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Clinical Laboratories and Pathology Groups

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Clinical Laboratories and Pathology Groups

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What Makes US Healthcare So Expensive? It’s Price, Not Overutilization, Say Researchers at IHME and UCLA

Recent studies exploring the economics behind the high price of US healthcare independently point to the price of labor, goods, services, administrative costs, and pharmaceuticals as primary reason why the US spends almost twice as much as peer countries on healthcare

It is regularly reported that the cost of healthcare in the United States is notably more expensive that in most developed nations. Overutilization of medical services in this country is often given as a reason why this is true. But the findings of a new research study suggest that the reason healthcare in the US is expensive is not due to overutilization. Rather, it is because of the much higher prices American patients pay for services, including clinical laboratory testing.

This recent study contradicts the claims of some experts who say overutilization is to blame for the high cost of healthcare in the United States. The research was conducted by researchers at the Institute for Health Metrics and Evaluation (IHME) in Seattle and the UCLA David Geffen School of Medicine. They attribute the overarching factor in high healthcare costs not to high utilization of services—such as clinical laboratory and anatomic pathology testing—or increased rates of illness.

Instead, the researchers found that it’s simply a matter of higher prices for healthcare delivered in this nation, compared to other healthcare systems around the globe. This is what makes America’s healthcare system so expensive. And, lacking financial incentives for stakeholders to lower prices, these researchers suggest that continued high costs could negatively impact providers’ quality of care.

High Cost of Diagnostic Services, including Medical Laboratory Testing

The IHME/UCLA researchers published their findings in the Journal of the American Medical Association (JAMA), in which they argued that increases in US healthcare cost are independent of increases in:

  • Disease prevalence;
  • US population age;
  • Use of healthcare services; or,
  • Overall population size.

Joseph L. Dieleman, PhD, Assistant Professor at IHME and lead researcher on the investigation, stated, “After adjustments for price inflation, annual healthcare spending on inpatient, ambulatory, retail pharmaceutical, nursing facility, emergency department, and dental care increased by $933.5 billion between 1996 and 2013—from $1.2 trillion to $2.1 trillion.”

Data produced by the study identified one overlying factor in increased spending—increased prices. According to Dieleman, health spending in 2015 “reached $3.2 trillion and constituted 17.8% of the US economy.”

In an editorial response to Dieleman’s investigation, also published in JAMA, Patrick H. Conway, MD, MSc (above), President and CEO of Blue Cross Blue Shield of North Carolina in Durham, stated that “the United States is on an unsustainable growth path in terms of healthcare costs and must get costs under control.” He added that data from Dieleman’s study has important implications for quality of healthcare, which may include medical laboratory diagnostics. (Photo copyright: Duke University.)

Price Spirals and Artificial Price Hikes: No Real Incentive for Regulation

Pricing for medical care is notoriously opaque. Patients are often unaware of the cost of services until the bill arrives. This lack of transparency prevents patients from comparing prices between healthcare providers and medical laboratories.

To try and create some cost transparency for consumers, Conway noted that some states, such as Maryland and Vermont, have adopted multi-payer payment models or all-payer rate settings. However, there could be resistance to such reforms, according to some experts.

Health economist Austin Frakt, PhD; and Aaron E. Carroll, MD, MS, Vice Chair for Health Policy and Outcomes Research, and Director of the Center for Health Policy and Professionalism Research at Indiana University School of Medicine, co-authored a New York Times article that agrees with Conway’s assertion. In it, they state that attempts to create regulation for healthcare prices “would be met with resistance from all those who directly benefit from high prices, including physicians, hospitals, pharmaceutical companies—and pretty much every other provider of healthcare in the United States.”

No Incentive to Lower the Prices of Medical Services

An opinion piece in the Wall Street Journal, Keith Lemer, CEO, WellNet Healthcare Group, shared a similar view. He stating that insurers and preferred provider organizations (PPOs) have no “natural incentive to keep provider prices down.” Lemer looks at the Affordable Care Act and its establishment of a medical loss ratio rule, which “requires insurers covering individuals and small businesses to spend at least 80 cents of every premium dollar on medical expenses.”

