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Why the U.S. pays more for health care than the rest of the world

April 27, 2017 at 6:30 PM EDT
Why are American health care costs by far the highest in the world? Journalist and former practicing physician Elisabeth Rosenthal chronicles how we got here in her new book, "An American Sickness." Economics correspondent Paul Solman talks with Rosenthal about the forces driving high prices and what could be done to bring costs down.
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JUDY WOODRUFF: One of the big battles of the president’s first 100 days that remains unresolved is the fate of Obamacare.

But one thing that experts across the political spectrum agree on is that health care in America often costs too much.

A new book looks at the multiple causes of this and calls the whole thing “An American Sickness.”

It’s the focus of our report from economics correspondent Paul Solman. It’s part of his weekly series, Making Sense.

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PAUL SOLMAN: Feel like you’re seeing more prescription drugs ads lately?

Well, you are.

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PAUL SOLMAN: Spending on pharmaceutical ads is up 62 percent since 2012, in the world’s only country, besides New Zealand, to even allow TV drug advertising.

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PAUL SOLMAN: Pills for millions of us.

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PAUL SOLMAN: Pills for far fewer.

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PAUL SOLMAN: But, regardless, the drug companies charge pretty much whatever they want. In fact, says Elisabeth Rosenthal:

ELISABETH ROSENTHAL, Author, “An American Sickness: How Healthcare Became Big Business and How You Can Take It Back”: When one manufacturer puts a price up to a new high level, everyone else just says, oh, look, he got away with it, and lifts their prices up to that level too.

PAUL SOLMAN: A journalist and former practicing physician, she’s now editor in chief of Kaiser Health News. Rosenthal has written a new book, “An American Sickness,” chronicling how and why American health care costs are by far the highest in the world.

It boils down to one basic truth:

ELISABETH ROSENTHAL: Prices will rise to whatever the market will bear.

PAUL SOLMAN: And while the health care market in the U.S. isn’t exactly a free market, it’s market-driven enough to push profits above all, and thus the prices we all wind up paying.

And so, as a consequence, we spend 20 percent of our entire GDP, our entire economic output every year, on health care. And it’s been going up.

ELISABETH ROSENTHAL: We spend two or three times what other countries do on health care, without getting better results, which is the key here. We’re not getting a good deal for all the money we spend.

PAUL SOLMAN: We’re not living longer?

ELISABETH ROSENTHAL: We’re not living longer. I think one of the most damning studies I have seen recently that was that people with cystic fibrosis, which is a very serious primarily lung disease, live longer in Canada than they do in the U.S.

And this is a treatment-heavy disease with a lot of technology, new medicines. And we like to think, well, at least we do that better than everywhere else in the world.

PAUL SOLMAN: Yes, yes. I thought that.

We don’t, but we sure pay more for it. Why? Because of what the market will bear, says Rosenthal, but also because:

ELISABETH ROSENTHAL: Around the world, there are very few developed places, perhaps none, that have no mechanism for some kind of price control.

PAUL SOLMAN: Really?

ELISABETH ROSENTHAL: I think we’re pretty unique in that.

Other countries will say, here’s the maximum price. Go ahead and compete below that. And in other countries, there’s policy that you can charge a lot when you have a wonderful new technology, but as it gets older, that price has to keep coming down. And what we see in the United States, pretty much uniquely, is, as technologies get older, sometimes the price can go up, and can go up a lot.

PAUL SOLMAN: Case in point, MRI scans, a now-venerable procedure, which can still cost thousands of dollars.

ELISABETH ROSENTHAL: In Japan, that same test would cost $100 to $150, because, in Japan, those prices have to go down over time. You can’t say, wow, this was a great new technology 30 years ago, and so we’re going to raise the price because it’s even greater now. It’s not. It’s basically the same.

PAUL SOLMAN: Or consider Gleevec, a breakthrough cancer drug when it was approved by the FDA in 2001.

ELISABETH ROSENTHAL: Fifteen years later, the price is four times what it was when it came on the market.

PAUL SOLMAN: One hundred and twenty thousand dollars a year, despite so-called copycat Gleevecs and even off-patent generic versions.

So, how come?

ELISABETH ROSENTHAL: We’re stuck buying American, even though the price of pharmaceuticals in other countries is a third to a half of what we pay here, and sometimes way less. There’s one wonderful story in the book about an oncologist, Dr. John Siebel, who, his grandkids had pinworm?

PAUL SOLMAN: Pinworm?

ELISABETH ROSENTHAL: Pinworm, it’s a little infection that kids get.

PAUL SOLMAN: Right.

