A. Previous post | summary
Last week’s post shared policy insights and performance statistics from other nations; the purpose is not to suggest that one nation’s methods are better or worse, but rather, to suggest that there are different ways to address healthcare. Further, the intention is to yield insight and understanding, rather than argument or hatred.
B. Books
Several books provide insight and background into the nature of US healthcare system.
- An American Sickness (2018), Elisabeth Rosenthal
- Rosenthal is a Harvard-educated doctor, and worked as an emergency room physician in New York City; she was a senior writer for the New York Times, and is currently editor-in-chief at Kaiser Health News.
- The book is a useful primer; the first half of the book presents the history of the health care system; the second half presents opportunities to reduce costs.
- America’s Bitter Pill (2015), Steven Brill
- Steven Brill, a graduate of Yale College and Yale Law School, founded Court TV and the American Lawyer magazine; he writes for The New Yorker and Time, and teaches journalism at Yale.
- The book is subsequent to Brill’s 2013 Time cover story, “Why Medical Bills are Killing Us,” and provides insight into the Affordable Care Act, including the challenge to pass the law, and the incompetence that threatened its implementation. Brill also adds his own frustrations, concerns, and insights as he under-goes open-heart surgery.
- The Price We Pay (2021), Marty Makary
- Makary is a British-American surgeon, professor, and author; he is an oncology and gastrointestinal laparoscopic surgeon at Johns Hopkins Hospital, and teaches public health policy at Johns Hopkins Bloomberg School of Public Health.
- The Price We Pay: What Broke American Health Care – and How to Fix it, examines why profit-driven health care costs are high, lack of cost transparency, and the financial impact on patients. Makary suggests that price transparency would mitigate high costs by allowing free markets to work.
- Makary shares an analogy: if airlines billed passengers after a flight there would be price gouging. An airline could argue that it cannot provide prices in advance, because it doesn’t know if there’s going to be a delay or cancellation, if a passenger will consume a beverage, or even predict fuel prices. Following deregulation (1978), airlines built predicted risk into prices, and transparent prices created a competitive market.
- Priced Out (2020), Uwe Reinhardt
- Uwe Reinhardt was born in Germany, educated in Canada, and received a PhD from Yale; he focused on health economics and policy at Princeton University until his death at age 80, in 2017. Reinhardt served as an advisor to Taiwan in 1989, when it overhauled its healthcare system. Reinhardt recommended that Taiwan use a private health-care delivery system with universal coverage, focusing on equitable access, effective cost control, and administrative simplicity. Such a system is consistent with Canada (funded by taxes), or Germany (funded by statutory insurance premiums).
- Priced Out: The Economic and Ethical Costs of American Health Care, Reinhardt explains why American health care costs so much more, but delivers so much less, than the health care systems of other nations.
- Reinhardt suggests that the issue is not one of economics, but one of social ethics. He suggests that there is no consensus in US health care that each citizen should be our brothers’ keeper.
- Reinhardt notes that half of all US health spending is government: Medicare, Medicaid, Tricare, and Veterans Affairs. Some argue that a single-payer health insurance system is un-American, or even socialist; Reinhardt suggests that Medicare, Medicaid, Tricare, and VA are single-payer systems, and if single-payer systems are acceptable to retirees and veterans, why is a single-payer system not acceptable to all Americans.
- Pharma (2020), Gerald Posner
- Posner has written thirteen books, and contributes to Forbes; he graduated from the University of California, Berkeley, and studied law at University of California, Hastings College. Before becoming a writer, he was an attorney at Cravath, Swaine & Moore in New York City.
- Pharma: Greed, Lies, and the Poisoning of America, is a five-year study of the pharmaceutical industry, and argues that while big pharma is capable of lifesaving acts, it is often an agent of unbridled greed, noting that pharmaceuticals often cost three times more in the US than in Europe.
- The book focuses on pharmacy benefit managers (PBMs), the only segment of the drug distribution system that knows what all parties are paying and getting paid; and also focuses on Purdue Pharma, the maker of OxyContin, the Sackler family, and their roles in the opioid crisis.
C. Discussion
Structural cost differences
It’s often noted that US healthcare is twice as expensive per capita versus peer nations. It’s possible to explain, without justifying, some of these differences. It’s also worth noting that many of the Organization for Economic Co-operation and Development (OECD) nations are plagued with healthcare costs growing faster than GDP, suggesting that many nations need to consider prudent cost control measures.
