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Why US healthcare costs so much: High drug prices, doctor salaries and services

The U.S. has substantially higher spending but worse population health outcomes than 10 other wealthy countries.

Jeff Lagasse, Associate Editor

In 2016, the U.S. spent nearly twice as much as other high-income countries on healthcare, yet had poorer population health outcomes, according to a new study published in the Journal of the American Medical Association.

The major drivers of high healthcare costs in the U.S. appear to be higher prices for nearly everything -- from physician and hospital services to diagnostic tests to pharmaceuticals -- and administrative complexity.

[Also: High prices mean Americans spend more on healthcare than Europeans, says policy expert]

The new findings, from Harvard T.H. Chan School of Public Health, the Harvard Global Health Institute and the London School of Economics, suggest that common explanations as to why healthcare costs are so high -- like notions that the U.S. has too many doctor visits, hospitalizations, procedures and specialists, and spends too little on social services that could mitigate healthcare needs -- may be wrong.

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Using international data primarily from 2013-16, the researchers compared the U.S. with 10 other high-income countries on about 100 metrics that underpin healthcare spending. The countries included the United Kingdom, Canada, Germany, Australia, Japan, Sweden, France, Denmark, the Netherlands and Switzerland.

[Also: Physicians, patients blame insurance, drug companies for rising healthcare costs]

Researchers confirmed that the U.S. has substantially higher spending, worse population health outcomes, and worse access to care than other wealthy countries. For example, in 2016, the U.S. spent 17.8 percent of its gross domestic product on healthcare, while other countries ranged from 9.6 percent (Australia) to 12.4 percent (Switzerland). Life expectancy in the U.S. was the lowest of all 11 countries in the study, at 78.8 years; the range for other countries was 80.7-83.9 years. The proportion of the U.S. population with health insurance was 90 percent, lower than all the other countries, which ranged from 99-100 percent coverage.

[Also: Healthcare costs contributing to U.S. inflation, rise 0.3 percent]

But commonly held beliefs for these differences appeared at odds with the evidence. It's a belief, for example, that the U.S. uses more healthcare services than peer countries, thus leading to higher costs; yet the U.S. has lower rates of physician visits and days spent in the hospital than other nations. It's a belief that the U.S. has too many specialists and not enough primary care physicians; yet the primary care versus specialist mix in the U.S. is roughly the same as that of the average of other countries. It's a belief that the U.S. provides too much inpatient hospital care; in fact, just 19 percent of total healthcare spending in the U.S. is spent on inpatient services--among the lowest proportion of similar countries.

What does explain higher spending in the U.S. is administrative complexity and high prices across a wide range of healthcare services. For example, the findings showed that administrative costs of care -- activities related to planning, regulating and managing health systems and services -- accounted for 8 percent of total healthcare costs, compared with a range of 1-3 percent for other countries.

Per capita spending for pharmaceuticals, meanwhile, was $1,443 in the U.S., compared with a range of $466 to $939 in other nations. For several commonly used brand-name pharmaceuticals, the U.S. had substantially higher prices than other countries, often double the next highest price.

Plus, the average salary for a general practice physician in the U.S. was $218,173. In other countries the salary range was $86,607-$154,126.

The authors said international comparisons are valuable because they allow for scrutiny of national performance, and promote accountability.

Twitter: @JELagasse
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