The Perfect Storm of Overutilization

Abstract

The United States spends substantially more per person on health care than any other country, and yet US health outcomes are the same as or worse than those in other coutries. In 2005, the last year for which comparative statistics are available, the United States spent $6401 per person, whereas the next highest spending was in Norway and Switzerland, $4364 and $4177, respectively (TABLE). Overall, US health care expenditures are 2.4 times the average of those of all developed countries ($2759 per person), yet health outcomes for US patients, whether measured by life expectancy, disease-specific mortality rates, or other variables, are unimpressive (Table). There are many explanations for the higher costs of US health care. Because health insurance must be underwritten and sold to individual employers and self-insured individuals, administrative costs exceed $145 billion. This does not include employers’ costs for purchasing and managing employees’ health insurance. One estimate suggests that the private employer insurance market wastes more than $50 billion in administrative costs. A second factor is higher prices in the United States for important inputs to health care, such as physicians’ services, prescription drugs, and diagnostic testing. US physicians earn double the income of their peers in other industrialized countries (Table). Similarly, prices to the public for drugs in the United States are 10% to 30% higher than in other developed countries. Disparities in prices of inputs to health care account for at least $100 billion annually of higher spending in the United States. A third contributor to US costs is the abundance of amenities. Hospital rooms in the United States offer more privacy, comfort, and auxiliary services than do hospital rooms in most other countries. US physicians’ offices are typically more conveniently located and have parking nearby and more attractive waiting rooms. Overutilization of Health Care The most important contributor to the high cost of US health care, however, is overutilization. Overutilization can take 2 forms: higher volumes, such as more office visits, hospitalizations, tests, procedures, and prescriptions than are appropriate or more costly specialists, tests, procedures, and prescriptions than are appropriate. It ismorecostly care, rather thanhighvolume, that accounts for higher expenditures in the United States. The volume of services is not extreme. A hospitalization rate of 121 per 1000 US patients is higher than that of Japan (106) but considerably lower than the rate in Switzerland (157), Norway (173), and France (268) and lower than the Organisation for Economic Co-operation and Development (OECD) average (163) (Table). TheUShospitalizationrate is21stof30OECDcountries. Similarly, US patients have 3.8 physician visits annually per capita, fewer than the OECD average of 6.8. In contrast with volume, in which the United States is not the leader, there are almost 3 times as many magnetic resonance imaging scanners in the United States as the OECD average, higher only in Japan. US patients receive considerably more cardiac revascularization procedures (579 per 100 000 population)—coronary artery bypass grafts, angioplasties, and stents—45% more than patients in Norway, the country with the next highest number (Table). The United States has the fourth highest per capita consumption of pharmaceuticals. US patients utilize many more “new drugs”— those on the market 5 years or fewer—than patients in other countries. For instance, ezetimibe, which decreases lowdensity lipoprotein cholesterol level and was approved in October 2002, is not recommended by major guidelines as first-line therapy. Nevertheless, the use of ezetimibe in the United States is about 5 times higher than it is in Canada, constituting more than 15% of prescriptions for lipidlowering agents. Greater use of new, more expensive pharmaceuticals, as well as higher prices both for older and newer drugs, helps explain why the United States spent $752 per capita (2005) on drugs, whereas France, with the next highest expenditure, spent $559 and Japan just $425.