Monday, April 10, 2017

US Health Care Costs: Same Items, Compared with Other Countries

There are a variety of reasons why the US spends so much more on health care than other countries, but one of them is that prices for many procedures, diagnostic tests, and drugs are higher in the US. Here are some illustrative figures from a set of powerpoint slides produced by the International Federation of health plans in July 2016, called "2015 Comparative Price Report Variation in Medical and Hospital Prices by Country."

It's probably useful here to say where this price data comes from: basically, for each of the non-US countries the price is from a single private provider: for the US, the price data is from four major health insurance firms representing hundreds of millions of medical claims. This suggests that the comparisons should be taken as meaningful, but not precise. Prominent health care economists like Uwe Reinhardt have used the comparisons for that purpose.

More specifically, the report states: "The International Federation of Health Plans is the leading global network of the health insurance industry, with 80 members in 25 countries, ... Prices for each country were submitted by participating federation member plans, and are drawn from public or commercial sectors as follows: • Prices for the United States were derived from over 370 million medical claims and over 170 million pharmacy claims that reflect prices negotiated and paid to health care providers. • Prices for Australia, New Zealand, Spain, South Africa, Switzerland and the UK are from the private sector, with data provided by one private health plan in each country. Comparisons across different countries are complicated by differences in sectors, fee schedules, and systems. In addition, a single plan’s prices may not be representative of prices paid by other plans in that market." The US data apparently come from the Health Care Cost Institute, which in turn gathers data from  Aetna, Humana, Kaiser Permanente, and UnitedHealthcare and makes it available (suitably anonymous, of course) to researchers.

Because the US data comes from a wider variety of sources and from all over the country, the US figures can show the 25th percentile and 95th percentile price: that is, if you ranked all the prices for a given procedure or diagnostic test, what was the price in the 25th and the 95 percentile of that distribution. The overall pattern is that the average US price is often well above the price in the other countries, but in some cases, the 25th percentile price in the US isn't all that different from the other countrries.s

Here are a few patterns that emerge. For hospital prices, the US is the highest, although Switzerland isn't far behind.

A similar pattern holds for hospital-related prices, like coronary bypass surgery and hip replacement

For diagnostics, the US doesn't always lead the way in cost. For example, the cost from a private sector provider in the UK and New Zealand for angiograms and colonoscopies either exceeds or is close to the US average.

For drugs, it's no surprise that the US prices are higher. Here are a couple of examples: Xarelto and OxyContin.

There are some insights from the dots showing the 95th and 25th percentile prices in the US. Especially when you look at the 95th percentile price levels in the US, you can see why the idea of medical tourism is growing. If you are a health insurance company in the US, would you rather pay $57,000 for a hip replacement in a US facility, or, say, $15,000-$17,000--plus some kind of bonus or special treatment for the person receiving the service--to have the procedure done in New Zealand, the UK or Switzerland?  

It's also interesting that the 95th and 25 percentiles are very close together for drugs, compared to the hospital-related or diagnostic services.  In a well-functioning market, competition between providers will tend to drive prices to similar levels.This suggests that drug prices are set in a national market, while the prices for other health services are set in local or perhaps regional markets. I've discussed this pattern before: for example, in Variability in Health Care Prices and Malfunctioning Markets (January 4, 2016). The key point is that there are lessons both in looking at the often-large differences in US health care prices to those of private providers in other countries, but also lessons in looking at the prices differences across the United States--which can be even larger than the differences in cross-national averages.