Good article on health care costs in Washington Post

[kevink]

IMHO the chart alone makes this a worthwhile read, but the article does a very good job of showing how we got there:

Why an MRI costs $1,080 in America and $280 in France - The Washington Post

 

[Midpack]

Good article. I wish those (outside the industry) who so vigorously defend the status quo would confront the issue, imagine what we could do bold mine! Not pretending it would be easy at all, but there are examples of what can be done all around us - everywhere! They pay much less, have better results overall, no uninsured, no tie to employment in many cases, no medical bankruptcies. Why not start?

End of rant (again)...

There is a simple reason health care in the United States costs more than it does anywhere else: The prices are higher.
That may sound obvious. But it is, in fact, key to understanding one of the most pressing problems facing our economy. In 2009, Americans spent $7,960 per person on health care. Our neighbors in Canada spent $4,808. The Germans spent $4,218. The French, $3,978. If we had the per-person costs of any of those countries, America’s deficits would vanish. Workers would have much more money in their pockets. Our economy would grow more quickly, as our exports would be more competitive.

 

[KiraC]

Thanks for sharing this article. It is very interesting.

I wish we could eliminate most (if not all of) the waste and make pricing simple and transparent. IMO, There is no reason treating a patient should cost different amounts depending on whether or not they have insurance. I also believe people need to not expect hand-outs and should take care of their health to the best of their ability to minimize costs overall.

 

[Texas Proud]

Good article. I wish those (outside the industry) who so vigorously defend the status quo would confront the issue, imagine what we could do bold mine! Not pretending it would be easy at all, but there are examples of what can be done all around us - everywhere! They pay much less, have better results overall, no uninsured, no tie to employment in many cases, no medical bankruptcies. Why not start?

End of rant (again)...

This is a touchy one for me, because I am on BOTH sides of the fence....

I agree that the prices are way to high here... and the profit motive is also very strong here..

But, one of the things that make these savings possible is very low wages.. when I was in the UK one of the guys I worked with wife was a doctor... he got paid a lot more than she did... from what I can tell, this salary structure was all up and down the system.


One of the other surprises was that they were not as strict as we are on what is over the counter medication... my sister (who is an RN) was surprised on what you could buy in the UK over the counter...

So yes, I would love to have our system cost a lot less than it does, but I also am concerned on how it gets fixed....

 

[FIRE'd@51]

IMO, There is no reason treating a patient should cost different amounts depending on whether or not they have insurance.

This is one of those statements which, on the surface, seems self-evident. On the other hand, folks who have health insurance pay thousands of $ every year in premiums to the insurance companies, part of which goes to the negotiation of lower rates. Why should someone who elects not to carry health insurance benefit from these negotiations? The treatment itself may cost the same, but it's not obvious to me that the price should be the same.

 

[DangerMouse]

Salaries for Drs in the UK might be lower, but I would imagine that Drs in the UK graduate with a lot less college debt as well. Add in that their malpractice insurance would not be what it is in the US and you can see why they get paid less.

Drs surgeries in the UK are funded by the NHS. The Dr gets paid by how many people they have on their books, whether or not they actually see the patient once a year or 10 times a year.

 

[nun]

UK salaries are generally lower than their US equivalents. Drs. are well paid in UK terms

 

[Silver]

Quoted from the article: “In my view, health is a business in the United States in quite a different way than it is elsewhere,” says Tom Sackville, who served in Margaret Thatcher’s government and now directs the IFHP. “It’s very much something people make money out of. There isn’t too much embarrassment about that compared to Europe and elsewhere.”

I have a Master's degree in nursing, and have worked clinically and in health care administration for over 35 years. IMO, the above statement explains the current health care costs. We are a market-driven culture in America and support legal opportunities to become wealthy. Since health care services are a product, why shouldn't they be profitable whenever sold?

Sure....there are lots of hidden costs. But that's because we support health care providers in their decision making on our behalf. (You, patient, need these 6 tests just because I've ordered them for you...trust me. I will only glance at the results, not really needing that info in order to assist you. But I want you to feel like I'm really doing something, and ordering all this helps support my productivity with my partners in practice.)

IMO, true change can only happen once we decide, as a culture, that health care is a moral issue instead of a business opportunity.

