The United States spends a lot of money on health care. At a gross level health care spending has two components–what services and products are used and how much each product or service costs. For some bizarre reason, a lot of attention has been focused on the utilization piece and not so much on the price piece. The fact is that the US doesn’t have much of a utilization problem; we actually are pretty efficient, we don’t use hospitalization a lot and health plans are fairly vigilant about overuse of services and products that aren’t necessary or very effective. We do have a population health issue that causes more utilization than occurs in countries with better health habits, but that is a separate issue. For the same condition, our utilization is very good.
Pricing, however, is a different issue, and is the real cause of why we spend so much more per capita than do other developed countries. The costs for physician services, hospital services and drugs are far higher here than elsewhere. Doctors, particularly specialists, have very high salaries. Hospitals have excessive administrative staff and they pay management extremely high compensation. Drugs are priced at absurd levels. This article from the Journal of the American Medical Association focuses on drugs received from hospitals.
These facilities are particularly abusive in regard to infused drugs for cancer, arthritis and other conditions. They charge multiples of what the drug cost them. These are very expensive drugs–often $100,000 or more a year. So marking them up a huge amount is very profitable and very costly to the health system. This is particularly egregious because they use another federal program, called 340B, to get the drugs at a big discount. The research found that the hospitals on average charge THREE TIMES what it cost them to buy the drug. They charge on average SIX TIMES more than obtaining the same infused drug in a doctor’s office. This is simply despicable and outrageous and Congress should be ashamed of itself for not limiting markups.
This is a perfect example of our pricing issues. We won’t get health spending under control until we limit prices. (JAMA Article)