A March 2018 JAMA study found that the main reason healthcare costs in the U.S. are higher than the rest of the world is the price of labor and goods, and not utilization. Plan administration makes up 8% of costs as compared to 1%–3% abroad. Drugs cost $1,443 per person as compared with a mean of $703 in other developed countries, and provider salaries in the U.S. can be over 200% higher by category. The study cites coronary bypass surgery cost in the U.S. averaging $75,345 versus $15,742 in the Netherlands and a computed tomography scan at $896 versus $97 in Canada.
Hospital costs are a big driver of this difference. The Wall Street Journal reported that the power wielded by powerful hospital chains and rural monopoly hospitals are a big part of the problem.
It’s clear that small markets with only one hospital are at the mercy of the prices set by that facility. However, in large markets with lots of competition, one would expect costs to be driven down – but the most prestigious of these hospitals have contractual protection that works against free markets. Several of these hospitals have inserted clauses which prohibit insurers from selling any plan which excludes that hospital. Together with anti-steering clauses and opaque pricing, patients have no ability to comparison shop. Some contracts also prohibit cost-sharing differences, which would provide incentives to accessing care at lower-cost facilities, even if they are justified.
Since hospital costs are the largest component of healthcare spending, it is critical to get this fixed – and this is low-hanging fruit. These types of contract provisions should be declared against public policy. Hospital costs represent three times the cost of prescription drugs, and this significant cost driver needs legislative action.
I hope someone is reading these blogs.