMA challenges some of the more common explanations for why the U.S. spends more on healthcare than other high-income countries, finding the U.S. isn’t an outlier on measures like utilization, share of primary care physicians or social services spending.

What does set the U.S. apart, according to senior author Ashish Jha, MD, MPH, director of the Harvard Global Health Institute, are its substantially higher labor, services and administrative costs. For example, the average salaries for U.S. physicians ($218,173), specialists ($316,000) and nurses ($74,160) were all much higher than the other 10 countries studied. In the case of physician pay, the U.S. average is nearly double the average of all countries. Administrative spending accounted for 8 percent of gross domestic product in the U.S. while it ranged between 1 and 3 percent in other countries.

For services, the U.S. has been shown to have significantly higher prices. A heart bypass operation costs an average of $75,345. In the Netherlands—which doesn’t have a single-payer system but insurance coverage is mandatory—the same procedure costs an average of $15,742. A CT scan costs an average of $896 in the U.S., while in single-payer Canada, the average is $97. Pharmaceutical spending was also much higher in the U.S., at $1,443 per person, while the 11-country average was only $749.

These disparities between the U.S. and other countries, however, have been well established in accounting for why the U.S. spent 17.8 percent of its GDP on healthcare, while other nations ranged from 9.6 percent (Australia) and 12.4 percent (Switzerland). What Jha and his coauthors were more surprised to find was where the U.S. wasn’t all that different, challenging some “commonly held beliefs” about the U.S. system.

Overutilization, for instance, doesn’t seem to be a driver of the higher spending. The study did find some types of care—like coronary bypass, angioplasties, knee replacements, MRIs and CT scans—which Americans receive more often than other nations. But Americans were actually below average on how often patients reported being hospitalized or seeing a doctor. On other measures, they were in the middle of the pack, such as hospitalizations for acute myocardial infarction, pneumonia or chronic obstructive pulmonary disease.

“These findings indicate that efforts targeting utilization alone are unlikely to reduce the gap in spending between the United States and other high-income countries, and a more concerted effort to reduce prices and administrative costs is likely needed,” Jha and his coauthors wrote.

Too many specialists also weren’t a key driver, according to the study, which found that 43 percent of U.S. physicians practice primary care, matching the mean of all 11 countries. Neither was social services spending, with funding for housing and education in the U.S. found to be similar to that of other nations.

The study also said some of the U.S. discrepancies couldn’t be explained by common arguments from within the healthcare system. Higher physician salaries, for example, can’t be pinned on debt accrued from attending medical school. The average burden ranges between $21,300 and $24,400 per year over 35 years, which doesn’t account for the $200,000 difference in annual pay compared to other countries.

On outcomes, Jha and his coauthors found mixed results. The U.S. has relatively poor population health outcomes, but that could be explained by being compared to smaller, more homogenous countries. It performed poorly on some measures, with the highest rates of infant mortality and maternal mortality and among the highest of avoidable hospitalizations for diabetes and asthma. But it also performed well in other areas, like higher breast cancer screening rates and lower 30-day mortality rates for acute myocardial infarction and stroke.

In an accompanying editorial, health economist Stephen Parente, PhD, of the University of Minnesota said these results may show better “intermediate-term outcomes” which increase health care costs over time.

“Life expectancy is limited, and virtually all people develop illnesses and morbidities with age. For example, individuals who survive cancer will, as they age, have eventual multisystem failures either from cancer recurrence or from other diseases,” Parente wrote. “The larger social cost of a fee-for-service system may not be unneeded tests but lack of incentive for truly coordinated care as a person ages.”

The study may change assumptions, as it did for Jha, about how to reform the U.S. healthcare system.

“Prices of labor and goods, including pharmaceuticals, and administrative costs appeared to be the major drivers of the difference in overall cost between the United States and other high-income countries,” the study concluded. “As patients, physicians, policy makers, and legislators actively debate the future of the US health system, data such as these are needed to inform policy decisions.”