ELISABETH ROSENTHAL: The drug for that, which is called albendazole, in the rest of the world, costs pennies. And it used to cost pennies here too. But when he went online to check out the prescription, it cost something like $5 a pill. So, he ordered it from Canada.

PAUL SOLMAN: And was it legal to do that?

ELISABETH ROSENTHAL: It’s technically illegal.

PAUL SOLMAN: So, you’re outing him here — in the book, I mean, and now here on television?

ELISABETH ROSENTHAL: I am.

But I think a lot of people are so outraged right now. You know, he’s not a criminal normally. But he’s just like, this is extortion. I’m not going to pay.

PAUL SOLMAN: Extortion because we don’t allow foreign competition, do allow health care providers to consolidate, from ever-bigger pharma to ever-bigger hospitals.

ELISABETH ROSENTHAL: In the ’80s and ’90s is, there was consolidation of hospitals. And a lot of those in the early phases were about efficiency. But, at a certain point, consolidation in local markets becomes effectively monopoly.

PAUL SOLMAN: And this is the classic dilemma of mergers and acquisitions, right?

ELISABETH ROSENTHAL: Exactly.

PAUL SOLMAN: You acquire another company because you will then have market power to buy things in bulk and therefore more cheaply, and you won’t be repeating the things that you each individually were doing.

ELISABETH ROSENTHAL: Right.

PAUL SOLMAN: But, then, if there are no competitors left, you can charge whatever you want.

ELISABETH ROSENTHAL: Right.

And we have reached the level of consolidation in many markets in health care where there isn’t, effectively, competition.

PAUL SOLMAN: And as providers consolidate, so do payers. There are now just five mega-health insurers, and only that many because judges blocked Anthem’s $48 billion deal to buy Cigna, Aetna’s $37 billion bid for Humana.

Yes, insurers have an interest in paying as little as possible, but that interest has evolved into a nightmare cat-and-mouse game between insurers and providers. In Rosenthal’s book, it’s one of the rules of what she calls the dysfunctional medical market.

ELISABETH ROSENTHAL: There are no standards for billing. There’s money to be made in billing for anything and everything.

PAUL SOLMAN: Ah. So, this is when you get charged for it even if the doctor only says, hi, how you doing, see you later.

ELISABETH ROSENTHAL: Billing and collections became an industry. We started using codes for medical billing. And that has spawned this crazy, crazy industry.

MAN: So, they actually take every little service your doctor did. They take all those little things.

PAUL SOLMAN: The Khan Academy tries to explain it all in a 12-minute online tutorial that, as Rosenthal points out, is five minutes longer than its video explaining Newton’s Second Law of Motion.

ELISABETH ROSENTHAL: It’s endlessly complex, so that now there are coding degrees and coding specialists and professors of coding. The insurers have coders to make sure the hospitals are coding correctly. The doctors learn coding so they can make sure their office will get the money they deserve for what they have done.

PAUL SOLMAN: But isn’t insurance the problem here? Since we’re not paying for things ourselves, we don’t care what the drugs cost, what the procedures cost?

ELISABETH ROSENTHAL: Well, when insurance was covering everything, no one cared. Everyone was price-insensitive.

PAUL SOLMAN: Right. So, we should have skin in the game.

ELISABETH ROSENTHAL: Skin in the game has worked in other countries where prices are controlled. But a 10 percent co-payment on an MRI that’s billed for $10,000, your co-payment is $1,000. And we’re no longer talking skin in the game. We’re talking, I like to say a kidney in the game, you know?

PAUL SOLMAN: Or you’re getting skinned.

ELISABETH ROSENTHAL: Right.

PAUL SOLMAN: Last question.

We spend about $3 trillion on health care in this country. If we rationalized the system, so that it was no more expensive, given the same level of outcome as, say, Germany, we’d shave a trillion or two off the number, right?

ELISABETH ROSENTHAL: I’ll tell you, at this point, even if we stopped going up, it would be a great achievement. Start turning the ship around, get back to $2.5 trillion, that would still be more than anyone else spends per capita.

PAUL SOLMAN: But that’s a half-a-trillion dollars that wouldn’t go to doctors, hospitals, insurers, investors.

ELISABETH ROSENTHAL: Right.

Yes, somebody’s got to take the hit. But, right now, you know, I think a lot of the political people, the congressmen, the senators, are responding to lobbying from pharma, from the hospital industry, from insurers. And it’s so much not about what’s good for health care, and so much about what’s good for revenue.

PAUL SOLMAN: Elisabeth Rosenthal, thanks very much.

ELISABETH ROSENTHAL: It was a pleasure to be here.

JUDY WOODRUFF: Online, Elisabeth Rosenthal offers six questions you should be asking at your doctor’s appointments.

That’s at pbs.org/newshour.

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