Health Costs: How the U.S. Compares With Other Countries

BY Jason Kane  October 22, 2012 at 10:30 AM EDT

How much is good health care worth to you? $8,233 per year? That’s how much the U.S. spends per person.

Worth it?

That figure is more than two-and-a-half times more than most developed nations in the world, including relatively rich European countries like France, Sweden and the United Kingdom. On a more global scale, it means U.S. health care costs now eat up 17.6 percent of GDP.

A sizable slice of Americans — including some top-ranking politicians — say the cost may be unfortunate but the U.S. has “the best health care in the world.”

But let’s consider what 17 cents of every U.S. dollar is purchasing. According to the most recent report from the Organization for Economic Co-operation and Development (OECD) — an international economic group comprised of 34 member nations — it’s not as much as many Americans expect.

In the United States:

  • There are fewer physicians per person than in most other OECD countries. In 2010, for instance, the U.S. had 2.4 practicing physicians per 1,000 people — well below below the OECD average of 3.1.

  • The number of hospital beds in the U.S. was 2.6 per 1,000 population in 2009, lower than the OECD average of 3.4 beds.

  • Life expectancy at birth increased by almost nine years between 1960 and 2010, but that’s less than the increase of over 15 years in Japan and over 11 years on average in OECD countries. The average American now lives 78.7 years in 2010, more than one year below the average of 79.8 years.

There’s a bright side, to be sure. The U.S. leads the world in health care research and cancer treatment, for instance. The five-year survival rate for breast cancer is higher in the U.S. than in other OECD countries and survival from colorectal cancer is also among the best, according to the group.

This week on the PBS NewsHour broadcast, health correspondent Betty Ann Bowser will explore one hospital system’s unusual approach to improving performance while reducing costs — one based on Toyota’s assembly line model for manufacturing cars. The concept is pretty simple: If waste is rooted out of the “assembly line process,” the result will be better cars (or health outcomes, in this case) and lowered costs. At Virginia Mason Medical Center in Seattle, top officials decided that hospital “waste” can look like anything from unnecessary tests to elaborate waiting rooms to poorly designed floor plans. Tune in for the full report.

In the meantime, for a more detailed update on where the U.S. stands apart from its global peers, we spoke to Mark Pearson, head of Division on Health Policy at OECD.

NewsHour: Let’s start broadly. Where does the U.S. health care spending stand relative to other OECD countries?

Pearson: Whether measured relative to its population or its economy, the United States spends by far the most in the world on health care.

The U.S. spent $8,233 on health per person in 2010. Norway, the Netherlands and Switzerland are the next highest spenders, but in the same year, they all spent at least $3,000 less per person. The average spending on health care among the other 33 developed OECD countries was $3,268 per person.

The U.S. is a very rich country, but even so, it devotes far more of its economy — 17.6 percent of GDP in 2010 — to health than any other country. The Netherlands is the next highest, at 12 percent of GDP, and the average among OECD countries was almost half that of the U.S., at 9.5 percent of GDP.

NewsHour: What are Japan and France doing, for instance, to keep down their costs?

Pearson: France and Japan demonstrate that it is possible to have cost-containment at the same time as paying physicians using similar tools to those used in the U.S. There are three key things that stand out when you compare these countries to the U.S.:

  • They use a common fee schedule so that hospitals, doctors and health services are paid similar rates for most of the patients they see. In the U.S., how much a health care service gets paid depends on the kind of insurance a patient has. This means that health care services can choose patients who have an insurance policy that pays them more generously than other patients who have lower-paying insurers, such as Medicaid.

  • They are flexible in responding if they think certain costs are exceeding what they budgeted for. In Japan, if spending in a specific area seems to be growing faster than projected, they lower fees for that area. Similarly, in France an organization called CNMATS closely monitors spending across all kinds of services and if they see a particular area is growing faster than they expected (or deem it in the public interest), they can intervene by lowering the price for that service. These countries also supplement lowering fees with other tools. For example, they monitor how many generic drugs a physician is prescribing and can send someone from the insurance fund to visit physicians’ offices to encourage them to use cheaper generic drugs where appropriate. In comparison, U.S. payment rates are much less flexible. They are often statutory and Medicare cannot change the rates without approval by Congress. This makes the system very inflexible for cost containment.

