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It’s the Prices, Stupid! - The Expensive American Health System

BLOG - 19 March 2019

Health was a central issue in the midterm elections of November 2018, which marked the end of years of controversy over the Affordable Care Act known as Obamacare. New themes are now at the forefront of health discussions in the United States. Angèle Malatre-Lansac, our Associate Director in charge of Healthcare Policy, works with the Rand Corporation and Harvard Medical School on the American healthcare system. She analyses for us the current health issues in the United States.

In a famous article published in the journal Health Affairs in 2003 It's the Prices, Stupid: Why the United States Is So Different from Other Countries, the authors showed that the difference in costs between the American health system and other health systems in OECD countries was due mostly to prices, not to volume of care consumed. An analysis that still holds true today: if the United States spends on average twice as much on its health system as other countries, it is not because American patients receive more care, but rather because everything is more expensive on this side of the Atlantic: labour costs, drug and care prices, administrative expenses.

The difference in costs between the American health system and other health systems in OECD countries was due mostly to prices, not to volume of care consumed.

Despite the many reforms carried out in the United States over the past 15 years, and in particular the introduction of the Affordable Care Act in 2010, health expenditure remains significantly higher, with $9,892 spent per capita in 2016, 25% more than Switzerland, the second largest health spending country, twice as much as France.

The difference between 2003 and today is probably the public's awareness of this issue and the realization that, despite these astronomical prices and the money invested, the results are poor in terms of public health. Every week, the media relay bills of several thousand dollars received by patients for benign care, often hospitalization costs combined with drug prescriptions. Nicely called "surprise bills", these expensive bills not covered by health insurance represent nearly 15% of emergency room visits and 10% of hospital stays. They are the symbol of a dysfunctional and totally opaque system for patients, as illustrated by the example of these two women working in the same place, with the same health coverage, giving birth in the same way in the same maternity ward and for whom one will pay 1.600 dollars while the other will pay nothing.

Lowering costs: drugs first

Among health expenditures, those related to drugs are undoubtedly the most visible. Between 2013 and 2015, net drug expenditures increased by almost 20%. Today, they represent nearly 17% of the total cost of health care. Prices in the United States for non-generic drugs are two to three times higher than prices in European countries. One of the main reasons for this difference is that, unlike most OECD countries, the United States does not have a centralized pricing system nor do they negotiate with pharmaceutical companies, which therefore set their sales prices directly.

While the new US Congress is more divided than ever, it seems to have found at least one common ground: the necessary reduction in drug prices. Experts, public opinion and parliamentarians agree that prices are now out of control, limiting access to patient care and driving up healthcare costs in the United States. This price reduction could be one of the only concrete achievements of the Congress in a health-related matter.

Health expenditures, related to drugs represent nearly 17% of the total cost of health care.

In a white paper dated May 2018: "American patients first", which went relatively unnoticed in Europe, the Trump administration proposes to align drug prices with prices in other OECD countries. In January, the Senate Finance Committee also began a series of highly publicized hearings: Drug prices: A prescription for Change in which patients, experts and pharmaceutical companies testify and propose solutions to reduce costs.
The debate may seem distant. However, if we are not careful, there is a risk that it will have a significant impact on drug prices in Europe. Indeed, a decrease in prices on this side of the Atlantic would most likely have repercussions on the prices in European market and the absence of common prices as well as common negotiations at the level of the major European countries is undoubtedly a weakness.


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