 

[Gone4Good]

One of the things not mentioned by Ezra that is certainly leading to higher prices is a complete lack of transparency. He correctly points out that often times the customer has no ability to comparison shop ("I'm here for a heart attack, can I see your price list please?") which is a well known market failure that can easily lead to exorbitant pricing. But patients can shop for many, many non-emergent procedures. As things stand right now, doctors and hospitals will not disclose the cost of treatment prior to service - even for things that are completely discretionary. Keeping prices hidden is a well established way of thwarting competition. Simply requiring the health care industry to post prices would go a long way to tamping them down.

 

[MichaelB]

Much of US healthcare is priced based on value and not cost. That kind of pricing is fine for technology (iPhones) and optional care (liposuction) but considered exploitive in many parts of the world because of its moral implications. Tiered pricing is also something that exploits misfortune, and coupled with the lack of transparency mentioned by G4G, has led us down this ugly road.

 

[Alan]

UK salaries are generally lower than their US equivalents. Drs. are well paid in UK terms

True. You can't equate UK Dr salaries to US Dr salaries without some line of reference.

In 1987 I transfered from the UK to the USA with my Megacorp in a parallel move. I was a EE, 8 years post grad employment, and my salary was doubled when I moved. (not counting the secondee expense allowances which made it a lot more lucrative).

 

[nun]

True. You can't equate UK Dr salaries to US Dr salaries without some line of reference.

In 1987 I transfered from the UK to the USA with my Megacorp in a parallel move. I was a EE, 8 years post grad employment, and my salary was doubled when I moved. (not counting the secondee expense allowances which made it a lot more lucrative).

I have a similar story. In 1986, straight out of college I was offered a job with Racal starting at 15k GBP a year. I turned it down because I had an offer of a post doc with the Smithsonian Institution for $42k a year - almost twice as much.

 

[obgyn65]

+1.

IMO, true change can only happen once we decide, as a culture, that health care is a moral issue instead of a business opportunity.

 

[ERhoosier]

Very, VERY simplistic article, IMHO. Prices are but one aspect of total health care costs. And article largely misses exploring those reasons WHY prices are higher in US-
1. Wages generally are higher. Wages are >60% of US HC costs.
2. Equipment/medication costs are higher. Same MRI scanner costs more in US than France or India.
3. Liability costs. Insurance overhead is MUCH higher in US for suppliers/hospitals/docs/etc.
4. Poor price negotiating procedures- partly by dictated by patchwork of fed & state laws & regulations

And despite the article's erroneous claim, overutilization of expensive technologies IS a major factor in excess US costs. The single study they quote is contradicted by much better & more current data. Contrary to Post's misquote of his opinions, Uwe Reinhardt repeatedly illustrates overutilization in many of his articles on healthcare cost issues. US spends FAR more on care in last 30days of life pursuing fruitless heroic efforts. And just try getting though a US ER visit without a big battery of tests that would make a German or UK doc embarrassed to think about. Why? The US ER doc gets sued if he/she does not do those tests or procedures & there's less than perfect outcome. In US, value-based healthcare decisions are NOT a defense in individual malpractice actions. Doc cannot use exorbitant price of test (or medication, etc.) as solid defense in liability claim. As but one example, OB docs are under big pressure to limit the C-Section rate despite fact that in many cases this remains an area of very imperfect science. Yet doc's failure to perform a C-Sec has led to some HUGE malpractice awards like this $US144 million one recently in Michigan-
Jury awards $144 million for failure to perform a C-section

BTW- The Post is wrong in claiming insurers are but a small part of this. Only 2.2% profit margin Check the published financial facts. United Health Care's return on equity is 19%, and Wellpoint's ROE is over 11%. Other big players are not far behind.

Yes the profit motive is present in US market, but it's also there in some other developed nations like Germany & Japan. Just somewhat bigger issue in US. But even if one could magically eliminate Post's estimated 20% profit overhead, US would STILL have huge HC cost problems vs rest of developed world. That MRI would still cost over 3-fold what is would in France.

