Physician Salaries, Drug Prices Help Drive High US Health Costs

Marcia Frellick

March 13, 2018

Despite major reforms in delivery and similar patterns of use, the United States spends nearly double what 10 other wealthy nations spend on healthcare, researchers report in an article published online today in JAMA, a major new analysis finds.

Irene Papanicolas, PhD, from the Department of Health Policy and Management at the Harvard T.H. Chan School of Public Health in Boston, Massachusetts, and colleagues, point to prices of labor and goods, including pharmaceuticals, and administrative costs as the key drivers for the high cost in the United States.

For the analysis, which compared spending in the United States with that in the United

Kingdom, Canada, Germany, Australia, Japan, Sweden, France, the Netherlands, Switzerland, and Denmark, the researchers used data from 2013 through 2016 from international organizations,including the Organisation for Economic Co-operation and Development (OECD).

Among the evidence, researchers say, is that administrative costs made up 8% of healthcare costs in the United States, compared with a range from 1% (France and Japan) to 5% (Germany).

In addition, US spending for pharmaceuticals was $1443 per capita whereas among other nations studied it ranged from $466 in the Netherlands to $939 in Switzerland. Use of pharmaceuticals, however, is similar for all the countries.

As for labor, after adjustment for purchasing power parity, the average salary for generalist physicians in the United States was $218,173, nearly double the average for all 11 countries. Among the other 10 countries, pay ranged from $86,607 in Sweden to $154,126 in Germany.

Given the similarities in overall patterns of healthcare use between the United States and other countries, Papanicolas and colleagues conclude that targeting healthcare use likely won't be enough to control spending and that the answer is more likely to come from reducing process and administrative costs.

In one of the editorials published with the study, JAMA editors Howard Bauchner, MD, and  Phil B. Fontanarosa, MD, MBA, put it more bluntly, saying this study shows "health care reform in the United States has still not accomplished a great deal."

In addition, despite spending the most, the United States had some of the worst outcomes among the 11 countries studied. It ranked last in maternal, infant, and neonatal mortality; obesity numbers; and life expectancy.

Many Other Factors at Play

Editorialists note that many other factors should be considered besides those compared numerically in this study.

Stephen T Parente, PhD, MPH, a health economist with the University of Minnesota in Minneapolis, notes culture and geography surrounding care for the elderly may play a part in medical costs.  In the United States, families are more likely to be spread apart. Japan had the second largest population among the countries studies (behind the United States) but the country is much more compact and older relatives are more likely to live with their families. Other countries also may have more cultural expectation that aging relatives will live with their families than families do in the United States, Parente notes.

Parente also points out that the cost of medical school in most of the countries in the study outside the United States is subsidized. US medical students, on the other hand, commonly come out of med school with $300,000 to $400,000 in debt before they start making a modest salary as a resident.  Add to that high costs of liability insurance in the United States and it's easy to understand that physicians feel they should be rewarded financially, perhaps even more so than in other countries.

Editorialists responding to the study differed in several ways on what's driving healthcare costs.

Ezekiel J. Emanuel, MD, PhD, from the Department of Medical Ethics and Health Policy, Perelman School of Medicine, University of Pennsylvania in Philadelphia, for instance, said that although the US had higher-paid physicians, it also had fewer of them, which he says offsets the effect.

He points out that in the United States there are 2.6 physicians per 1000 citizens, compared with  Germany, where the ratio is 4.1/1000, and in Sweden, which has 4.2/1000.

He adds that high prices combined with high volumes play a role in the imbalance of countries.

He used an example of angioplasties, writing that the United States has the second-highest number of those procedures worldwide and has total per capita costs of $69.20. However, the Netherlands has a similar rate of angioplasties and per capita costs for the procedure are $13.10.

"Clearly, this difference is the result of prices," he writes.

For cesarean deliveries, both price and volume are much higher in the United States, he writes. The United States performs them at twice the rate the Netherlands does (33 per 100 live births vs 16 per 100 live births in the Netherlands). Cesarean deliveries cost $61.80 per capita in the United States vs $8.90 per capita in the Netherlands.

Value Not Included in Numbers

Katherine Baicker, PhD, from the Harris School of Public Policy, University of Chicago, Illinois, and Amitabh Chandra, PhD, from the Harvard Kennedy School and Harvard Business School, Cambridge, Massachusetts, say the value of every dollar spent matters more than price but is harder to calculate. The trouble with these kinds of cross-country comparisons is that they assume services are equal globally, when a service in one country may be more intensive than that in another.

"For instance, patients in the United States may see specialists just as often as patients in Australia but may be more likely to see board-certified radiation oncologists relative to general oncologists, receive new immunotherapies instead of an angiogenesis inhibitor, and receive drug-eluting stents instead of bare-metal stents," they write.

What Would Uwe Say?

JAMA editors Bauchner and Fontanarosa responded that they wish the legendary health economist Uwe Reinhardt, who died last year, could have weighed in on this study, which has findings similar to those in some of his studies.

Reinhardt famously answered the question of why healthcare prices are so high with "It's the prices, stupid."

Reinhardt and colleagues had previously compared healthcare spending in the United States with spending in 29 OECD countries from 1990 to 2001 and found the United States spends much more on healthcare than the other countries and provides fewer services.

Reinhardt had been a passionate advocate for healthcare price transparency. He argued that if people knew more about costs, they and their physicians could make better choices, and he suggested that prices negotiated in the private sector "were kept as trade secrets."

He noted that few providers post their prices for procedures on their websites and few will quote prices over the phone, even for common procedures. Reinhardt had noted that almost every other economic sector has price transparency.

Bauchner and Fontanarosa said Reinhardt would have acknowledged that the study by Papanicolas et al "serves as an important reminder to US residents, policy makers, and legislators that health care reform in the United States has still not accomplished a great deal, although providing health insurance for an additional 20 million to 25 million people is a start in making health care in the United States more equitable."

Authors of the study have disclosed no relevant financial relationships. Parente reports board membership for the Health Care Cost Institute, Academy Health, Emeriti, and Fortel Analytics LLC; being a managing partner of HSI Network LLC, a shareholder of Starting Block Capital LLC and Cyclone Medical; and being a beneficial owner of Terramedica International Ltd. Emanuel reports speaking fees from various companies, organizations, and professional healthcare meetings. He has stock ownership in Nuna and is an investment partner in Oak HC/FT. Baicker reports grants from the National Institute on Aging and a board of directors membership for Eli Lilly. Chandra reports serving on the CBO panel of health advisers (unpaid); receiving speaking fees from Leigh Speakers Bureau and Washington Speakers Bureau; and serving on the advisory boards of Health Engine, Maxwell Health, Kyruus, and SmithRx. He is a former consultant for Precision Health Economics. Bauchner is editor in chief of JAMA, and Fontanarosa is executive editor of JAMA.

JAMA. Published online March 13, 2018. Study abstract, Bauchner and Fontanarosa editorial, Parente editorial, Emanuel editorial, Baicker and Chandra editorial

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