US Healthcare: Very Expensive

A number of key factors are driving up the expenses of US retail healthcare, for example, the costs of technology, pharmaceuticals, litigation and supporting an aging population.

Technology and pharmaceuticals have improved and become more expensive. The huge influx of Insurance funds into the US healthcare system over the past 50 years has meant that hospitals are able to afford ever-increasingly expensive medical and imaging technology. This has rapidly advanced the development of medical science and the efficacy of care, but these technologies are often supported by the highly inflated prices that can be charged in the US for research, development and manufacturing. But once total initial marginal costs are met, these products may be sold to hospitals in other countries, often at a fraction of the US cost.
Similarly, the US pharmaceutical industry tends to charge two to three times more for branded drugs in the US than it does elsewhere. This is the reason for protectionist legislation passed in the US, which attempts to stop the distribution of pharmaceuticals from Canada, Mexico and other countries across US borders.

In a recent paper published as part of a new textbook in International Finance, it is noted that the top 10 pharmaceutical companies on the US stock market grossed more combined profits in 2005 than the entire remaining Fortune 500. The gap has been widening for more than 20 years.

Another main reason for higher costs in the US is the extremely litigious nature of the healthcare market compared to other countries. High malpractice insurance costs have dramatically driven up the cost to practise medicine in the US. In certain specialties such as obstetrics, neurosurgery, orthopaedics and some general surgical subspecialties, malpractice insurance premiums are so high, and reimbursement rates are dropping, that many physicians can no longer afford to practice. In obstetrics, for example, the physician is not only responsible for the mother, but also for the newborn until age 18, creating an 18-year “tail” for insurance liability.

This doesn’t appear to be as significant a problem in other countries offering quality healthcare. However, with no form of recourse or jurisdiction in foreign countries for potentially unexpected outcomes of surgery, US-based carriers and employers have been somewhat hesitant to sponsor international insured health plans. But the cost savings are so significant, that this may change as international insurers may start to develop medical-travel policies to support the growth in this market. .
Price transparency is another vital factor when looking at health costs. American hospitals base their retail charges on an intricate budgeting process, which results in each hospital’s revenue and costs being different, as are their prices for services. That is why the price of a simple blood test can easily vary dramatically among hospitals for the same test, using the same machines. This differs from the cost structures in Asia, India and the Latin American hospitals which often post prices on the wall and collect the cash at the door.
As more US residents begin to check websites for prices by procedure and look for quality measurement tools to make their purchasing decisions, US hospitals may eventually have to compete with foreign hospitals on a price transparent basis. Some more innovative hospital systems, such as Alegent Health (Omaha, Nebraska), are starting to post prices on their websites.
As the market for foreign healthcare solutions to the US’s domestic pricing problems begins to grow, one can probably expect to see more pricing transparency before price and service competition begins in earnest.
Ultimately, market forces will drive US hospitals to compete for patients by diagnosis, offering price-competitive packages of services including travel for both the patient and a companion.
This will not only occur internationally, but domestically, as patients gain control of their ever greater healthcare dollars.
For the past 40 years, consumers have been excluded from the complete healthcare buying equation, so with more control of the healthcare dollar, consumers will demand more information and more choices among providers.
What happened with the deregulation of the travel industry a number of years ago, to create more user-friendly websites and booking systems, is now poised to occur in the US healthcare industry. This is not new. Hospitals and providers in India, Asia and around the world have been on a cash basis for many years. Prices are posted in each lobby as they are in hotel rooms and healthcare is treated as a consumer good.
Secretary Leavitt, secretary of health and human services who oversees Medicare, summed up the issue succinctly: “Why can’t we buy healthcare in the US like we buy a car? Medicare paid for 251,000 coronary artery bypass surgeries last year and 91,000 hip replacements. Medicare knows what they cost, why shouldn’t the consumer? Our system of financing healthcare is broken.”
While no one solution will solve the unchecked healthcare inflation, the institution of rapidly developing globally competitive healthcare markets will have a small but meaningful impact on US healthcare. If US hospitals start losing market share to foreign hospitals, they may have to implement competitive travel packages and transparent pricing to compete.

medical tourism information to patients. contact at sgerst@medicaview.com or 1 954 701 9505