New York Times Examines U.S. Health Spending, Reform Proposals

Although there are "no easy answers in reforming health care ... some economists in the field increasingly believe there may indeed be viable solutions to at least some of the nation's health problems," Jeff Madrick, editor of Challenge Magazine, writes in a New York Times business column. Madrick examines studies on U.S. health spending, which currently makes up 14% of gross domestic product, compared with health care spending in other advanced nations, which averages 8% of GDP. He writes that despite the increased spending on health care in the United States, most other developed nations are healthier based on life span and infant mortality comparisons, and studies have shown that U.S. residents typically have less access to health services. The United States had 2.7 doctors per 1,000 people in 2001, compared with a median of 3.1 doctors per 1,000 people in the 30 developed countries belonging to the Organization for Economic Cooperation and Development. In addition, the United States has 2.9 hospital beds per 1,000 people, compared with a median of 3.9 hospital beds per 1,000 people in OECD countries.

Reasons for High Costs
Some researchers have found that U.S. health costs are high because providers charge much higher prices than are charged in the rest of the world, and administrative expenses "are exorbitant," Madrick says. He states that researchers contend there is "an imbalance in bargaining power" between the health providers, "which are usually large hospitals and hospital chains, and the buyers, which are fragmented into thousands of insurance companies and HMOs." In addition, U.S. health costs are high because providers use "so much high technology -- not only up-to-date machinery but also the latest fancy procedures and drugs," Madrick writes. According to Madrick, increasing numbers of economists believe that the newest technology is worth the higher price -- including treatments for heart disease and low birthweight infants -- but reforms are still needed because "a lot of waste remains" and "effective procedures are badly underused." Both the public and private sector must adopt a "market solution of sorts that calls for getting the financial incentives right" because traditional fee-for-service insurance and managed care "often provided reimbursement schedules that encouraged waste and ineffective care," Madrick says. He continues that recent advancements in information technology provide "sophisticated ways to measure performance," as well as "tailor financial incentives to discourage unnecessary procedures, encourage procedures known to be useful, and reward doctors and hospitals financially for both saving lives and improving the quality of life of the unhealthy." In addition, Madrick concludes, pay-for-performance programs will give U.S. residents "a better chance of getting the best care for their money," while giving the United States time to "decide just how much more it wants to spend, and whether further reforms are necessary" (Madrick, New York Times, 7/8).