Its The Prices Stupid Why the U S

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It’s The Prices Stupid: Why the U. S. is so Different in Health Care

It’s The Prices Stupid: Why the U. S. is so Different in Health Care from other Countries Econ. 201 – Econ. Data Analysis

Major Point • The US is an outlier on spending, spending more than almost

Major Point • The US is an outlier on spending, spending more than almost any other rich industrialized country • Yet the US gets little in measurable average health benefit for this extra spending

Overall Spending • Look at the U. S. compared to the O. E. C.

Overall Spending • Look at the U. S. compared to the O. E. C. D. median in exhibit 1 • We are in GDP per capita, yet we spent more on health spending by both total amount and % of GDP • To see this graphically, look at exhibit 2

Correlation Coefficient • In probability theory and statistics, correlation, (often measured as a correlation

Correlation Coefficient • In probability theory and statistics, correlation, (often measured as a correlation coefficient) , indicates the strength and direction of a linear relationship between two random variables

Correlation Coefficient • The correlation is 1 in the case of a perfect increasing

Correlation Coefficient • The correlation is 1 in the case of a perfect increasing linear relationship, − 1 in the case of a perfect decreasing linear relationship, and some value in between in all other cases, indicating the degree of linear dependence between the variables. The closer the coefficient is to either − 1 or 1, the stronger the correlation between the variables. • If the variables are independent then the correlation is 0

Correlation: Health Spending and GDP • In all of the OECD data for 2000

Correlation: Health Spending and GDP • In all of the OECD data for 2000 the correlation is. 27 • If Luxembourg is eliminated, it goes to. 56 • Many countries vary considerably in health spending, between GDP per capitas of $25 k and $30 k • You will see this in many health spending relationships: why?

Health Production Function: Complex and Multivariable • Draw on board and explain the health

Health Production Function: Complex and Multivariable • Draw on board and explain the health production function • Probably not a surprise that rich countries are on the “flat” of this curve • U. S. is still an outlier though

Not a New Phenomenon • Look at average annual growth columns in exhibit 1

Not a New Phenomenon • Look at average annual growth columns in exhibit 1

One big difference is % of health spending that is private • Define this.

One big difference is % of health spending that is private • Define this. What is the alternative? • Notice it is high in the US, and some of the poorer countries in the data, Korea • But the amount of public dollars in health spending in US is about the same as other rich OECD countries and the OECD median

Why? • #1) Not because the US is getting older – So are other

Why? • #1) Not because the US is getting older – So are other OECD countries some at a faster rate than US • #2) Not because we spend such a high percentage of health care $ on pharmaceuticals – Others spend even more as (see exhibit # 3)

Why do we spend so much, contd • #3) Not because our Health Care

Why do we spend so much, contd • #3) Not because our Health Care workforce is especially high – For various types of labor inputs supplied look at exhibit #4 – Note though “nurses per acute care bed” • #4) Not because our health care capital is especially high – For various types of non-labor inputs supplied look at exhibit #5 – Compare with Canada

Continued… • #5) May be partly because we have more units of expensive technological

Continued… • #5) May be partly because we have more units of expensive technological equipment per capita – See exhibit #6 – Again compare Canada • Less capital intensive

What is left as an explanation? • The authors point to higher prices per

What is left as an explanation? • The authors point to higher prices per unit of medical service in the US – Higher salaries – Higher administrative costs of insurance – Higher cost of capital inputs – Compared to Germany in 1990: 40% more spending per capita in US, for 15% less real health care

Why? • Less monopsony by purchasers in US – Disaggregated buyers • Many insurers

Why? • Less monopsony by purchasers in US – Disaggregated buyers • Many insurers for instance • More monopoly by suppliers in US – Concentrated providers • Largely national competitors – Though watch for Indian surgery and radiology soon • AMA, Med Schools, Hospitals, big pharma

Continued… • #5) May be partly because we have more units of expensive technological

Continued… • #5) May be partly because we have more units of expensive technological equipment per capita – See exhibit #6 – Again compare Canada • Less capital intensive

What is left as an explanation? • The authors point to higher prices per

What is left as an explanation? • The authors point to higher prices per unit of medical service in the US – Higher salaries – Higher administrative costs of insurance – Higher cost of capital inputs – Compared to Germany in 1990: 40% more spending per capita in US, for 15% less real health care

Why? • Less monopsony by purchasers in US – Disaggregated buyers • Many insurers

Why? • Less monopsony by purchasers in US – Disaggregated buyers • Many insurers for instance • More monopoly by suppliers in US – Concentrated providers • Largely national competitors – Though watch for Indian surgery and radiology soon • AMA, Med Schools, Hospitals, big pharma