Higher prices—not waiting lists—explain why U.S. healthcare spending is so high

Healthcare Financial Management, August, 2005

Higher prices for health services such as prescription drugs, hospital stays, and doctor visits not malpractice claims or greater access to health care services--is the major reason why Americans spend far more for health care than citizens in other industrialized countries, according to a new study in the July-Aug issue of the journal Health Affairs.

The researchers hooked at healthcare spending per capita in 2002 for the 30 nations that belong to the Organization for Economic Cooperation and Development. They found that the United States spent $5,267 per capita for health care-$1,821 more than the next-highest spender, Switzerland, and $3,074, or 140 percent, more than the median level for all OECD countries. U.S. health spending accounted for 14.6 percent of U.S. gross domestic product in 2002. Only two other countries, Switzerland and Germany, spent more than 10 percent of their GDP on health care that year.

An analysis of costs associated with malpractice claims showed that they explain only a small portion of the difference in health spending. Malpractice awards in the U.S. amounted to only 916 per capita in 2001, compared with $12 in the United Kingdom and $10 in Australia.

Costs associated with defensive medicine could account for more of the price differential, the researchers note. But they point out that analysts have had a difficult time singling out services provided solely out of fear of litigation. And there is debate on the extent of defensive medicine in the United States. Perhaps most important, the highest estimate of the cost of defensive medicine is 9 percent, a small fraction of the 140 percent differential in spending with the median OECD country.

The study also finds no evidence that U.S. citizens spend more for health care because they get more services. For example, when one looks at hospital beds, physicians, nurses, magnetic resonance imaging, and computed tomography scans avail able per capita, Americans actually have access to fewer healthcare resources compared with people in many other countries.

It is true that in some countries people are forced to wait for health services. However, that doesn't appear to explain price differences, either. The services with waiting lists account for only 3 per cent of U.S. health spending. Also, per capita spending in seven OECD countries without waiting lists for health services was about 92,500 less than it was in the U.S.

To read Health, Spending in the United States and the Rest of the Industrialized World (available to subscribers), go to content.healthaffairs.org/cgi/content/full/24/4/903.