Why US health care costs 17% of GDP

A recent comparison of health costs between Europe, Canada and the U.S. by Sue Davis, chair of the political science department at Denison University, revealed a major insight on why other countries spend far less on care as a percentage of GDP than America.
A fan of universal coverage, she pointed to superior longevity in the comparison countries and a high level of citizen satisfaction with their health care systems. But her chart showed other commonalities in Germany, France, the United Kingdom and Canada that helped to explain why their expenditures run at 10%-11% or less of GDP vs. a stratospheric 17% in the United States :
• Virtually no costs for malpractice litigation and defensive medicine. The price tag is one or two points of health costs in the litigious United States for the legal actions and defensive medicine.
• Administration costs of less than 5% of total costs, versus Davis’ number of 30% in U.S. Some studies put the U.S. at 7%.
• Heavy emphasis on preventive care in the four countries, versus curative approach in U.S. Our system fixes you when you are broken.
• Transparent prices in all four countries, versus pricing in a fog here.
• Digital medical records in place, along with smart cards for personal health records, versus a partial implementation here.

Those all play a role, for sure, but the most significant difference between them and us is the fundamental makeup of the business models here and there. Davis showed that the other four countries use primary care doctors to deliver the lion’s share of medicine, as much as 80% of services.
In the states, primary care has taken the back seat to specialty care. The big hospital systems have bought up primary care practices and then have used them as feeder systems to their expensive secondary and tertiary operations. It’s classic vertical integration to control the supply chain from primary care to hospice.
The U.S. health system is upside down, based on specialists vs. primary care doctors. It was the other way around 40 years ago here when primary care doctors were the main delivery agents. They had a direct and deep relationship with customers/patients – both on the medical side and the economic side of medicine. Sometimes payments were in chickens and eggs. And our costs were not out-of-line under that model.
They are way out of control today in the new model. Inflation is down from the double digits of a decade ago, but is still running 6%-8%. Small businesses are enduring premium increases for more than 20%.
Big corporations have figured out that they have to take back control of the supply chain in health care, and they are hiring their own doctors and nurses in their own on-site clinics. That move gives them a “twofer.”
They control the entrance into the big system with their own medical teams. Their on-site clinics lead the way to costs one-third below the national average. The payers’ doctors regain control of which tests to order, whether to use specialists and when to admit to expensive hospitals. What a difference!
And they gain proactive management of chronic diseases, the source of 80% of the costs in health care. You can’t mange health costs without managing health.
Davis missed that profound difference in business models as an economic determinant, but her comparison illuminated why we spend seven more points of GDP on health care.
Real reform of the health care system in this country, which should center on a return to the primacy of primary care, would save hundreds of billions of dollars a year.
That would be enough to provide the universal care that Davis yearns for.