High cost of ‘everything’ responsible for high US healthcare spending

The US spends twice as much as peer nations to deliver care but the reasons for these substantially higher costs have been misunderstood

The high cost of nearly everything – from physician and hospital services to diagnostic tests, pharmaceuticals and administration – is responsible for the high costs of the US healthcare system.

This is according to new research from Harvard TH Chan School of Public Health, the Harvard Global Health Institute and the London School of Economics and Political Science (LSE), published in JAMA (Journal of the American Medical Association).

In 2016, the United States spent nearly twice as much as other high-income countries on healthcare, yet had poorer population health outcomes. In order to understand why this is, the researchers compared the US with 10 other high-income countries – the United Kingdom, Canada, Germany, Australia, Japan, Sweden, France, Denmark, the Netherlands, and Switzerland. Using international data, they examined approximately 100 metrics that underpin healthcare spending across countries, between 2013-16.

The findings suggest that common explanations as to why healthcare costs are so high – such as the notions that the US has too many doctor visits, hospitalizations, procedures, and specialists, and spends too little on social services that could mitigate healthcare needs – may be wrong. Instead, the high cost of US healthcare is more likely to be related to the system’s administrative complexity as well as high prices across a wide range of healthcare services.

“As the US continues to struggle with high healthcare spending, it is critical that we make progress on curtailing these costs. International comparisons are very valuable - they allow for reflection on national performance and serve to promote accountability,” said first author Irene Papanicolas, assistant professor of health economics at LSE’s Department of Health Policy and visiting assistant professor in the Department of Health Policy and Management at Harvard Chan School.

“We know that the US is an outlier in healthcare costs, spending twice as much as peer nations to deliver care. This gap and the challenges it poses for American consumers, policymakers, and business leaders was a major impetus for healthcare reform in the US, including delivery reforms implemented as part of the Affordable Care Act,” said author Ashish Jha, KT Li Professor of Global Health at Harvard Chan School and Director of the Harvard Global Health Institute (HGHI). “In addition, the reasons for these substantially higher costs have been misunderstood: These data suggest that many of the policy efforts in the US have not been truly evidence-based.”

The study confirmed that the US has substantially higher spending, worse population health outcomes, and worse access to care than other wealthy countries. For example, in 2016, the U.S. spent 17.8 per cent of its gross domestic product on healthcare, while other countries ranged from 9.6 per cent (Australia) to 12.4 per cent (Switzerland). Life expectancy in the US was the lowest of all 11 countries in the study, at 78.8 years; the range for other countries was 80.7-83.9 years. The proportion of the US population with health insurance was 90 per cent, lower than all the other countries, which ranged from 99-100 per cent coverage.

But commonly held beliefs for these differences appear at odds with the evidence, the study found. For example, while it has been claimed that the US uses more healthcare services than peer countries, thus leading to higher costs, the analysis revealed that the US in fact has lower rates of physician visits and days spent in the hospital than other nations.

Other common beliefs, that the US has too many specialists and not enough primary care physicians, and that it provides too much inpatient hospital care are also shown to be incorrect. Evidence reveals that the primary care versus specialist mix in the US is roughly the same as that of the average of other countries, and that only 19% of total healthcare spending in the US is spent on inpatient services – among the lowest proportion of similar countries.

What does explain higher spending in the US is administrative complexity and high prices across a wide range of healthcare services. For example, the findings showed that administrative costs of care – activities related to planning, regulating, and managing health systems and services – accounted for 8 per cent of total healthcare costs, compared with a range of 1-3 per cent for other countries; Per capita spending for pharmaceuticals was $1,443 in the US, compared with a range of $466 to $939 in other nations; for several commonly used brand-name pharmaceuticals, the US had substantially higher prices than other countries, often double the next highest price; and the average salary for a general practice physician in the US was $218,173, while in other countries the salary range was $86,607-$154,126.

Liana Woskie, a PhD candidate at the London School of Economics and assistant director of the Harvard Global Health Institute’s strategic initiative on quality, was a co-author of the study.

Health Care Spending in the United States and Other High-Income Countries,” by Irene Papanicolas, Liana R. Woskie, Ashish K. Jha was published by JAMA on Tuesday 13 March 2018.  


Behind the article

For more information contact:

Irene Papanicolas, LSE Department of Health Policy,

Jess Winterstein, LSE Press Office, 020 7107 5025,