Why is Healthcare So Expensive in the US?

Healthcare is one of the biggest expenses for families in the United States. The rising cost of medical care and prescription drugs has left many people struggling to afford essential healthcare treatments, and this phenomenon is compounding an already severe problem in our society: lack of access to healthcare.


If there's one thing that all Americans can agree on, it's that our healthcare system is seriously broken. Despite spending more on healthcare than any other country in the world, we still have some of the poorest health outcomes. What's even more frustrating is that most of this high cost doesn't seem to be translating into better care. So what's going on? Why is our healthcare so expensive? And what can be done about it?


In the CareTalk episode, "Why is Healthcare So Expensive in the US?", hosts John Driscoll and David Williams broke down some of the biggest contributing factors behind the rising cost of healthcare in the US and how we can solve them.



How Much Does the US Spend on Healthcare?

As of 2020, the US spends an average of $12,318 per person on healthcare each year. That is more than any country in the world by quite a bit. In fact, the country with the 2nd highest healthcare spending is Germany, which spends an average of $7,383 per person per year. That’s 66.8% less than the US!


“US healthcare is not only expensive, but on an international comparison, we're spending twice as much as other countries of equivalent development and in most of those countries, if not all of them, they've got much better access to healthcare. So, they've got better access to healthcare that costs less and delivers a better outcome.” – John (CareTalk)



What is Causing US Healthcare Costs to Balloon Out of Control?


What is behind the rising cost of healthcare in the US? John and David pointed to several culprits: high drug prices, expensive hospitals costs, high compensation for medical professionals and the general unhealthiness of many Americans, to name a few.



Why are drug prices so high in the US?


Why Are Drug Prices So High?


One of the main reasons that healthcare costs in the US are so high is due to the high prices of prescription drugs. Across the board, drugs are significantly more expensive here than in other countries, and this impacts both individuals and healthcare providers. For individual patients, high drug prices mean that treatment for chronic conditions can become unaffordable over time.


At the same time, providers must deal with constantly rising costs for their medications, which can make it difficult for them to offer quality care at an affordable cost. Despite efforts to control drug prices through legislation and regulation, these issues remain rampant in our healthcare system today.


“There are prescription drug manufacturers in the rest of the world, but the US is the innovation king, with a lot of great companies. There are some great ones in Europe and Japan, but we have the vast majority.

Unfortunately, we also have the lousiest negotiating ability because we prevented the federal government from negotiating drug prices. And drug prices are through the roof compared to the rest of the OECD countries and they are rising faster. That's true of branded drugs. It's true of generic drugs. And if you look at novel drugs, when they are created, they're introduced at the highest possible price, in you guessed it, the US of A. David, one third of all people with chronic illness who are prescribed drugs, don't take those drugs because they can't afford it. So we create the drugs that serve the world, we pay the highest prices that our own citizens can't afford.” - John Driscoll (CareTalk)



Why Are Hospitals So Expensive?


“The reason hospitals are so expensive in the first place is because you talk about a hospital level of care, and that is, something that has to be done in a place that has very ample facilities, a lot of technology, a lot of staff, a lot of physical requirements for sterilization and so on.


If you're doing something that could be done in the office or in the home, then you're probably just spending a lot more money to do it in the hospital, so that's part of the problem.


Hospital prices have grown an average of 2.1% per year for the last 10 years. Why does it go up so much? A big reason for that is back to the issue of competition or lack thereof. And so, what has happened is that the hospitals have consolidated. It used to be various hospitals in a city. Now, they’ve become health systems and there are fewer of them.


Consequently, today, hospitals will go to insurance companies and basically threaten: “Hey! If you want me to be in your network, you're gonna have to pay me a good rate because if you don't and I'm out of network, then I can charge you a really super high rate!” – David (CareTalk)



High Compensation: Primary Care vs. Specialized Care

One of the most significant drivers behind healthcare costs is the high compensation packages for medical professionals. Doctors, nurses, and other healthcare workers typically enjoy very competitive compensation packages compared to other fields, which can drive up prices for everyone. Additionally, these high paychecks help to attract highly talented professionals who are in high demand across a wide range of industries. Ultimately, therefore, the need to attract and keep top-notch talent is one reason why healthcare remains so expensive in the US.


“The average doctor's salary in the US, which is about $316,000 a year, which is a lot higher than the next one, which is Germany at $183,000. We've got what we have in terms of the cost because we pay physicians more. We also tend to pay specialists very well. Specialists make more like $370,000 a year compared to $250,000 in primary care. And there are a lot of specialists around. The primary care system in the US is pretty weak.” - David (CareTalk)


“Everything is more expensive here, David, and I mean absolutely everything. If you wanted to create a system with the highest prices in the world, you have it in the US. But one of the challenges in the US, we have roughly 70% of the doctors are specialists, to your point, they get paid a lot more, and 30% are primary care doctors. In the rest of the world, or the industrialized world it's roughly the opposite, where the vast majority of doctors are internists, primary care doctors, and the minority are specialists.


