[Ip-health] Free for All pricing - Why an MRI Costs $1, 080 in America and $280 in France

Riaz K Tayob riaz.tayob at gmail.com
Wed Mar 7 01:22:18 PST 2012


Snip:

The result is that, unlike in other countries, sellers of health-care 
services in America have considerable power to set prices, and so they 
set them quite high. Two of the five most profitable industries in the 
United States - the pharmaceuticals industry and the medical device 
industry - sell health care. With margins of almost 20 percent, they 
beat out even the financial sector for sheer profitability.

But many researchers are skeptical that this is an effective way to fund 
medical innovation. "We pay twice as much for brand-name drugs as most 
other industrialized countries," Anderson says. "But the drug companies 
spend only 12 percent of their revenues on innovation. So yes, some of 
that money goes to innovation, but only 12 percent of it."


  Why an MRI Costs $1,080 in America and $280 in France

By Ezra Klein, The Washington Post

06 March 12

here is a simple reason health care in the United States costs more than 
it does anywhere else: The prices are higher.

That may sound obvious. But it is, in fact, key to understanding one of 
the most pressing problems facing our economy. In 2009, Americans spent 
$7,960 per person on health care. Our neighbors in Canada spent $4,808. 
The Germans spent $4,218. The French, $3,978. If we had the per-person 
costs of any of those countries, America's deficits would vanish. 
Workers would have much more money in their pockets. Our economy would 
grow more quickly, as our exports would be more competitive.

There are many possible explanations for why Americans pay so much more. 
It could be that we're sicker. Or that we go to the doctor more 
frequently. But health researchers have largely discarded these 
theories. As Gerard Anderson, Uwe Reinhardt, Peter Hussey and Varduhi 
Petrosyan put it in the title of their influential 2003 study on 
international health-care costs, "it's the prices, stupid."

As it's difficult to get good data on prices, that paper blamed prices 
largely by eliminating the other possible culprits. They authors 
considered, for instance, the idea that Americans were simply using more 
health-care services, but on close inspection, found that Americans 
don't see the doctor more often or stay longer in the hospital than 
residents of other countries. Quite the opposite, actually. We spend 
less time in the hospital than Germans and see the doctor less often 
than the Canadians.

"The United States spends more on health care than any of the other OECD 
countries spend, without providing more services than the other 
countries do," they concluded. "This suggests that the difference in 
spending is mostly attributable to higher prices of goods and services."

On Friday, the International Federation of Health Plans - a global 
insurance trade association that includes more than 100 insurers in 25 
countries - released more direct evidence. It surveyed its members on 
the prices paid for 23 medical services and products in different 
countries, asking after everything from a routine doctor's visit to a 
dose of Lipitor to coronary bypass surgery. And in 22 of 23 cases, 
Americans are paying higher prices than residents of other developed 
countries. Usually, we're paying quite a bit more. The exception is 
cataract surgery, which appears to be costlier in Switzerland, though 
cheaper everywhere else.

Prices don't explain all of the difference between America and other 
countries. But they do explain a big chunk of it. The question, of 
course, is why Americans pay such high prices - and why we haven't done 
anything about it.

"Other countries negotiate very aggressively with the providers and set 
rates that are much lower than we do," Anderson says. They do this in 
one of two ways. In countries such as Canada and Britain, prices are set 
by the government. In others, such as Germany and Japan, they're set by 
providers and insurers sitting in a room and coming to an agreement, 
with the government stepping in to set prices if they fail.

In America, Medicare and Medicaid negotiate prices on behalf of their 
tens of millions of members and, not coincidentally, purchase care at a 
substantial markdown from the commercial average. But outside that, it's 
a free-for-all. Providers largely charge what they can get away with, 
often offering different prices to different insurers, and an even 
higher price to the uninsured.

Health care is an unusual product in that it is difficult, and sometimes 
impossible, for the customer to say "no." In certain cases, the customer 
is passed out, or otherwise incapable of making decisions about her 
care, and the decisions are made by providers whose mandate is, 
correctly, to save lives rather than money.

