Policy Basics

The United States spends more on health care than any other developed nation and recent research sheds new light on why that may be, but also provokes more questions for policymakers to explore.

There has been considerable attention and research focused on factors that contribute to poor population health outcomes, however the research on factors driving spending is not as robust or conclusive.

In fact, the lack of attention on spending is one of the motivations for the Health Policy Institute of Ohio to create its Health Value Dashboard. Other health rankings and scorecards did not include any healthcare spending measures.

A recent study published in the Journal of the American Medical Association (JAMA) dives deeper into potential drivers of healthcare spending, comparing the U.S. to ten other high-income Organization for Economic Cooperation and Development nations (Great Britain, Japan, France, Australia, Canada, Denmark, Netherlands, Sweden, Germany and Switzerland).

The study dispelled some of the common hypotheses for why healthcare spending in the U.S. is so high, while also highlighting other potential drivers. Perhaps the most common hypothesis for higher healthcare spending in the U.S. has been that the country’s fee-for-service system drives greater utilization of healthcare services.

However, in the JAMA study, utilization of healthcare services in the U.S. was comparable to other nations. The number of patients treated in hospitals for common conditions like pneumonia, myocardial infarctions and chronic obstructive pulmonary disease, as well as annual hospital visits and length of stay were similar in the U.S. and the other OECD nations. The U.S. did have higher rates of CT and MRI scans and certain surgical procedures (c-sections, knee replacements, coronary bypass or angioplasty), but lower behavioral health/mental health treatment in hospitals.

Researchers also examined a potential link between social service spending and overall healthcare spending. Previous studies have suggested that the U.S. may be underinvesting in social services. The JAMA study found that while the U.S. was below the mean, it was not an outlier with regard to total social services spending (including spending on old age, incapacity, labor market, education, family and housing) at 16.7 percent of GDP (compared with a mean of 19.4 percent of GDP across all 11 countries).

In an article in Health Affairs in April, David Kindig of the Department of Population Health Sciences, School of Medicine and Public Health, University of Wisconsin–Madison continued to support earlier arguments that in order to drive down costs, the United States has to better balance what it is spending money on.

“The US health investment portfolio is out of balance, with too much spent on some aspects of heath care and not enough spent on more influential determinants needed to produce equitable health and well-being,” Kindig wrote.

Despite the prevailing thoughts about the role of social service investments and utilization, authors of the JAMA article pivoted discussions towards three alternative factors as the drivers of high healthcare spending in the U.S.: pharmaceutical spending driven by brand-name drug prices, governance and administrative costs (accounting for 8 percent of spending in the U.S., with the second highest rate at 5 percent in Germany) and provider reimbursement (the U.S. had nearly double the mean remuneration for generalists and more than $100,000 more for specialists).

In an interview with JAMA, Ashish Jha, one of the authors of the study, said driving down healthcare prices can be accomplished either by leveraging the purchasing power of Medicare or through private-sector competition.

“Medicare could just make payment cuts to a whole bunch of services where we pay a lot more than other countries,” Jha said. “The other part, again, certainly on the private insurance side, is we know that more competition is the only other mechanism we have for lowering prices and we know that in markets, for instance, that have more hospitals, hospital prices are lower.”

As policymakers continue to explore ways to better control healthcare spending in the U.S., there are many questions that remain unanswered, such as:

• What role does smoking play? (The U.S. smoking rate is lower than many countries with both lower healthcare spending and better health outcomes than the U.S., but smoking is correlated to poor population health outcomes throughout the U.S.)
• How will long-term care costs impact overall spending? (Currently, the U.S. is at the low end of long-term care spending compared to other high-income nations in the JAMA study, and has the youngest population. However, the population older than 65 in the U.S. is expected to increase dramatically in coming years.)
• What is the impact of poverty on spending? (U.S. has the highest rate of poverty compared to the other high income nations)
• Is population size a factor? (U.S. has the largest population)
• Does geographic size impact spending? (U.S. has the second-largest geographic size, behind Canada)

While the jury is still out on the best way to drive down healthcare spending in the U.S., the evidence suggests that improvement is possible. Many opportunities remain for Ohio to invest in evidence-based policies that prevent health conditions, address the root causes of poor health and reduce costly care. The 2017-2019 State Health Improvement Plan provides a menu of evidence-based policy options that can be implemented by state policymakers.Strategic investments and a commitment to continual evaluation can provide a path towards sustainable spending growth and improved health outcomes in our state.

Past editions of the Health Value Review

• January 2018
• October 2017
• July 2017