 

[Texas Proud]

Very, VERY simplistic article, IMHO. Prices are but one aspect of total health care costs. And article largely misses exploring those reasons WHY prices are higher in US-
1. Wages generally are higher. Wages are >60% of US HC costs.
2. Equipment/medication costs are higher. Same MRI scanner costs more in US than France or India.
3. Liability costs. Insurance overhead is MUCH higher in US for suppliers/hospitals/docs/etc.
4. Poor price negotiating procedures- partly by dictated by patchwork of fed & state laws & regulations

And despite the article's erroneous claim, overutilization of expensive technologies IS a major factor in excess US costs. The single study they quote is contradicted by much better & more current data. Contrary to Post's misquote of his opinions, Uwe Reinhardt repeatedly illustrates overutilization in many of his articles on healthcare cost issues. US spends FAR more on care in last 30days of life pursuing fruitless heroic efforts. And just try getting though a US ER visit without a big battery of tests that would make a German or UK doc embarrassed to think about. Why? The US ER doc gets sued if he/she does not do those tests or procedures & there's less than perfect outcome. In US, value-based healthcare decisions are NOT a defense in individual malpractice actions. Doc cannot use exorbitant price of test (or medication, etc.) as solid defense in liability claim. As but one example, OB docs are under big pressure to limit the C-Section rate despite fact that in many cases this remains an area of very imperfect science. Yet doc's failure to perform a C-Sec has led to some HUGE malpractice awards like this $US144 million one recently in Michigan-
Jury awards $144 million for failure to perform a C-section

BTW- The Post is wrong in claiming insurers are but a small part of this. Only 2.2% profit margin Check the published financial facts. United Health Care's return on equity is 19%, and Wellpoint's ROE is over 11%. Other big players are not far behind.

Yes the profit motive is present in US market, but it's also there in some other developed nations like Germany & Japan. Just somewhat bigger issue in US. But even if one could magically eliminate Post's estimated 20% profit overhead, US would STILL have huge HC cost problems vs rest of developed world. That MRI would still cost over 3-fold what is would in France.

Great post...


I just want to add that profit motive is also one of the reason for excessive procedures... IOW, if you can earn 20% on a procedure, doing more of them makes you more money.... so increasing your profit margin is not the only way to make more profit...

 

[FIRE'd@51]

BTW- The Post is wrong in claiming insurers are but a small part of this. Only 2.2% profit margin Check the published financial facts. United Health Care's return on equity is 19%, and Wellpoint's ROE is over 11%. Other big players are not far behind.

A profit margin of 2.2% and an ROE of 19% is not necessarily inconsistent since they are different financial ratios, i.e. the denominators are different.

 

[Gone4Good]

A profit margin of 2.2% and an ROE of 19% is not necessarily inconsistent since they are different financial ratios, i.e. the denominators are different.

Nifty sleight of hand, eh?

Ezra followed up and responded to some of the other criticisms too.
I don't have an independent view on the validity of any of these claims, but Ezra's done a ton of reporting on health-care economic issues and seems to have a pretty good handle on this stuff.

Edit to add:

Very, VERY simplistic article, IMHO. Prices are but one aspect of total health care costs. And article largely misses exploring those reasons WHY prices are higher in US-
1. Wages generally are higher. Wages are >60% of US HC costs.
2. Equipment/medication costs are higher. Same MRI scanner costs more in US than France or India.
3. Liability costs. Insurance overhead is MUCH higher in US for suppliers/hospitals/docs/etc.
4. Poor price negotiating procedures- partly by dictated by patchwork of fed & state laws & regulations

I'm not sure why the hostility to the article. Both point 1 and 2 are just prices, so your complaint seems to be he didn't mention that prices are higher because prices are higher. And point 4 is mostly what he attributes problems 1 and 2 to. That leaves point 3, liability costs. It's true he didn't address this in the first article, but he did in the follow-up linked at the top of this post.

So basically, we're left with Point 4, which is Ezra's main point too.

 

[MasterBlaster]

And yet getting back to the $1080 US MRI versus the $280 one in France. I seriously dought that there is an $800 margin per MRI in the US. I suspect that the profit on an MRI in the US is quite a bit less than that.

Profits are surely part of our system but are not the only driver of costs.

 

[FinanceDude]

TORT REFORM. Our malpractice insurance premiums have to be one of the highest in the world............

 

[FinanceDude]

IMHO the chart alone makes this a worthwhile read, but the article does a very good job of showing how we got there:

Why an MRI costs $1,080 in America and $280 in France - The Washington Post

However, it would cost you $700 in airfare to fly to France to get said MRI!