In other cases, there is more time for loved ones to consider costs, but 
little emotional space to do so - no one wants to think there was 
something more they could have done to save their parent or child. It is 
not like buying a television, where you can easily comparison shop and 
walk out of the store, and even forgo the purchase if it's too 
expensive. And imagine what you would pay for a television if the 
salesmen at Best Buy knew that you couldn't leave without making a purchase.

"In my view, health is a business in the United States in quite a 
different way than it is elsewhere," says Tom Sackville, who served in 
Margaret Thatcher's government and now directs the IFHP. "It's very much 
something people make money out of. There isn't too much embarrassment 
about that compared to Europe and elsewhere."

*The result is that, unlike in other countries, sellers of health-care 
services in America have considerable power to set prices, and so they 
set them quite high. Two of the five most profitable industries in the 
United States - the pharmaceuticals industry and the medical device 
industry - sell health care. With margins of almost 20 percent, they 
beat out even the financial sector for sheer profitability.*

The players sitting across the table from them - the health insurers - 
are not so profitable. In 2009, their profit margins were a mere 2.2 
percent. That's a signal that the sellers have the upper hand over the 
buyers.

This is a good deal for residents of other countries, as our high 
spending makes medical innovations more profitable. "We end up with the 
benefits of your investment," Sackville says. "You're subsidizing the 
rest of the world by doing the front-end research."

*But many researchers are skeptical that this is an effective way to 
fund medical innovation. "We pay twice as much for brand-name drugs as 
most other industrialized countries," Anderson says. "But the drug 
companies spend only 12 percent of their revenues on innovation. So yes, 
some of that money goes to innovation, but only 12 percent of it."*

And others point out that you also need to account for the innovations 
and investments that our spending on health care is squeezing out. 
"There are opportunity costs," says Reinhardt, an economist at 
Princeton. *"The money we spend on health care is money we don't spend 
educating our children, or investing in infrastructure, scientific 
research and defense spending. So if what this means is we ultimately 
have overmedicalized, poorly educated Americans competing with China, 
that's not a very good investment."*

But as simple an explanation as "the prices are higher" is, it is a 
devilishly difficult problem to fix. Those prices, for one thing, mean 
profits for a large number of powerful - and popular - industries. For 
another, *centralized bargaining cuts across the grain of America's 
skepticism of government solutions. In the Medicare Prescription Drug 
Benefit, for instance, Congress expressly barred Medicare from 
negotiating the prices of drugs that it was paying for.*

The 2010 health-reform law does little to directly address prices. It 
includes provisions forcing hospitals to publish their prices, which 
would bring more transparency to this issue, and it gives lawmakers more 
tools and more information they could use to address prices at some 
future date. The hope is that by gathering more data to find out which 
treatments truly work, the federal government will eventually be able to 
set prices based on the value of treatments, which would be easier than 
simply setting lower prices across-the-board. But this is, for the most 
part, a fight the bill ducked, which is part of the reason that even its 
most committed defenders don't think we'll be paying anything like what 
they're paying in other countries anytime soon.

"There is so much inefficiency in our system, that there's a lot of 
low-hanging fruit we can deal with before we get into regulating 
people's prices." says Len Nichols, director of the Center for Health 
Policy Research and Ethics at George Mason University. "Maybe, after 
we've cut waste for 10 years, we'll be ready to have a discussion over 
prices."

*And some economists warn that though high prices help explain why 
America spends so much more on health care than other countries, cutting 
prices is no cure-all if it doesn't also cut the rate of growth. After 
all, if you drop prices by 20 percent, but health-care spending still 
grows by seven percent a year, you've wiped out the savings in three years.*

Even so, Anderson says, "if I could change one thing in the United 
States to bring down total health expenditures, it would definitely be 
the prices."


View an interactive graphic: *The High Cost of Medical Procedures in the 
US* 
<http://www.washingtonpost.com/wp-srv/special/business/high-cost-of-medical-procedures-in-the-us/>.

http://readersupportednews.org/news-section2/313-17/10323-why-an-mri-costs-1080-in-america-and-280-in-france




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