A major shift is underway in our understanding of why America spends so much on healthcare. A long-standing obsession with waste and overutilization is slowly giving way to a greater appreciation for how entrenched poverty, a tattered safety net and exorbitant prices may explain why we spend so much more than other countries.
Policymakers, understandably upset with the rising cost of government programs, continue to focus most of their attention on waste. They've relied on the pioneering Dartmouth Atlas of Health Care, which identified wide variation in the use of Medicare services in different parts of the country.
If every region treated its seniors and the disabled as efficiently as the least expensive region, this analysis holds, Medicare spending could drop by up to 30%. The Institute of Medicine extended that finding to all of healthcare in its 2012 report that claimed the U.S. could eliminate $750 billion a year in spending without affecting outcomes.
Proponents of the waste theory blame providers. There are too many specialists ordering too many tests and procedures. There aren't enough primary-care physicians emphasizing prevention and care coordination. Hospitals staff too many beds that need to be filled. In short, the supply side creates its own demand.
The solution to unnecessary use lies in changing reimbursement. Replace fee-for-service medicine with either capitated or value-based reimbursement, and providers would learn to treat patients at the least possible cost.
A small but vocal group of analysts led by the late Dr. Richard Cooper of the University of Pennsylvania reject the Dartmouth analysis, and not simply because it relies exclusively on Medicare claims. They note that the supply of professionals, per capita hospitalization rates, and, with a few exceptions, per capita use of tests and procedures is little different in the U.S. compared with other high-income countries.
They blame higher spending on America's high poverty rate, which leads to greater incidence of chronic conditions like diabetes, heart disease and lung disease. Also, all income groups in the U.S. have high obesity rates, so even the middle class is sicker compared with other countries.
Layered on top of that is the fact that the U.S. spends far less than Western European countries on social services. Many more people here live under the constant stress of deteriorated housing, job and food insecurity, no child-rearing support and unaddressed mental health issues.
As Yale University's Elizabeth Bradley and Lauren Taylor noted in their 2013 book, The American Health Care Paradox: Why Spending More Is Getting Us Less, the U.S. is about equal to its Western European peers if you add together the share of gross domestic product spent on healthcare and social services. The only difference is the U.S. spends its money overwhelmingly on treating people after they get sick, not on providing the improved living conditions that keep them healthy.
A recent study in JAMA of 11 wealthy countries, led by Dr. Ashish Jha of Harvard, offers more support for the shifting consensus on health and spending. It confirms the U.S. ranks highest in obesity and infant mortality and lowest on longevity, even though it spends the most. Yet it has about the same number of physicians, nurses and hospital beds per capita as those other countries. It also has similar use rates in everything except imaging.
Where the U.S. was wildly out of line was in administrative costs (8% of spending compared with 1%-3% in other countries) and pharmacy costs ($1,443 per capita versus $466-$939 in other countries). Moreover, physician salaries in the U.S. were significantly higher ($218,173 for a generalist here compared with $86,607-$154,126 in other countries)
Excessive insurance overhead. Exorbitant drug prices. High physician pay. There's not much there to suggest waste is the problem. As the late healthcare economist Uwe Reinhardt and colleagues put it more than a decade ago, "It's the prices, stupid."
