The Impact of Pricing on Healthcare Costs in the U.S.
For over two decades, the high cost of healthcare in the United States has been primarily linked to elevated price levels rather than the quantity of services used. This perspective, introduced by Gerard Anderson, Uwe Reinhardt, and Peter Hussey, suggests that Americans pay more for healthcare services and products compared to other high-income countries, even when usage rates are similar. The original argument, focused on price levels across different healthcare segments, remains pertinent today.
Recent discussions on healthcare spending growth have been reignited by a report on national health expenditures from the Centers for Medicare and Medicaid Services. Michael Chernew, in his Health Affairs Forefront article, argues that recent growth can be attributed more to utilization and intensity rather than pricing. While understanding expenditure growth drivers is crucial for policy development, it is essential to distinguish these from the underlying reason behind high healthcare spending—a point that still centers on higher price points in the U.S.
Healthcare expenditure involves the interplay of price and volume. Researchers analyze spending growth by examining both service usage and care intensity. Intensity may include changes in service complexity, coding practices, and technology adoption—all potentially leading to higher episode prices rather than increased service counts.
The estimates account for payer and insurance administrative spending, but do not separate costs related to provider-side administrative tasks like billing and coding. Misguided policy focus on care use and intensity as primary expenditure growth drivers could lead to decisions that restrict access through coverage reductions and higher co-payments, potentially harming healthcare outcomes. Effective policy should recognize the core issue of elevated prices that drive spending growth.
Addressing Systemic Issues
Prices, utilization, and intensity each influence healthcare costs. However, solely concentrating on these factors without addressing systemic issues has resulted in the U.S. healthcare model being the most costly globally, with disparate performance outcomes. Structural reforms, such as a single-payer system, may reduce costs through minimized administrative overhead, enhanced negotiating power, universal risk pooling, and a focus on primary care, while diminishing profits prioritized by private investment and equity interests.
A universal, publicly financed system could alleviate concerns about market-based pricing by ensuring necessary costs are integrated into the healthcare framework. Patients would focus on access rather than costs, with expenses covered via progressive taxation. Public negotiators, representing the collective interest, can wield greater influence than individual entities in managing costs associated with care utilization and intensity.
The national health expenditure estimates do not adequately highlight provider-facing administrative burdens, like billing and coding complexities, which significantly add to overall healthcare costs. Estimated at approximately 10% of spending, these avoidable administrative inefficiencies could be eliminated through a more streamlined single-payer system, addressing critical price-related concerns within the current setup.