U.S. Healthcare: High Prices, Low Value

The Cost of Staying Healthy

Here are real costs from real U.S. hospital bills: $15 for a single Tylenol pill, $10 for the little paper cup that holds the pill, $53 for a pair of latex gloves, and $800 for a sterile water IV bag.

The U.S. spends over 60 percent more on health care per person than any other developed country. Yet, we still have worse outcomes for critical measures like life expectancy, chronic disease, and infant mortality. The average cost of employer-provided health insurance for a family of four is now over $22,000. That’s one-third of an average family's hard-earned income, all for a service that's provided free of charge in numerous other nations.

This puts a huge strain on American families and government budgets alike because the federal government still covers over a third of all U.S. healthcare costs. There’s no easy fix for this cost problem due to numerous causes, including:

• No one knows what anything costs: Three out of four U.S. adults don’t know of a resource to compare costs among providers
• Drug prices are too high: Americans pay 256 percent more for prescription drugs than residents of any developed country
• Administrative overload for doctors: American doctors spend more time filling out paperwork than seeing patients
• Defensive medicine: Several studies suggest that medical malpractice suits and defensive medicine—the practice of doctors ordering unnecessary tests and treatments to protect themselves from litigation—cost in excess of $100 billion each year

Here are several different ways Washington could help reduce the price of health care.

Common Sense Solutions

Changes to How Medicare and Medicaid Pay

Despite some recent reforms, Medicare still mostly pays for the volume of care delivered (the number of tests and services) rather than the value provided (improving patient health). Washington should experiment more with different fee schedules to make Medicare more efficient. One example could be adding bonuses for physicians who can stay within a set budget for a patient's treatment.

Medicaid needs the same kinds of forward-looking reforms. Because states control how Medicaid is run and the federal government pays most of the bills, no one has had both the desire and the ability to keep costs in check. States could do it, but they don’t really care; the federal government might want to do it, but it can’t. 

Allow Medicare to Negotiate Medicine Prices

For the first time, the 2022 Inflation Reduction Act will allow negotiation for a small group of medicines beginning in 2026.

The U.S. pharmaceutical industry has spent a lot of money on research and development, with no guarantee they will discover new medicines. Only 12 percent of drugs entering clinical trials make it to market. Yet, seven out of the top ten drug companies allocate more funds to sales and marketing than to research and development. This indicates the possibility of reducing prices without stifling innovation.

Reduce Rebates Paid to PBMs 

Pharmacy benefit managers (PBMs) often serve as the middlemen between drug companies and insurance companies. PBMs serve a purpose, but these rebates—which encourage manufacturers to raise drug prices—have risen sharply over the past few years. One study shows that manufacturer rebates to PBMs increased from $39.7 billion in 2012 to $89.5 in 2016, the last year for which reliable data was available. 

Tighten the Patent System Against Manipulation

Biological drugs, produced from living organisms as opposed to chemical compounds, account for nearly 40 percent of all prescription drug spending in the U.S., despite being used by just 2% of the population. The companies behind these drugs—which are often used to treat serious autoimmune and other disorders—can get up to 20 years of patent protection before facing competition from generic versions called "biosimilars."

Yet, certain makers of biological drugs seem to be manipulating the patent system. They file numerous new patents just before their medicine's exclusive patent rights expire. These patents might cover minor alterations (like adjusting the dosage) that don’t represent any real breakthroughs but deter generic versions (biosimilars) from entering the market.

Stop the Baseless Lawsuits

According to the American Medical Association, over two-thirds of medical malpractice suits are easily dismissed, and doctors win most cases that go to trial—indicating that these suits lack merit. Washington could work on actual changes to the legal system that makes it tougher to bring unnecessary medical lawsuits and limit how much money juries can award.

Ensure Real Price Transparency

In early 2018, the U.S. Department of Health and Human Services directed all hospitals to post prices for all their services. Hospitals are now doing it, but the information is often useless.

A January 2019 New York Times story showed procedures from various hospital price lists: $42,569 for a cardiology procedure described as “HC PTC CLOS PAT DUCT ART” from Vanderbilt University Medical Center and $9,818 for “Embolza Protect 5.5” from Baptist Health in Miami.

In other words, complete gibberish to anyone who isn’t a medical professional. Health care is complicated, and hospital prices and services will never be as simple as a McDonald’s menu. But real price transparency requires clear, understandable lists of services and prices that support consumers in finding affordable care.

Which proposed changes do you support? What specific challenges have you encountered within the US healthcare system?

Read Common Sense Majority's official policy on Being Responsible here.