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New Insight into Why U.S. Ranks #1 in Healthcare Costs

ESO Staff

recent study conducted by the Harvard Global Health Institute and the London School of Economics revealed that the U.S. continues to outpace its peers when it comes to healthcare spending. After analyzing data from 11 high-income countries, the results ranked the United States as #1 in health spending, representing 17.8% of national gross domestic product (GDP) – that’s $3.3 trillion or $10, 348 per person. 

However, the study also suggests that many of the commonly held beliefs as to why U.S. healthcare spending is so high may actually be inaccurate and not evidence-based. Commonly held notions as to the drivers of high cost – such as too many doctor visits, hospitalizations, procedures, and specialists, as well as too little spending on social services that could reduce healthcare needs – are in fact, not supported by the findings of the study.  

Instead, it appears that administrative complexity and higher costs for everything – from physician and hospital services, to diagnostic tests and pharmaceuticals – are the driving factors behind the substantially higher cost of care.  

Using international data from 2013-16, researchers compared 11 high-income countries – the United Kingdom, Canada, Germany, Australia, Japan, Sweden, France, Denmark, the Netherlands, and Switzerland – on 100 metrics. The study confirmed that the U.S. has substantially higher spending, worse population health outcomes, and worse access to care than its peers.  

  • While the U.S. spent 17.8% of its GDP on healthcare in 2016, other countries ranged from 9.6% (Australia) to 12.4% (Switzerland).  
  • Life expectancy in the U.S. was the lowest of all 11 countries, at 78.8 years (the range for other countries was 80.7-83.9 years).  
  • Health insurance coverage for the U.S. population was around 90%, lower than all the other countries that ranged from 99%-100% coverage. 

Interestingly, however, it appears that many of the policy-driving notions held in the U.S. about the causes of high health care costs are at odds with the results of the study. In a release from the Harvard T.H. Chan School of Public Health, these misconceptions were outlined, including: 

  • Belief: The U.S. uses more healthcare services than its peers, leading to higher costs. Evidence: The U.S. has lower rates of physician visits and days spent in the hospital than other nations. 
  • Belief: The U.S. has too many specialists and not enough primary care physicians. Evidence: The primary care versus specialist mix in the U.S. is roughly the same as that of the average of other countries. 
  • Belief: The U.S. provides too much inpatient hospital care. Evidence: Only 19% of total healthcare spending in the U.S. is spent on inpatient services, among the lowest proportion of similar countries. 
  • Belief: The U.S. spends too little on social services and this may contribute to higher healthcare costs among certain populations. Evidence: The U.S. does spend less on social services than other countries but not by a substantial margin. 
  • Belief: The quality of healthcare is much lower in the U.S. than in other countries. Evidence: Overall, quality of care in the U.S. isn’t markedly different from that of other countries, and in fact excels in many areas. For example, the U.S. appears to have the best outcomes for have heart attacks or strokes but is below average for avoidable hospitalizations for patients with diabetes and asthma. 

So, what is driving the higher cost of healthcare in the U.S.? Data from the study suggests the answer lies in high administrative complexity and higher prices across a wide range of healthcare services. For example: 

  • The U.S. spends around 8% on administrative costs (activities related to planning, regulating, and managing systems), while peer countries spend around 1-3%. 
  • Per capita spending for pharmaceuticals was $1,443 in the U.S., compared with a range of $466 to $939 in other nations. In fact, for several commonly used brand-name pharmaceuticals, the U.S. prices were often double the next highest price. 
  • The average salary for a general practice physician in the U.S. was $218,173, while in other countries the salary range was $86,607-$154,126. 

Armed with this new data and improved insights, U.S. policymakers and leaders can refocus efforts in making health care more affordable to communities and the U.S. population as a whole. Additionally, by leveraging emerging technologies to drive down administrative complexities, administrators can help drive down operating costs and pass on the savings to the patient. In any case, having a more accurate and informed view of healthcare costs in the U.S. will greatly benefit the future of care and economics, helping current and future patients in the years to come. 

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