Lemer uses the cost of a routine blood test as an example, stating that when providers raise costs of such tests, “insurers can charge higher premiums, while also boosting the value of their 20% share,” which goes “towards administrative costs and profits.”

Lemer argues that the deck is stacked against consumers, and that the medical loss ratio “encourages insurers to ignore providers” artificial price hikes,” while attracting customers “with the promise of steep discounts through their PPO plans.” The resulting affect is what Lemer calls a “price spiral” that’s difficult to escape.

Higher Costs Do Not Equate to Better Care

A special JAMA communication from Irene Papanicolas, PhD, and other members of the Department of Health Policy and Management, Harvard T. H. Chan School of Public Health, Harvard Global Health Institute, and Department of Health Policy at the London School of Economics and Political Science, reports that higher US costs do not coincide with better care.

In comparison to 10 other high-income countries the US spends “approximately twice as much,” Papanicolas noted. She added that despite the higher spending in the US, the nation “performs poorly in areas such as healthcare coverage and health outcomes.”

To illustrate the difference in average costs, Papanicolas and colleagues listed “comparison prices” on a series of healthcare services between countries in 2013. For example, the price of a single computed tomography (CT) scan varies widely:

  • $896 (US);
  • $97 (Canada);
  • $279 (Netherlands); and,
  • $500 (Australia).

The high prices of clinical laboratory (AKA, pathology laboratory in Australia) diagnostics have already caused a sharp decline in the use of important imaging utilization and are at risk of affecting other aspects of clinical pathology, such as anatomic pathology (histopathology in AU) services.

PricewaterhouseCoopers (PwC) Health Research Institute’s annual medical cost report predicts 2018 medical costs will rise by 6.5% and that “price continues to be a major driver of healthcare costs” that are outpacing the economy. PwC recommends “increasing collaboration across the industry” to address the growing issue of rising medical costs and shift the burden of cost away from patients.

Clinical Laboratories Contribute to High Costs

Although US healthcare cost is a topic of intense conversation, little change may come if there is no incentive to change. Each of the recent JAMA published articles ends on the same repeated note: a plea for active debate among policy makers, healthcare providers, patients, insurers, and politicians, with the goal of decreasing healthcare costs, without sacrificing patient care.

This is also true for clinical laboratory and anatomic pathology stakeholders, which are critical aspects of the healthcare continuum, and therefore, contribute to the overall financial burden on healthcare consumers.

Amanda Warren

Related Information:

Why the US Spends So Much More Than Other Nations on Healthcare

Healthcare Spending in the United States and Other High-Income Countries

Factors Associated with Increases in US Healthcare Spending, 1996-2013

Factors Associated with Increased US Healthcare Spending: Implications for Controlling Healthcare Costs (Editorial Response)

The Best Healthcare System in the World: Which One Would You Pick?

The Deception Behind Those In-Network Health ‘Discounts’

Medical Cost Trend: Behind the Numbers 2018

Researchers Point to Cost of Services, including Medical Laboratories, for Healthcare Spending Gap Between the US and Other Developed Countries

As healthcare reform continues to impact revenues for medical labs and anatomic pathology groups in an effort to reduce healthcare spending, researchers reinforce claims that prices are to blame, not quantity or quality of care

All facets of the US healthcare system—be it massive health systems, medical clinics, independent anatomic pathology groups, or medical laboratories—are experiencing pressure as healthcare reform attempts to manage ever-growing healthcare spending.

Current healthcare trends in the United States focus on determining medical necessity, adopting personalized medicine, and on determining the value various aspects of care. What these trends have in common is a goal of lowering the cost of care while contributing to improved patient care. However, research dating back as far as 2003 suggests overall prices play a significant role in US healthcare spending, particularly when the cost of care in the US is compared to the cost of care in other developed countries.

US Spends More on Healthcare than Any Other Country

A study published last year was the subject of a recent story in the New York Times about why healthcare costs in the United States are so much higher than in other developed nations. The NYT story referenced multiple studies on the subject that all made a similar conclusion: utilization of healthcare in the US is at or below the median compared with other developed nations, and it is higher prices for these services that causes healthcare in the US to be so expensive.

