It's the Prices, Stupid

That’s the provocative headline of a Uwe Reinhardt essay in Health Affairs from 2003, explaining why health care costs in the United States are so much higher than they are elsewhere. In the US, we have fewer office visits, fewer prescriptions, fewer hospital admissions and shorter lengths of stay than other OECD countries. We have more imaging than some, although others (such asJapan) have much higher rates of MRI scans, but they are valued at a fraction of the cost allowed in the United States.

Our prices support innovation – and they support wide patient choice. They also support substantially higher physician income and substantially higher executive income than seen in health care systems of other countries. Our prices seem high compared to the rest of the world, but hospital CEOs don’t feel like they are wallowing in profit. Rather, many hospitals are on the edge financially. Folks running medical groups don’t feel like they are being paid too much – and usually have very small reserves. Physicians don’t feel rich either; until recently, they looked at their colleagues in the financial services industries and felt a sense of despair.

(From the WSJ, see link below)
Pharmaceutical companies, device makers and all health care providers are worried about the pressure on prices going forward, and many are preparing for the worst by boosting their prices now. The WSJ reported that hospitals and drug companies are raising their prices despite the economic slump. .
It’s looking like these high US prices are going to be seriously threatened over the coming months and years. Bob Lasiewicz has a great commentary this weekend in the Health Care Policy and Marketplace Review Blog recounting conversations with two nonprofit health plan CEOs who predicted that if a public health plan insisted on Medicare rates they would have to cut their provider rates by 20-30%. This is why the public health plan is one of the few interventions listed by health care economists that could substantially lower costs. It’s also why the fight against a public plan competing with existing health plans will be a big one that is likely to see unusual alliances - where business and government might each support the public plan, while providers and health plans could find themselves together on the opposing side.