Health Care, Linda Gorman, National

Hold the pricing hysteria: US hospital prices are about the same as Canada’s

Using a rallying cry of “It’s the prices, stupid!” the same people who used Obamacare to make health insurance unaffordable and vastly expand public spending on Medicaid for healthy people now want to impose stealth price controls on doctors, hospitals, and drug manufacturers. Some in the Colorado legislature would be happy to cooperate.

They say U.S. health spending is high compared to other industrialized countries. But that is only true if the U.S. spends more to get the same health services. There is a lot of evidence that people in the U.S. get more health care, and more for their health care dollar, than people in other industrialized countries via better drugs, more disease screening, and more convenient and sophisticated care.

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People in the U.S. also get health care faster. They wait less for things like advanced imaging, cataract surgery, hip replacements, and hernia repairs.

In fact, the waiting times in other countries suggest that those countries pay too little for health care. Given a choice between spending more for operations or spending more for hideously expensive green energy, which do you think a mostly blind British subject on an NHS waiting list for cataract surgery would choose?

Even in the U.S., health prices in government run programs have little to do with actual costs. Medicare, Medicaid, and the Veterans Administration lower their expenditures by arbitrarily paying pay lower prices than the private sector for the same services. They benefit from laws requiring sweetheart deals for drugs, free care from hospitals, and provider taxes on hospital patients covered by private insurance.

When possible, the private sector companies producing the health goods and services the government buys at artificially low rates make up their costs by charging people in the private sector more. If private payers refuse to pay for the cost shift, providers have no choice but to reduce services.

The Organization for Economic Cooperation and Development (OECD) provides the data used by those who claim that U.S. health costs are too high because U.S. expenditures are higher than those of other industrialized nations. Even with U.S. governments’ cost shifting, OECD authors calculate that U.S. hospital prices are about the same as those in Canada and Sweden, and are much lower than hospital prices in Switzerland and Norway.

As the graph shows, a basket of hospital services that would cost $13,000 in the US would cost roughly $12,600 in Canada, $13,200 in Sweden, and $19,200 in Switzerland.

What can U.S. governments do to reduce hospital costs? They can make it easier for new hospitals to enter existing markets and level the playing field between for private and government owned profit and non-profit hospitals. They can begin removing the regulatory burdens they place on hospitals, drug makers, doctors, and other health care providers.

How big is the regulatory burden? The American Hospital Association estimates that hospital regulations add $1,200 to each patient admission. That’s a lot when a normal birth costs around $10,000.

The majority of the federal regulatory costs are generated Medicare’s conditions of participation, privacy laws, federal quality reporting requirements, the federal False Claims Act, and electronic medical records meaningful use compliance standards. Few of those regulations have demonstrated benefits that are equal to their costs. On balance, they waste a lot of time and raise the cost of quality patient care.

Want to move US hospital prices even lower in the OECD index? The next time your elected representative claims to be doing something about U.S. hospital costs, ask exactly which cost increasing regulations he proposes repealing.

If he cannot name any, he is clearly not serious about really reducing health care costs.

Linda Gorman directs the Health Care Policy Center at the Independence Institute, a free market think tank in Denver.


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