VOX has produced an interesting study on the US health system where, despite spending by far the most in the world, health outcomes are poor by developed world standards, partly due to the overuse of expensive low-quality drugs:
Abstract:
Despite higher per capita healthcare spending, US health outcomes compare poorly with other developed nations. One potential reason is that the US healthcare system creates incentives that promote the faster adoption of medical technologies with minimal benefits. This column tests this claim using data on the quality and diffusion of new pharmaceuticals in the US and four other countries. The results suggest that compared to Australia, Canada, Switzerland, and the UK, low-quality drugs diffuse more quickly in the US relative to high-quality drugs…
Body:
Although the US spends more on healthcare per capita than any other developed country, it does not enjoy better health outcomes. Are institutional features of the US healthcare system driving this apparent inefficiency? Garber and Skinner (2008) hypothesised that the fee-for-service system of reimbursement prevalent in the US may create incentives for faster adoption of new medical technologies that may have minimal clinical benefits…
We analyse quarterly data from 2000-2013 on revenues and quantities sold for new pharmaceuticals in Australia, Canada, Switzerland, and the UK…
Our key research question is: how do higher- and lower-quality drugs diffuse over time in the US relative to our comparison countries?..
Our results suggest that – consistent with the Garber-Skinner conjecture – the US is indeed “uniquely inefficient” in the sense that low-quality drugs diffuse more quickly compared to high-quality drugs, relative to the comparison countries we analyse…
Our tabulations suggest that low-quality drugs diffuse more quickly compared to high quality drugs in the US relative to these four comparison countries. These patterns are consistent with the assertion in Gruber and Skinner (2008) that the US healthcare system may be “uniquely inefficient” in the sense of fuelling the rapid adoption and diffusion of medical technologies with small or unknown benefits.
While pharmaceuticals are only one component of a country’s health system, the US does also seem to be uniquely inefficient overall.
An analysis by Stephen Duckett, Director of the Health Program at the Grattan Institute, showed that the US spends way more of its GDP on healthcare but has among the lowest life expectancy of wealthy nations [note that Australia’s health system ranks alongside similar OECD countries – i.e. countries within 25% of Australian GDP]:
In a similar vein, OECD health data shows that the US performs poorly in terms of total health expenditure, public health expenditure, and pharmaceutical expenditure [US shown in green, the OECD average in blue, and Australia in red]:
Clearly, the US health is a mess, costing a tonne of money and delivering very poor health outcomes. It is a cautionary tale for any Australian government considering unwinding Medicare in favour of greater private provision.