- Physicians
- Training duration: training in the US is often two to three years longer than peer nations, due in part to both academic and residency training.
- Subsidized education: physician tuition is often subsidized in peer nations, as noted in the previous post discussing international policy.
- Higher salaries: as a result of longer training and un-subsidized tuition, physician salaries are higher in the US versus peer nations; this results in higher healthcare costs, but also higher GDP, and higher per capita GDP.
- Reinhardt suggests that countries with higher GDP spend more on healthcare, because these countries may afford to pay more on healthcare.
- Research & development (R&D): US invests and spends more on R&D than its peer nations; peer nations often “draft” and benefit from these new technologies and pharmaceuticals, without the underlying capital investment, or, may wait for prices to decrease as new technologies and pharmaceuticals mature.
US healthcare costs
Economists describe health care as a “superior good” because health care spending increases disproportionately with income. Besides structural cost differences, there are additional factors that explain why US healthcare spending is higher.
- US has greater ability to pay more, and buy more healthcare, because it has the highest GDP in the world, and one of the highest GDP per capita in the world.
- Demographics of its population
- Typically, healthcare per capita increases with age, however
- US has the highest healthcare per capita in the world, however
- US has one of the youngest populations versus peer nations
- United States: 14% over age 65
- Japan: 25% over age 65
- Germany: 21% over age 65
- US also has the lowest life expectancy (age 78) among its peer nations
- As the US population ages, this could further strain healthcare costs
- Cost drivers for US health care include: high physician salaries, pharmaceutical profits, the administrative burden of a non-uniform insurance system, but also, the high number of non-clinical administrators. According to the Harvard Business Review, there are sixteen healthcare workers for each physician; six of these healthcare workers serve in clinical roles (ie. physician assistant, nurse, etc.); the remaining ten workers serve in administrative, non-clinical roles.
- Rent-seeking behavior: US is burdened by aggressive profit-seeking behavior, in particular, by the pharmaceutical and insurance industries; pharmaceutical value chain represents a 25% margin to its stakeholders; insurance value chain represents a 15%-20% margin to its stakeholders. Healthcare systems in peer nations are often for profit, but not at the expense of its citizens.
- Insurance companies: appear indifferent on cost containment; as noted, insurers receive a 15%-20% profit on top of premiums, and may push cost increases down to customers by increasing deductibles, co-pays, co-insurance, and maximum out-of-pocket allowances.
- Consumers: one of the challenges in healthcare, is that patient cost is physician revenue. The other challenge is that Americans with employer-provided health insurance (50%) may recognize that healthcare costs are high, but are often indifferent to high costs because employers subsidize healthcare premiums.
- Other topics
- Outcome-based medicine: the US healthcare system is often fee-for-service or volume-based, rather than outcome-based medicine. It could be argued that US healthcare doesn’t focus on health care or invest in health (ie. diet, exercise, etc.), but rather, sick care. It appears easier to prescribe a drug, and treat a symptom, than it is to change patient behavior.
- US and New Zealand are the only two nations in the world that allow pharmaceutical advertising; television and magazines are ripe with advertisements. Pharmaceutical lobbyists spent more than $300-million in 2020; have you ever seen a billboard for kale or broccoli.
- Is healthcare a basic right: Reinhardt suggests that this is the fundamental question that the US doesn’t address; perhaps the response is inferred by silence.
- Many OECD nations believe that access to healthcare is a universal right, regardless of employment or socio-economic status; with portable access across state or province; this likely results in higher taxes and lower GDP.
- US is the richest country in the world measured by total GDP, yet 8% of its citizens (25-million) are un-insured. Based on actions in the US, it could be inferred that the US does not believe that healthcare is a universal right; and despite the Declaration of Independence, that not all lives are created equal.
- Opportunity
- Animal, Vegetable, Junk: a History of Food (2021) by Mark Bittman, former columnist with the New York Times; Bittman argues that the food system is broken, but that the food system works for “big food.”
- In a similar manner, one could argue that the US healthcare system is broken, but that the US healthcare system works for “big insurance and big pharma.”
- If the US healthcare system is not broken, per se, it’s likely that the US healthcare system is damaged, underperforming, and could be improved.
D. Looking ahead | next post
Next week’s post will propose solutions to address the US healthcare system.
garthmonroe 