It’s the Prices, Stupid – Revised for 2011

Today’s Managing Health Care Costs Indicator is $442,450

In 1993, Anderson and Reinhardt wrote a seminal article in Health Affairs, titled “It’s the Prices Stupid.”  They described differences between the US health care system and those of other developed countries.  Contrary to the beliefs of many, our problem is not one of utilization, but rather of high cost per unit of services delivered.  We use fewer office visits, fewer hospitalizations, shorter lengths of stay, and fewer prescriptions than other similar countries.

In 2009, George Halverson touted data from the International Federation of Health Plans 
showing use price disparities across countries.  US costs – just about off the charts.  

This month’s Health Affairs is entitled “The New Urgency to Lower Costs,” and Columbia professors Miriam Laugesen and Sherry Glied (now an assistant secretary of HHS)  revisit the topic of unit prices– and find similar results .  They show that orthopedists make $442,450 on average in the US – a third higher than the next highest country.  Primary care physicians on average make $186,582 in the US, 15% higher than in the UK, and double the income of primary care physicians in Australia.  All of these costs are net of expenses.

The authors have also tried to account for the high cost of medical education in the US, which is often cited as a cause of high physician income in the US.  They calculate that amortized over 30 years of practice this would be $21,300 (primary care) or $24,400 (orthopedics) – and higher salaries far exceed this differential.   (I think the emotional impact of tuition loans is higher than the emotional impact of foregone earnings during training, so I think the authors are undercounting this differential).  

The authors also compare costs for total hip replacement, an elective procedure that doesn’t differ from market to market. In all countries there is much higher cost for private payers than for public payers – but again, the cost in the US is far higher than the costs elsewhere.

As I’ve mentioned before, there is not a single ‘silver bullet’ to address the high cost of health care in the US.  We often focus on unhealthy lifestyle behaviors and overutilization. Both are very comfortable for providers, since they are not responsible for lifestyle and it’s generally other providers who are overutilizers.  We won’t get closer to the costs of European and other developed countries, though, until we address unit cost issues.  AND – we won’t fully address unit cost issues without having a negative impact on physician income.