MRI costs $1,080 in America and $280 in France

“In my view, health is a business in the United States in quite a different way than it is elsewhere. It’s very much something people make money out of. There isn’t too much embarrassment about that compared to Europe and elsewhere.”

An item in Washington Post’s “Wonkblog” tackles the issue of healthcare expenditure discrepancies between USA and other countries in this article which will provoke further debate and headscratching in US and beyond. The problem faced by US is that it spends pretty much twice per person on healthcare than its nearest neighbour Canada. In 2009, Americans spent $7,960 per person on health care. Canada spent $4,808. The Germans spent $4,218. The French, $3,978. This article asks why

Possible explanations

The article postulates a few theories and delves into available research to prove or disprove them. Being a European organisation, focused on the medical device aspect rather than healthcare per se, we’ll try to cut to that particular chase, but can;t do so in isolation so we’ll touch on other issues covered in the article.

What seems to be the underlying theme, which goes further towards explaining the discrepancy than any other theory, is the more overt commercialisation of healthcare in USA compared with other systems, and we’re not just talking about the UK NHS here. The article quotes Tom Sackville, who served in Margaret Thatcher’s government and now directs the International Federation of Health Plans (IFHP). “In my view, health is a business in the United States in quite a different way than it is elsewhere. It’s very much something people make money out of. There isn’t too much embarrassment about that compared to Europe and elsewhere.”

To dispel one myth, health researchers have largely discarded the theory that Americans are either sicker than non Americans or that they visit the doctor or hospital more frequently. In a 2003 study, researchers concluded it came down to the dynamic between healthcare providers and insurers, concluding that the balance of power lay with the former, resulting in them being able to charge higher prices.

The research stated; “The United States spends more on health care than any of the other OECD countries spend, without providing more services than the other countries do. This suggests that the difference in spending is mostly attributable to higher prices of goods and services.”

Insurers blame providers

There’s a risk of the “they would say that wouldn’t they” syndrome here, but on Friday, the aforementioned IFHP — a global insurance trade association that includes more than 100 insurers in 25 countries — released more direct evidence. It surveyed its members on the prices paid for 23 medical services and products in different countries, asking after everything from a routine doctor’s visit to a dose of Lipitor to coronary bypass surgery. And in 22 of 23 cases, Americans are paying higher prices than residents of other developed countries.

Do DRG and Tariff-based systems keep costs down in other countries?  

Well, this is where it gets really interesting because the article seems to be claiming that there is inherent low pricing in the way we do things in Europe and elsewhere in some sort of buyer’s nirvana. One of the researchers in the 2003 study states : “Other countries negotiate very aggressively with the providers and set rates that are much lower than we do.”

In America, Medicare and Medicaid negotiate prices on behalf of their tens of millions of members and, not coincidentally, purchase care at a substantial markdown from the commercial average. But outside that, it’s a free-for-all. Providers largely charge what they can get away with, often offering different prices to different insurers, and an even higher price to the uninsured. That’s fascinating because we’re facing exactly the same issues in Europe, especially in the private sector with, for example, significant discrepancies between prices paid for devices dependent not least on factors such as how well the company negotiated. And just because initiatives like France’s “TIPS” in which prices for certain categories of medical device are government-dictated based on evidence of company costs, sound like they would hold costs down, such methods are far from all-encompassing and probably don’t offset the huge costs of running the healthcare provision architecture itself.

Utilisation of (more) expensive tools

We have absolutely no factual evidence on which to base this theory other than years observing surgery around the world, but there is no doubt in the medlatest mind that the American clinician will open the shiny box to use the new gizmo much more readily than the European will. The number of consumables used per case is almost certainly higher in USA and furthermore in our experience everything from the drape to the gown to the suture is more likely to be “top end” rather than “make do”. Clinicians, feel free to challenge us on this theory, but it seems to us that if an item is chargeable (to an insurer) at a profit, that item is inherently more likely to be used than under a system in which the overall procedure cost is reimbursed at a fixed rate. This all supports the theory that the healthcare provider is the seat of power in USA to a greater extent than in other markets.

The heart of the matter? 

Is the result therefore that, unlike in other countries, sellers of health-care services in America have considerable power to set prices, and so they set them quite high? And if that’s the case, how come the cost of medical devices, a not insignificant chunk of the provider’s cost, is usually lower in USA than internationally? One theory is that US providers actually make a profit on the devices, with often a 100% mark-up, so will exert downward price pressure on the company selling it. We don’t believe this is how it’s done overseas, where (in the privately insured sector) the insurer will pay a fixed price for the procedure, out of which the provider will extract its profit (which can vary dependent on the variation of needs between cases).

Too tough a nut to crack?

The article suggests  that “as simple an explanation as “the prices are higher” is, it is a devilishly difficult problem to fix. Those prices, for one thing, mean profits for a large number of powerful — and popular — industries.”

“There is so much inefficiency in our system, that there’s a lot of low-hanging fruit we can deal with before we get into regulating people’s prices.” says Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University. “Maybe, after we’ve cut waste for 10 years, we’ll be ready to have a discussion over prices.”

Source: Washington Post