Friday, June 17, 2011

It's the Prices, Stupid

Americans who've been abroad know that the cost of living in most other developed countries is much higher than in the US. In a study of the world's most expensive cities in 2011, Tokyo ranked as No. 1, other Japanese, West European and Australian cities ranked high up, and America's most expensive city New York was way down at No. 44.  Yes, in getting more for your money the US land of plenty remains a haven for its residents, shoppers and visitors.

Except when it comes to health care.  Why are "actual" prices (the "list" prices are even worse) for hospital stay over three times as high as in those otherwise costly foreign places, doctor fees 2 - 3 times as high, and drug prices twice as high?  More importantly how has this crucial disparity eluded our leaders, lawmakers and pundits in coming up with solutions for our unmanageable and growing health care costs?  Thanks to this neglect (or collusion) most Americans have swallowed the propaganda that Medicare and Medicaid underpay providers resulting in their need to recover losses by charging more from private insurers.

Actually the Medicare rates are twice as high as those for providers in West Europe.  Even poor Medicaid (that is routinely spurned by many providers per this NY Times June 15 article) pays $100 for an office visit that would cost even "regular" insurers a mere $50-$70 in Europe.  Going back to Nov. 21, '09 I've repeatedly wondered why our governmental HHS or CMS won't conduct and publicize studies comparing US provider rates with other countries.  But other studies and agencies hint at the underlying problem.

A Health Affairs article (24, no. 4 (2005): 903-914) ruled out lower wait times and defensive medicine (two favorite excuses of US apologists) as significant underlying reasons for cost differences. A 2003 Health Affairs article (also titled "It's The Prices, Stupid) explicitly identifies high US prices as the driver of high costs, though without going much into the root causes or remedial action. A Congressional CRS report of Sept. 17, 2007 also mentions high US prices while speculating (p. 19) that physician and other provider shortages are a probable cause.

A focus on correcting high prices will provide the easiest and most straightforward solutions to our health care and related budgetary crisis, with little or no sacrifices by Americans.  It will even boost the job creation and the economy by making the US workforce most cost competitive internationally, and lowering the tax (or deficit) burden.

I've already laid out like on March 28 the required corrective steps, starting with increasing provider supply and competition through domestic planning, and in the shorter term, by importing health services or providers. The hitch is the reluctance of leaders and experts to antagonize the US health providers and lobbies that have been thriving for decades on exorbitantly excessive rents.  These groups have outsize influence as great paymasters and financial contributors to politicians and pundits alike.

That's why most measures and proposals touted currently do not impact provider rates.  They instead involve doing with less health care (some in good ways like the Independent Payment Advisory Board that many lawmakers sadly oppose per this NYT Apr. 19 report).  Or worse, like the Paul Ryan plan that's justifiably panned by Paul Krugman (e.g., in his NYT June 6 column) that shifts the cost burden from the government to patients while increasing the role of private insurers as middlemen.  All the talk about increasing competition this way or through Accountable Care Organizations is meaningless so long as providers are scarce or enjoy huge market power.

Back to correcting prices, as I said on April 21, payers and groups like the National Business Group on Health can play a big role in offsetting health industry influence to achieve effective and "real" solutions.

To show price disparities across countries I included above a link to the IFHP Comparative Price Report of 2009 because it has useful information including on Medicare pricing. Update: A 2011 version is now available.