Why Does the U.S. Have High-Cost Low-Quality Healthcare?

The U.S. has worse mortality rates than virtually all other developed nations, and yet it spends twice as much per capita on health care. How on earth has the U.S. racked up such an appallingly bad health-care record, and what is the solution? A recent edition of the Journal of the American Medical Association (JAMA) identified many of the problems but was not persuasive in prescribing a cure.

Let’s look at what ails the U.S. health-care system and the difficulties one encounters when trying to fix it. Three solutions — transparent pricing, telemedicine, and resource rationing — could help improve cost and quality problems that the U.S. health care industry faces today.

A litany of underperformance

The Nov. 13 JAMA confirms the basic fact that the U.S. spends twice as much as other developed nations do on healthcare but has worse outcomes.

As reported in an article in The Atlantic earlier this year, the United States has higher mortality rates in all population categories than do 16 other developed nations: Japan, Switzerland, Australia, Italy, France, Spain, Canada, Sweden, Austria, Norway, the Netherlands, Germany, Finland, the United Kingdom, Portugal and Denmark. And while U.S. life expectancies continue to increase, they are increasing at a slower rate than in other economically developed countries. (The Organization for Economic Co-operation and Development, the OECD, comprises the world’s most economically developed nations.)

A paper in the JAMA issue by Hamilton Moses III of the Alerion Institute and five coauthors, The Anatomy of Health Care in the United States, says that the U.S. ranks 19th out of 25 countries for its number of primary care physicians per 100,000 people. The debt-to-physician income ratio has doubled in the last generation, with primary care physicians having the highest debt ratio. The U.S. has fewer physicians per unit of GDP than almost all other developed countries. And while the number of physicians in most other developed countries is expected to rise, it is projected to remain flat in the U.S.

Says Richard A. Cooper in his JAMA article Unraveling the Physician Supply Dilemma, “Over the past decade, physician shortages have worsened, patients’ frustrations have increased. … Some forecasters project that the shortages will further deepen, and many organizations and individuals are urging that residency training programs be expanded.”

However, Cooper notes, others argue that additional physicians would simply work in places where there are enough already, inducing demand for unneeded care. “[O]ne view,” says Cooper, “is that much of health care is wasted and, therefore, more physicians are not needed.” In any case, Cooper says, “the expansion of residencies faces a wall of opposition.”

Government funding for health research has declined in the last decade. Industry funding has slightly increased, but the total U.S. investment in health research has fallen since 2010.

The number of deaths from in-hospital medical errors is very high. A recent study based on 34 million U.S hospitalizations in 2007 estimated that preventable in-hospital medical errors contribute to the deaths of at least 210,000 patients annually. (It is not clear however whether rates are higher or lower in other countries.)

Administrative costs in the private U.S. health-care sector are unusually high. The Moses et al. paper says that administrative costs as a percent of total spending are 13% for physicians and 8.5% for hospitals, and for insurers 12.3% for private payers but only 3.5% for public programs such as Medicare and Medicaid. According to Moses et al., “These costs compare unfavorably with what virtually every other care system in the world spends on accounting, insurance and management costs. … For instance, U.S. billing and insurance costs are 13.0% of revenue vs. 6.6% in Canada.”