And specialists, I remember the old joke is the generalist knows everything and does nothing and the specialist knows one thing and does it repeatedly, knows nothing and does everything. We have set ourselves up for too much specialist care and not enough chronic care management, just because the supply demand dynamics. And then we pay specialists a lot more, so not surprisingly more specialists get created.” – John (CareTalk)


“One of the things that was interesting in terms of the contrast on the physician side, among the leading countries, people in the US are least likely to have a regular physician or place of care. In the US, about 43% of people say they have a longstanding relationship with their doctor, 71% in Germany so that's a big factor. And then getting back to your point about access to home visits. So, physicians making home visits, only about 37% in the US have access to that. And everywhere else, it's 70% or more. After hours care, it's 45% in the US versus 80 to 95% elsewhere. There’s much better service elsewhere and the physicians are specializing and getting a great salary. I know a lot of them are working hard, but the service is lousy for the user. – David” (CareTalk)



Why are Americans so unhealthy?


Why Are Americans Unhealthy?

Poor health is associated with increased healthcare costs. There are several underlying factors that contribute to these higher costs, such as increased rates of chronic disease, lack of preventative care, and inadequate primary care services. On top of these issues, many people living with the effects of poor health are less productive members of society. They often struggle with decreased mental and physical functioning, which can result in missed days at work or other barriers to achieving their full potential.


But why are Americans generally unhealthy?

“We have the highest obesity rates of any industrialized country, and obesity or metabolic, 40% of all Americans qualify as obese, medically qualify as obese and that's just an unbelievable burden on the system. We have the highest number of people with multiple chronic conditions over the age of 65, chronic conditions like heart disease and asthma, diabetes. And then separately, you add on the fact that diseases of despair, alcoholism, death by alcoholism, suicide, drug overdoses have been increasing.


You can see the declining lifespan of Americans in certain categories. We've got to get our arms around the psychosocial aspect of what's going wrong in America and the obesity epidemic or I think independent of anything you do on the cost side, we're just gonna still have more units, and frankly, more misery, which we have tools to address. We know how to solve and address serious mental illness. We know how to address most forms of addiction. We got to get our arms around it and make sure that people who need that support of care get it.” – John (CareTalk)



How To Reduce Healthcare Costs in the USA


Rising healthcare costs are a major concern for both politicians and consumers. In order to tackle this problem, it is essential for both the public sector and the private sector to work together to reduce costs.


“I think you've got two different vectors. You've got public sector where the Inflation Reduction Act, which is much better than Build Back Better 'cause it tells you exactly what it's supposed to be doing, has some components in there where we can direct, we actually extend and expand consistent coverage for people, that's always associated with lower costs, and we've started to just skim the edges of starting to allow the federal government to negotiate drug costs.


So, there are some public sector solutions we should be looking at, but I also think you should be looking at where the private sector can play a role - where can we get more care to the home? Frankly, a lot of other aspects of our system, where if we were just to make sure that no kid was hungry, we'd increase the number of kids at school and we'd lower the rate of diabetes. Certain things like hunger, which is another area, the social determinants of health, that if we were to address just hunger, it would have a dramatic impact on chronic disease, particularly for poor people.


Half of all the babies in America are born to Medicaid poor families. I think it's that three part, we have to have better government solutions, we have to have smarter private sector alternatives, and we got to deal with some of these social determinate issues in order to really crack the code on not just bending the curve, but breaking the curve that seems to only go up in healthcare costs.” – John (CareTalk)


“I mean, there is such a high cost of care that we really have to figure out how to reduce healthcare costs. I don't think it's a matter of just being able to talk about things like healthcare, price transparency, you know, it has to become much more explicit. I do think the Inflation Reduction Act is taking a good step and more than we would've expected, John, even a couple months ago, in terms of drug price negotiation, also specifically limiting insulin costs at least for Medicare beneficiaries to about $35 per month.” – David (CareTalk)


“I am optimistic and I'm optimistic for two reasons. One, I think we're getting at some of the root causes, and it's not just, they're not just in the healthcare system. And just last week, we had real progress, which was really exciting with insulin to your point and negotiating drug prices. Those are two very big things. And secondly, we have to solve this problem, it's a tax on every American. Almost 20% of GDP goes towards healthcare costs and that's unsustainable in a country where 10,000 people become Medicare eligible every day. I think you're gonna see it show up in core inflation, and I think as a country, we're gonna get our act together and focus on this. We are good at solving problems when we focus on them.” – John (CareTalk)



 

ABOUT CARETALK

CareTalk is the only healthcare podcast that tells it like it is. Join hosts John Driscoll (President U.S. Healthcare and EVP, Walgreens Boots Alliance) and David Williams (President, Health Business Group) as they provide an incisive, no B.S. view of the US healthcare industry.


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