Managed Care Matters

US health care costs are much higher than any other nations'. Why? Do we have better access to care? Are our doctors paid more? Is it the fault of higher drug costs? Do the related issues of malpractice insurance and defensive medicine have much impact?

A new report sponsored by the Commonwealth Fund compares US and other industrialized countries' health care and attempts to answer those questions. The report's conclusions go a long way towards dispelling some of the "urban myths" surrounding health care.

Overall results
According to the report, "…higher prices for health services such as prescription drugs, hospital stays, and doctor visits, are the main reason for higher U.S. spending. The latest data from the Organization for Economic Cooperation and Development (OECD), which compare trends among 30 industrialized countries, show that the U.S. spent $5,267 per capita on health care in 2002—53 percent more than any other country." And that "other country" is Switzerland, which has the distinction of being the only other OECD nation that spends more than 10% of GDP on health care. When compared to the median expenditure, US costs are much higher.

Access and waiting lists
One of the metronomic chants used by those disparaging other nations' health care systems is the much-hated "waiting list" - with the assumption that their costs are lower because people have to wait forever for a liver, dialysis, blood test, or MRI. The facts tell a different story:

"…despite the lack of waiting lists, Americans do not have access to a greater supply of health care resources than people in most other OECD countries. In fact, the U.S. has fewer per capita hospital beds, physicians, nurses, and CT scanners than the OECD median." The report also compared costs in nations with waiting lists for certain procedures to those without - surprisingly, those with waiting lists actually had higher costs. I don't know if they had waiting lists as a means of addressing higher costs, or somehow the lists drove costs higher. I am also curious as to the mix of generalists to specialists...

Malpractice and defensive medicine
Yes, the US has more malpractice suits per capita than other nations (twice as many as in the UK and Australia, and 3.5 times more than in Canada). But, and here's the big "but", the average award in the US was 14% lower than in Canada, 36% less than the average in the UK, and slightly higher than Australia's average expense (the other countries studied for this factor). So, while our "frequency" is higher, our "severity" (cost per claim) is lower.

Notably, the total impact of malpractice expenses as a percentage of US health care costs was less than 0.5%. That does not factor in defensive medicine - but even the highest estimate of the excess costs resulting from defensive medicine adds but 9% to our total costs - not enough to explain the difference in total costs between the US and other OECD countries.

Price
Here's the issue, at least according to this report. We pay more for "prescription drugs, hospital stays, and doctor visits" than other industrialized nations.

Cautionary note -although it is clear that malpractice, defensive medicine, and too many CT scanners and hospital beds are likely not significant contributors to the vast gap in costs between the US and other countries, the report does not indicate what factors are driving prices.

What does this mean for you?

Remember that this compares the US to other countries; cost drivers that impact you, your business, and your premiums must be examined through the lens of US experience. Price is driving your costs, but it's impact is multiplied by utilization and frequency.