  • There are few methods for controlling rising costs in private insurance in the U.S. In running their business, private health insurers continually face a choice between asking health care providers to contain their costs or passing on higher costs to patients in higher premiums. Many of them find it hard to do the former.

NewsHour: Are there particular areas of care where the U.S. spends more? What are some successful models other countries are employing to keep costs down in those areas?

Pearson: Spending on almost every area of health care is higher in the United States than in other countries. For example, nearly $900 per person per year goes on administrative costs. This is far higher than in, say, France, which spends $300 per person, but which also has a system in which health care services are reimbursed in a similar way to the U.S.

In part, higher costs are also because the U.S. has been slow to embrace the advantages of information and communications technology in improving the administration of its system and in cutting down on waste. In Sweden, for example, all drug prescribing is done electronically — a message is sent directly from the doctor’s office to the pharmacy. Not only does this cut down on medical errors, it is also thought to save 1-2 hours of work by the pharmacists per day.

NewsHour: For hospital care in particular, how much more does the U.S. spend? Do we know why it’s more? What might the U.S. learn from other OECD nations in this area?

Pearson: A large amount of higher overall hospital spending in the U.S. can be explained by services costing more in U.S. hospitals rather than because U.S. hospitals are delivering more services. When we look across a broad range of hospital services (both medical and surgical), the average price in the United States is 85 percent higher than the average in other OECD countries. To put this in perspective, a hospital stay in the United States costs over $18,000 on average. The countries that come closest to spending as much — Canada, the Netherlands, Japan — spend between $4,000 and $6,000 less per stay. Across OECD countries, the average cost of a hospital stay is about one-third that of the U.S., at $6,200.

As we have previously said, many OECD countries use strong regulation to set prices that hospitals can charge for different services, and some of them even set budgets for how much hospitals can spend. The quality of care delivered in hospitals in these countries are comparable to that in the U.S., and universities are still able to attract the best students to medicine.

If strict price control is not a path that the U.S. wishes to follow, an interesting example that the U.S. could learn from is Switzerland, where the national government provides a ranking of hospital services from most expensive to least expensive. Groups of insurers and hospitals across different regions then use the national government’s ranking to negotiate what prices they ought to pay across the board.

Such an approach still leaves room for differences in prices across regions and states, but it could help smooth out some of the huge differences you see in prices paid for the same services delivered in the same hospital, depending on whether a patient is on Medicare, Medicaid or their own health insurer.

NewsHour: What about specific procedures? Why is the cost of a hip replacement in the U.S. double what it costs in Germany, for instance?

Pearson: The table below gives some examples of the prices of some common procedures in the United States compared with some of the countries with the best quality health systems in the world. It shows that:

  • A coronary bypasses costs between nearly 50 percent more than in Canada, Australia and France, and are double the price in Germany.

  • Hip and knee replacements are generally cheaper in other countries than the U.S.

  • PTCAs (coronary angioplasty) are much more expensive in the United States than elsewhere.

It is difficult to untangle precisely why prices are higher in the U.S., but two things are apparent: U.S. physicians get higher incomes than in other countries and the U.S. uses more expensive diagnostic procedures. More generally, with so many different kinds of insurance, no one organization has a strong incentive to cut out wasteful practices and ensure that all Americans get value for the very high levels of expenditure incurred when they are sick.

NewsHour: The U.S. system is known for over-testing and over-treating, everything from CT scans and MRIs, knee replacements to coronary bypasses. How severe is the over-testing and why is it occurring? Are there mechanisms in place to prevent this in other OECD countries?

