Administration, drug prices at the center of Americans’ excess health care spending

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Administrative costs, prescription drug prices, physician and nurse salaries, and medical equipment investment make American health care the costliest in the world.

The Commonwealth Fund analyzed “excess” spending in the new study, “High U.S. Health Care Spending: Where Is It All Going?” Doctors’ pockets, for one – but that’s not the only place.

“Reductions in administrative burdens and drug costs could substantially reduce the difference between U.S. and peer nation health spending,” the study said.

American patients pay more than patients in other developed countries for:

• Administrative costs of insurance – 15% of excess spending
• Administrative costs borne by physicians and other providers – 15%
• Prescription drug costs – 10%
• Wages for physicians – 10%
• Wages for nurses – 5%
• Medical machinery and equipment – Less than 5%

Commonwealth Fund analysts Ani Turner, George Miller, and Elise Lowry noted they “were not able to definitively identify or quantify all components” of excess spending.

But they offered some estimated savings based on the 2021 national health expenditure (NHE). The U.S. Centers for Medicare & Medicaid Services estimated the 2021 NHE was $4.3 trillion, or $12,914 per person, accounting for 18.3% of the U.S. gross domestic product.

Administration

Insurance requires checking eligibility, coding, submission and rework. Health care systems have general administration, human resources, quality reporting and accreditation.

Combined, those add up to “the single biggest component of excess U.S. spending estimated in this study,” or 30%, the researchers said.

Adding data from other studies and nations, the authors estimated potential savings of $276 billion a year cut from excess spending.

Paying for medicines

The United States spends twice as much on retail prescription drugs as other developed nations. Generic drug prices are competitive, but branded pharmaceutical cost are “much higher” and make up about 80% of American prescription drug expenditures.

Salaries count

American physicians earn about twice as much as doctors in other developed nations, while nurses earn about 1.5 times as much. The U.S. labor market influences wages, and educational debt also may be an influence. Combined, higher wages for two essential health care jobs add up to 15% of excess spending, compared with other countries.

Building for health

International data show the United States does not spend more than other countries for health-care-related construction. Medical machinery and equipment does cost more, “corresponding to a modest impact of less than 5% of excess U.S. spending, approximately.”

What else?

The United States and other nations must pay for labor costs other than those for physicians and nurses. The United States employs 64 people per 1,000 in health care, compared to an average of 70 employees per 1,000.

It was unclear how that affects “excess” spending, and the researchers did not estimate a value for low-value clinical care and fraud. Those are considered “waste” in the health care system and “are appropriate targets for cost reduction,” but there was no clear evidence they were more prevalent in the United States than in other nations.

How is patient care?

The researchers noted American patients may have greater intensity of treatment and more access to advanced diagnostic and treatment technologies, compared with patients in other countries. They may also be sicker than residents of other nations, with higher rates of obesity, diabetes, heart disease and multiple chronic conditions.

Apart from the human cost, assault and violence account for an estimated 1% of American excess health spending. In economic terms, cost of living adjustment did not explain the differences.

In this study, The Commonwealth Fund compared the United States with other countries in the Organisation for Economic Cooperation and Development. They were: Australia, Canada, France, Germany, Japan, Korea, Netherlands, New Zealand, Norway, Sweden, Switzerland, and the United Kingdom.