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Why Does US Health Care Spending Far Outstrip That of Other Countries?

The United States spends more on health care than any other nation in the world. This fact is well established, and the degree to which the nation is an outlier on health care spending has not gone unnoticed. Curbing spending to make it more in line with what other countries spend was one of the goals of the Affordable Care Act. Warren Buffet, the legendary investor, refers to US health care spending as a “tapeworm” on American business that sucks out the nutrition in our economic system. Our spending on health care approaches nearly 20% of our economy, which is about double what we see in other high-income countries.

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Missing Data Yields Misconception

Although it’s well known that the United States spends significantly more than other countries on health care, the reasons are poorly understood. The lack of easily comparable data to explore these reasons has given rise to a series of narratives that aim to explain the discrepancies.

The best-known narrative goes something like this: US consumers have unusually high expectations of care, and we have a fee-for-service system that drives physicians and nurses to give us excessive care. Throw in our lack of social spending, a focus on specialists over primary care, a broken malpractice system that drives excessive defensive medicine, and a culture that refuses to face death (and will therefore spend excessively at the end of life), and it’s a recipe for overutilization that explains why we spend approximately $10 000 per person on health care while European countries consistently spend less than half of that. The narrative is coherent and understandable. But new data suggest that this narrative is largely not true.

A major barrier to understanding the factors that contribute to higher spending in the United States is the lack of detailed data that can be compared across countries. Some data have been available, such as figures for overall spending and information about experiences of patients and primary care physicians, as has been carefully collected by the Commonwealth Fund.

However, we have been missing key data about many other important aspects of health care that may contribute to spending, such as the underlying structural factors that drive spending (such as the numbers and types of physicians and nurses, hospital beds, magnetic resonance imaging machines), and the intermediate outcomes (such as actual rates of utilization). Data on costs and expenditures, such as salaries of physicians and nurses, were difficult to get hold of. When these data existed, they were rarely collected in ways that allowed for an apples-to-apples comparison.

Over the past decade, however, the Organization for Economic Cooperation and Development (OECD), a multilateral organization that focuses on social policy issues, has been working assiduously to pull together comparable data. And their work has been masterful.

Using the data from the OECD, supplemented with data from the Commonwealth Fund and select other sources, a group of us, led by economist Irene Papanicolas, PhD, sought to piece together a more comprehensive understanding of how the US health care system compares with those of other high-income nations. We picked 10 very high-income countries of varying sizes and demographics, including countries from Western Europe, as well as Canada, and Japan. We examined performance across nearly 100 metrics. The findings of the article are published in JAMA.

Findings From International Comparisons

A few key findings stand out to me from this work, but I think that the findings around utilization deserve special attention because they are so unexpected and different from what many health policy experts have thought for years.

It turns out that the notion that higher health care spending in the United States is driven primarily by substantial overuse isn’t supported by the data. When it comes to utilization, there is no compelling case that the US rates are substantially higher than comparator countries. Yes, we do more computed tomography scans and knee replacements, but we have fewer hip replacements and fewer overall hospital days. We are on the high end of cardiac procedures, but we have fewer physician visits per population. In other words, we use more of some things, fewer of other things, and all in all, we are about average, maybe a bit above average—but not an outlier. We certainly do not overuse services at such a rate to meaningfully explain spending that’s twice as much as comparator countries.

If utilization isn’t the culprit in explaining our higher spending, then some of the stories about why utilization is a problem need to be rethought. One standard line in US health policy has been that our runaway health care spending problem is driven by fee-for-service payment structures. It stands to reason that if you pay for a given service, you’ll get a lot more of that service and ultimately excess utilization.

The evidence is clear that we do have excess utilization of a lot of low-value services. However, the majority of these low-value services are also low cost and, thus, unlikely to be contributing to the spending differences between the United States and other countries. Additionally, these high levels of utilization are unlikely to be attributable solely to fee-for-service payment structures. Plenty of other countries use other payment models and also seem to have substantial amounts of excess utilization.

So we should shift away from a fee-for-service payment model, but not because it explains higher spending in the United States. It likely doesn’t. We should shift away from it because it fails to generate accountability in the system and undervalues quality. It also might save us a little money by getting rid of some of those unwanted services, but our expectations on savings should be small.

Finally, the narrative around end-of-life spending needs to be rethought as well. Our article didn’t examine end-of-life utilization because another article in JAMA recently did. It found more or less what you now might expect—that the United States is not an outlier. End-of-life spending is high everywhere, which makes sense. Much of the spending we do at the end of life is driven by uncertainty about when someone is going to die. Therefore, a lot of end-of-life spending is simply “sick people” spending—spending money on people who are really sick—many of whom end up dying despite our best efforts. European countries are not immune from this phenomenon, either.

Lessons From Other Countries

The JAMA article on international comparisons of health care spending has a lot of other data that will surely begin to elucidate, in a bit more granular detail, what the US health care system is doing right, what it’s getting wrong, and how it is different from other countries. Health systems are complex. There is no single ideal system, and even the other countries that spend significantly less have their own challenges.

I haven’t yet met an expert from a country who feels their system is perfect. We should identify what we can learn from other systems and what we might have to teach. When international comparisons are used in the spirit of learning and sharing knowledge, we can work towards making all health systems better.

About the author: Ashish K. Jha, MD, MPH, is K. T. Li Professor of Global Health and Health Policy at the Harvard T. H. Chan School of Public Health and a practicing internist at the Veterans Affairs Boston Healthcare System. He received his doctor of medicine from Harvard Medical School and was trained in internal medicine at the University of California, San Francisco. He received his master’s in public health from Harvard School of Public Health. Dr Jha’s major research interests lie in improving the quality and costs of health care. His work has focused on 4 primary areas—public reporting, pay for performance, health information technology, and leadership—and the roles they play in fixing the US health care system. (Image: Aubrey LaMedica/Harvard T.H. Chan School of Public Health)
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