Our data suggests that the U.S. does do more tests than other OECD countries. The U.S. did 100 MRI tests and 265 CT tests for every 1000 people in 2010 — more than twice the average in other OECD countries. It does more tonsillectomies and more knee replacements than any other OECD country. It also has more Caesarean sections and coronary bypass procedures than in most other countries.

These procedures and the use of expensive diagnostic tests are all subject to physician opinion on whether they are desirable or not. The fact that U.S. physicians decide that more procedures and tests are desirable compared to their peers in other countries could be due to a few different things, such as:

  • A fear of litigation that sees physicians test for everything so that they cannot be blamed for not having covered all bases

  • Payments that mean that physicians get paid more if they do more interventions, regardless of medical necessity.

  • Because patients ask for more tests and services. It is often comforting to feel that medical problems are being diagnosed or treated, regardless of whether they are medically necessary. As these services are often paid for by insurance policies, the immediate cost of extra treatment for a patient is often zero or very low.

It is often argued that differences in testing could reflect differences in patients’ needs between and within countries. However, research at the Dartmouth Institute has documented that there are large variations in medical practice across different regions in the United States which cannot be explained by differences in population structure or differences in illness. They found that the rate of coronary bypass was five times greater in certain hospital referral regions in the United States than others between 2003 and 2007. Similarly, regional variations in hip and knee replacement are substantial, with the rates four to five times higher in some regions compared with others in 2005-06.

Some OECD countries have seen their medical profession and health policy makers develop ‘clinical guidelines’ to promote a more rational use of MRI and CT exams. In the United Kingdom, since the creation of the Diagnostic Advisory Committee by the National Institute for Health and Clinical Excellence (NICE), a number of guidelines have been issued on the appropriate use of MRI and CT exams for different purposes

NewsHour: Is the U.S. doing less than other countries in some instances?

Pearson: It is likely that this is happening in some instances. The U.S. has fewer physicians and fewer physician consultations relative to its population. The U.S. also has fewer hospital beds for its population size and shorter average stays in hospital relative to other countries. Indeed, the lower numbers of physicians could help explain why they cost more; there is less competition for patients.

Having fewer hospital beds and shorter hospital stays can also be a good thing — a sign that wasteful overuse of hospitals is being avoided in the U.S. system. Medicare in the U.S. has long pioneered how hospitals are paid, by providing a fixed amount for a patient with a particular condition. This means that hospitals have an incentive to treat patients as quickly as possible and it also demonstrates how broader reform in the U.S. could potentially have large effects on costs.

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NewsHour: Where is the U.S. getting value for its health care dollar?

Pearson: If insured, waiting times for U.S. patients are among the lowest in OECD countries. Relatively fewer patients (just 20 percent) wait more than four weeks for a specialist appointment or more than four months for elective surgery (7 percent).

U.S. patients also benefit from better cancer outcomes. OECD Health Data shows that the five-year survival rate for breast cancer is higher in the U.S. than in other OECD countries (89.3 percent compared to an OECD average of 83.5 between 2004 and 2009); survival from colorectal cancer is also among the best (64.5 percent compared to an OECD average of 59.9 percent, 2004-09).

Most obviously, the U.S. leads the world in health care research. Along with the FDA’s comparatively shorter drug approval processes, this means that cutting-edge drugs and treatments are available more quickly to American patients than elsewhere. The average time from first (worldwide) launch of a new drug to use is 1.3 years in the U.S., the lowest of all OECD countries. The U.S. is also trialing more new procedures and treatments, with the National Institutes of Health currently registering 119,469 clinical trials underway in the U.S., vastly more than any other OECD country.

The U.S. has also led the way on safer hospitals and health care quality, with programs such as the Institute of Healthcare Improvement’s 100,000 Lives campaign triggering far-reaching cultural shifts in the several thousand hospitals and clinical facilities that signed. Innovative centers such as the Mayo Clinic and Johns Hopkins that bring laboratory research and clinical practice together have also benefited patients enormously.

