Tuesday, July 12, 2005, 12:01 p.m. ET

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Higher Prices, Not Defensive Medicine Or Waiting Lists, Explain Why U.S. Health Care Spending Is So High

Even Countries with Equal or Better Care Pay Thousands of Dollars Less Per Capita

Bethesda, MD — Higher prices for health services such as prescription drugs, hospital stays and doctor visits — not malpractice claims or greater access to health care services — is the major reason why Americans spend far more for health care than citizens in other industrialized countries, according to a new study in the July/August issue of the journal Health Affairs.

“There is a popular misconception that we pay much more for health care in the United States compared to European and other industrialized countries because malpractice claims drive up costs and there are waiting lists in most other countries,“ says lead author Gerard Anderson, a professor in the Department of Health Policy and Management at the Johns Hopkins Bloomberg School of Public Health.

“But what we found, is that we pay more for health care for the simple reason that prices for health services are significantly higher in the United States than they are elsewhere,” says Anderson. “We have less access to most health services and higher costs associated with malpractice insurance have only a marginal effect on overall health spending. ” he adds.

Anderson and his colleagues looked at health care spending per capita in 2002 for the thirty nations that belong to the Organization for Economic Cooperation and Development (OECD). They found that the U.S. spent $5,267 per capita for health care, $1,821 more than the next-highest spender, Switzerland, and $3,074 or 140 percent more than the median level for all OECD countries.

U.S. health spending accounted for 14.6 percent of U.S. gross domestic product (GDP) in 2002. Only two other countries, Switzerland and Germany, spent more than 10 percent of their GDP on health care that year.

An analysis of costs associated with malpractice claims in the U.S. showed that they explain only a small portion of the difference in health spending. Malpractice awards in the U.S. amounted to only $16 per capita in 2001, compared with $12 in the U.K. and $10 in Australia. Surprisingly, the average award was lower in the U.S. than in Canada and the U.K. In 2001 the average U.S. payment was $265,103 — 14 percent higher in Canada and 36 percent higher in the U.K.

Costs associated with defensive medicine — tests or procedures intended to protect physicians from lawsuits — could account for more of the price differential, the researchers note. But they point out that analysts have had a difficult time singling out services provided solely out of fear of litigation And there is debate on the extent of defensive medicine in the U.S. Perhaps most important, the highest estimate of the cost of defensive medicine is 9 percent, a small fraction of the 140 percent differential in spending with the median OECD country.

The study also finds no evidence that U.S. citizens spend more for health care because they get more services. For example, when one looks at hospital beds, physicians, nurses, magnetic resonance imaging (MRI), and computed tomography (CT) scans available per capita, Americans actually have access to fewer health care resources compared with people in many other countries.

It is true that in some countries people are forced to wait for health services. However, that doesn’t appear to explain price differences, either. The services with waiting lists account for only 3 percent of U.S. health spending. Also, per capita spending in seven OECD countries without waiting lists for health services was about $2,500 less than it was in the U.S.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Copies of the July/August 2005 issue will be provided free to interested members of the press. Address inquiries to Jon Gardner at Health Affairs at 301-347-3930 or via e-mail, press@healthaffairs.org. Selected articles from the issue are available free on the journal’s Web site, www.healthaffairs.org.

©2005 Project HOPE–The People-to-People Health Foundation, Inc.