Health Affairs published one such study in 2003, titled, “It’s the Prices, Stupid: Why the United States is So Different from Other Countries.” Written by Gerard F. Anderson, PhD; Uwe E. Reinhardt, PhD; Peter S. Hussey, PhD; and Varduhi Petrosyan, PhD, the paper compared data from the Organization for Economic Cooperation and Development (OECD) for 30 member countries in 2000.

“The data show that the United States spends more on healthcare than any other country. However, on most measures of health services use, the United States is below the OECD median,” researchers state. “These facts suggest that the difference in spending is caused mostly by higher prices for healthcare goods and services in the United States.”

In a New York Times article, Austin Frakt, PhD (above left), Health Economist with the federal Department of Veterans Affairs, and Aaron E. Carroll, MD (above right), pediatrician and Professor of Pediatrics at Indiana University School of Medicine, collated the various research into healthcare spending conducted in the past decade and a half. (Photo copyrights: JAMA/The Accidental Economist.)

“What was true in 2003 remains so today,” Ashish Jha, MPH, a physician with the Harvard T.H. Chan School of Public Health and the director of the Harvard Global Health Institute, told The New York Times (NYT). “The US just isn’t that different from other developed countries in how much healthcare we use. It is very different in how much we pay for it.”

New Data Shines the Spotlight on Old Concerns

Using data spanning from 1996 to 2013, researchers published similar findings in a 2017 JAMA original investigation. “Healthcare spending increased by $933.5 billion from 1996 to 2013,” stated study authors Joseph L. Dieleman, PhD, Assistant Professor at Institute for Health Metrics and Evaluation; Ellen Squires, MPH, Policy Analyst at Kaiser Family Foundation; and Anthony L. Bui, MPH, MD Candidate at David Geffen School of Medicine, UCLA Health. “Service price and intensity alone accounted for more than 50% of the spending increase, although the association of the five factors with spending varied by type of care and health condition.”

The JAMA study authors noted they could not separate price and care intensity in their data. However, as pointed out by NYT, four other studies published by The National Bureau of Economic Research, the OECD, JAMA, and the Annals of Internal Medicine between 2010 and 2017 also link the cost of care directly with healthcare spending in the US.

“The JAMA study found that, together, [care intensity and pricing] accounted for 63% of the increase in spending from 1996 to 2013,” noted The New York Times, “In other words, most of the explanation for American health spending growth—and why it

has pulled away from health spending in other countries—is that more is done for patients during hospital stays and doctor visits, they’re charged more per service, or both.”

For example, the OECD pilot study from 2010 states, “One of the key findings of the pilot study is that the price level of hospital services in the United States is more than 60% above that of the average price level of 12 countries included in the study.”

The More Things Change the More They Stay the Same

As a cornerstone of economics, transparency in both pricing and quality serves to empower buyers—or in this case patients—to choose products and services based on their overall value. This, in turn, encourages competition and helps to keep prices in check.

However, the US healthcare system offers little transparency—either for patient outcomes or for the prices to be charged—with many patients not having any clue what a service will cost until the bill for their recent hospital stay, lab tests, wellness visit, or ER visit arrives. This has led to increased pressure from employers and patient advocates for hospitals, clinical laboratories, and other service providers to make this information available to the public.

Yet, the opposite scenario is the current reality. Lobbyists and groups representing hospitals, insurers, pharmaceuticals, and other facets of the healthcare system continue to promote legislation at the federal and state levels to keep this information private and away from both the public and their competitors.

The NYT highlights the balance surrounding the issue citing claims of increased innovation with higher prices. However, this only works if the market can support said prices. “Though it’s reasonable to push back on high healthcare prices,” NYT’s noted, “there may be a limit to how far we should.”

—Jon Stone

Related Information:

Why the US Spends So Much More than Other Nations on Health Care

Decomposing Medical Care Expenditure Growth

Comparing Price Levels of Hospital Services Across Countries

The Anatomy of Healthcare in the United States

Price and Utilization: Why We Must Target Both to Curb Health Care Costs

Factors Associated with Increases in US Health Care Spending, 1996–2013

It’s the Prices, Stupid: Why the United States is So Different from Other Countries

US Health Care from a Global Perspective