The size and diversity of the U.S. system has also provided room for more experimentation to try and find better ways to deliver health care. Examples that the world is watching at the moment include Accountable Care Organisations, which seek to better manage risk-sharing by giving providers flexibility to coordinate and deliver health care while holding them accountable for costs and outcomes and the Medical Home model, which seeks to coordinate care and better engage patients and families, using health coaches, care transition pathways and other interventions to reduce expensive re-hospitalizations. Unfortunately, while the U.S. is better at trying out such innovations on a relatively small scale, it then struggles to roll out successful innovations nationally.

NewsHour: Are there particular areas the U.S. is doing poorly compared to other OECD countries?

Overall, the life expectancy of a U.S. citizen, at 78.2 years, is shorter than the average among OECD countries of 79.5 years and there are a number of specific areas where U.S. health care is weak when compared with other countries.

The U.S. needs stronger policies in tackling lifestyles that lead to poor health. While many states are making efforts to reduce smoking, there are fewer policies to tackle the harmful use of alcohol in the U.S. than you would find in other OECD countries, such as higher taxes on alcohol or minimum prices.

The U.S. could certainly do a lot more on obesity. It’s a big risk factor for poor health in the U.S., more so than you find in other OECD countries. Adult overweight and obesity rates are the highest in the OECD, and have kept growing even in the last couple of years, while they have nearly stabilised in some other OECD countries, such as England, France and Italy. Child overweight and obesity rates are also very high, but they have been relatively stable over the past 10 years. The slides below show that the U.S. does poorly both in terms of diet and physical activity, even in comparison with other high-obesity countries, across all age groups.

The first lady’s “Let’s move” campaign is great, but it cannot achieve a lot if it isn’t supported by other measures. Support for physician counseling and programs to help encourage healthier lifestyles vary widely with different insurance arrangements. The U.S. has a national program to cover breast and cervical cancer screening for low-income women, why not have one to cover lifestyle counseling for low-income people? Advertising regulation is left to the food and beverage industry (e.g. the IFBA “Pledges”) and this is not likely to have a major impact.

In terms of health care services, the biggest areas of concern are the quality of primary care services and coordination of care for long-term conditions. Asthma, a condition readily managed by general practitioners in the community, should require hospital admission on very few occasions. In the U.S. however, hospital admission rates for asthma are more than double the OECD average (120.6 per 100,000 population compared to an OECD average of 51.8, 2009).

A similar picture emerges for chronic obstructive pulmonary disease (230 admissions per 100,000 population compared to an OECD average of 198, 2009). These outcomes can be improved through better health care. In a Commonwealth Fund survey of seven nations (Australia, Canada, Germany, the Netherlands, New Zealand, the United Kingdom, and the United States), 16 percent of American patients reported delays in being notified about an abnormal test result (the highest proportion reported) and only 75 percent of primary care physicians reported often or always receiving correspondence from specialists after referral suggesting systemic problems with care coordination.

Editor’s Note: Tune in to the PBS NewsHour on Wednesday for health correspondent Betty Ann Bowser’s full report on Virginia Mason Medical Center’s Toyota-inspired approach to improving care and bringing down costs. All week on the NewsHour’s health page, we’ll continue to explore why the U.S. health care system is so expensive and what can be done to fix it.

Tuesday: What steps can you take to make your next hospital stay safer and cheaper? Hari Sreenivasan talks with Elizabeth Bailey, author of “The Patient’s Checklist: 10 Simple Hospital Checklists to Keep You Safe, Sane and Organized.”

Wednesday: We illustrate what the U.S. could buy with the $750 billion wasted in American health care each year, and, in a separate post, our partners at Kaiser Health News examine the “Top 7 Drivers of U.S. Health Care Costs.”

Thursday: In a “Reporter’s Notebook,” Betty Ann Bowser examines Virginia Mason’s decision to eliminate a staple of the American hospital: the waiting room.

Friday: What inefficiencies have you seen in the U.S. health care system? We share some of the first-person accounts submitted by NewsHour viewers.