 

[Gone4Good]

TORT REFORM. Our malpractice insurance premiums have to be one of the highest in the world............

From the follow up:

In October 2009, in response to a request from Sen. Orrin Hatch (R-Utah), the Congressional Budget Office took a careful look at the evidence on defensive medicine and concluded that aggressive reforms to the medical malpractice system “would reduce total national health care spending by about 0.5 percent.”

 

[ziggy29]

TORT REFORM. Our malpractice insurance premiums have to be one of the highest in the world............

This is true and it's a problem but it's relatively small in and of itself. Now if we took all the cost problems and market failures into account and "fixed" them together, we'd make a real difference. Part of the reason we still have a problem is that these require political solutions which are partially addressed by either side of the debate, and thus considered "off the table" by the other side. Trial lawyers and insurance/pharma companies are often on opposing sides of these debates and they all have powerful lobbyists.

 

[ERhoosier]

From the follow up:

Actually agree with some of Ezra's follow-up, however...

-The 0.5% figure for defensive medicine costs is HOTLY debated. There is solid objective evidence to refute CBO's incorrect (political??) analysis, such as-
UConn Advance - February 23, 2009 - Study shows defensive medicine widespread
-Reason I used ROE vs "profit margin" for health insurance co is that the former is a much better measure of overall corporate health (profitability over time). Profit margin is very easy to fudge. For example "administration" overhead costs can easily be inflated to disguise a higher functional profit margin (or vice-versa if the co is in economic trouble).
-Agree 100% with Ezra that true admin costs are way too high- for both insurers and HC facilities/providers. But much of that excess is due to arcane gov't regulations. And the oft quoted 3% overhead for Medicare is not consistent with GAAP as applied to business. Much of real Medicare admin is passed through to subcontracted private firms who do the heavy lifting of actual billing/collection.
- Ezra's analysis of high US physician (& nurse) income is fatally flawed. As shown by article from Ezra's own link, specialists in Netherlands, Australia, & Belgium make MORE than US counterparts when adjusted for national GDP. And real hourly pay is another issue. Docs generally work fewer hrs/wk in most other countries than in US. Australia general docs' work week is only 44 hrs, and it's 40 hrs in UK.
General Physician Average Salary Income - International Comparison
Comp work week for US generalists is 55+ hrs-
Physician Work Hours by Medical Specialty

Really hate to harp on a single article or reporter, but this issue is plenty complex without misguided attempts at gross oversimplification. IMHO needed solutions will come through step-wise reform rather than blind across-the-board gov't mandated price cuts which Ezra advocates. This poses a real risk of HC service shortages if cuts are so deep that reimbursement exceeds actual costs of care.

 

[NW-Bound]

This is one of those statements which, on the surface, seems self-evident. On the other hand, folks who have health insurance pay thousands of $ every year in premiums to the insurance companies, part of which goes to the negotiation of lower rates. Why should someone who elects not to carry health insurance benefit from these negotiations? The treatment itself may cost the same, but it's not obvious to me that the price should be the same.

Your point is interesting, and I have never thought of that.

On the other hand, I do not believe that auto body shops or construction companies charge less for people with auto insurance or flood or fire home insurance. If anything, it is the reverse. My own experience is that I can negotiate a better deal if I have to pay out of my own pocket for auto and home repairs. Why is it that health care is different, that the consumers are usually not even told of the costs beforehand?

Anyway, it would be for healthcare providers' own good that they treat people more fairly, or they will get onerous laws jammed down their throat by the almighty Uncle Sam.

 

[Helen]

Sure....there are lots of hidden costs. But that's because we support health care providers in their decision making on our behalf. (You, patient, need these 6 tests just because I've ordered them for you...trust me. I will only glance at the results, not really needing that info in order to assist you. But I want you to feel like I'm really doing something, and ordering all this helps support my productivity with my partners in practice.)

IMO, true change can only happen once we decide, as a culture, that health care is a moral issue instead of a business opportunity.

This really hits home for me. I've been battling a vestibular problem for about a decade. I just sent an angry letter to my new otologist telling him I won't be returning to his practice as I felt he was putting me through unnecessary tests.