The Common Good
June 2011

'It's the Prices, Stupid': An Interview with Health Policy Expert Gerard Anderson

by Gerard Anderson, Elizabeth Palmberg | June 2011

Gerard Anderson on Overpaying, Overeating, and Out-of-Control U.S. Medical Costs

Gerard Anderson teaches health policy at Johns Hopkins University.  He spoke with Sojourners associate editor Elizabeth Palmberg by telephone in March.

Sojourners: What are some of the most important causes for why the U.S. is paying a lot more than other wealthy countries [in the OECD] for health care without getting improved results?

Anderson: A higher health-care cost is pretty much because of what I call, “It’s prices, stupid.” We just pay approximately twice as much for each good and service that we utilize in the U.S. vis-a-vis other industrial countries. So if we’re talking about brand name drugs, we could spend twice as much. If we’re talking about a physician visit, we’re talking about twice as much. In fact, for a hospital visit it’s about three times more than other industrialized countries for a similar visit—in a shorter period of time that you’re in the hospital, we still spend about three times more. So it seems to be that we just pay more for identical services compared to other industrialized countries.

Sojourners: Why?

Anderson: Because, in most other countries they have a single purchaser, which is a very tough negotiator, whereas in the United States we have so many different purchasers that nobody has a lot of power. Medicare is an important player, but the private sector is paying about 30 percent more than Medicare. So if Medicare tries to keep prices down too much, the doctors, the hospitals will say, “I’m not going to play with Medicare.” They can play one player off with another payer in order to keep the prices very high.

Sojourners: What about U.S. obesity and higher rates of cancer and HIV?

Anderson: So the first [thing] is prices. The second one is chronic disease. We have a higher prevalence of chronic disease in the United States vis-a-vis other industrialized countries, primarily due to obesity. Our smoking rates are traditionally lower than most other countries, our alcohol consumption is lower. Our exercise and our diet, which goes into obesity, are not doing very well. So if I had to pick one thing that is making us having more chronic disease, it’s obesity in the United States. Many—about half of us—have at least one chronic disease and a quarter of us have two or more and they represent both a high percentage of health-care spending; people with two or more chronic diseases represent almost two-thirds of all spending, especially people with two or more chronic conditions.

Sojourners: So, basically, fat trumps smoking and alcohol.

Anderson: It does. About 19 percent of us [U.S. adults] smoke, whereas if you go to France it’s [about] 25 percent.

Sojourners: So, looking down my list of reasons for health-care costs, is the cost of medicine covered under the bargaining explanation you gave for higher U.S. medical prices?

Anderson: That’s prices. A brand-name drug in the United States will twice as expensive as a brand-name drug in most other industrialized countries. That’s because [other wealthy countries] go around and they buy all the Lipitor, all the whatever the brand name drug is, they buy it all for the country. Whereas we have the VA buying some, different health plans buying things, the Medicaid program buys stuff. Everybody needs those drugs, but there is nobody that has such a dominant position; the drug countries can play one company off each other. But we don’t get more drugs than other countries. France gets substantially more drugs than we do, but because they pay less, they actually spend less per capita than we do.

Sojourners: What about the role of fee-for-service, where doctors are paid per procedure rather than for positive patient outcomes?

Anderson: That’s a problem, but if you go to Canada, Germany, or Japan, they also have fee-for-service. So some of the countries which are much less expensive than we are also have a fee-for-service system. Now, that said, fee-for-service creates incentives for the doctors, the hospitals to do more, because the more you do, the more you get paid. It is not a good system, but from an international perspective, we’re not an outlier. We don’t have more fee-for-service than other countries.

Sojourners: Would the higher rates of MRIs in the U.S. fall into that same category of things that result from our pricing structure, but aren’t as determinative as the bargaining situation?

Anderson:  We pay for an MRI—for a body scan, a head scan, whatever—substantially more in the United States for the same procedure than other industrialized countries. We have more MRIs than everybody, except for Japan. But we’re not an outlier in having so many more MRIs than other industrialized countries. So again, it’s a factor, but it’s not a major factor. Compared to our expenditures, which were essentially double the average we see in OECD countries, we don’t have twice as many MRI per capita as other industrialized countries. We have maybe 10, 20 percent more.

Sojourners: Where do administrative costs fit in?

Anderson:  Our administrative costs are in fact higher. They represent about 7 percent of health-care spending in the United States and about 2 or 3 percent of health-care spending in other countries. So substantially higher in the United States, but you know, probably only 5 percent of the difference between the U.S. spending and, say. Canada or Japan can be attributable to the fact that we have more administrative costs. And that’s a tradeoff that we have decided to make for having more choice. Having higher administrative cost is the result of having more insurers, all which have different rules and pay different amounts. And, so there’s lots of choice in America. And as a result, each insurer has its own set of rules and its own set of enforcement activity, but equally if not more important, each hospital each doctor has to have a way of dealing with each different insurer, which adds to the administrative costs. So yes, it’s important, but probably only explains about 5 percent of the differential between the U.S. and other industrialized countries.

Sojourners: Another thing on my list here is defensive medicine.

Anderson:  This one’s hard to measure. Every single doctor that you will talk to will say that it’s a major, major factor. But from a research point of view, we can’t tell when a doctor did something because they were concerned about malpractice and when they did something that they just thought was good medical practice.

Sojourners: I imagine in some cases the doctors can’t tell…

Anderson:  Exactly. They believe that there’s a lot of stuff that they do, but from a science point of view when we go and try to figure out, well, “Did you do that MRI, that blood test because you were concerned about those lawyers?”—we can’t figure it out. A number of states have limited the liability the doctors can have, in states like Texas, and so we look at, does medical practice change when they limit the liability? And the answer is not very much, if at all. Why I think that’s true, is [if I’m a] doctor, I don’t want to get sued. It’s not that I don’t want to get sued for million dollars, I don’t want to get sued. And so when we try to change the laws to essentially say, “You can only get sued for a certain amount,” the doctors don’t practice any differently.  And so that’s why we have the Republicans and the doctors basically saying, you’ve got to do something about malpractice reform, you’ve got to do something. And I totally understand their concerns and totally believe it. But at the same time, we can’t attribute any change in behavior to malpractice awards. We just can’t see it.

Sojourners: What about questions of living wills, and high medical spending near the end of life?

Anderson:  We know is about 30 percent of Medicare spending, just in the Medicare program, is in the last 6 months of life. And that percentage is not much different than in France or in Australia or any of the other industrialized countries, if we just look at the over 65 population. Now, where it’s different, is we’re starting from a much higher base of expenditures than most other industrialized countries by a factor of 2, so we spend twice as much as they do in end-of-life care. But, we don’t proportionally spend more.

This is a really hard issue for doctors because, it’s not like it’s the Thanksgiving turkey and you know that you have 6 months to live—in many cases, you don’t know that. You want your doctor to do everything for you because there’s lots of things that they can do today to help you, keep you alive. And very few doctors are really good at saying, “no matter what we do, you’re not going to live.” Because there’s always hope; there’s always that possibility that you’re going to do well. So the whole issue of trying to do something from a policy point of view in end-of-life care, is hard. Making sure that people know about advance directives and all those things are very important, but from a policy point of view, we can’t predict death.

Sojourners: Obviously, you don’t want to withdraw medical coverage that could prevent it from being the last 6 months of someone’s life!

Anderson:  Exactly! And we don’t know when that is. The science just isn’t there. There are certain times when you do in fact know, [and]  it’s probably beneficial for the person to come to grips with it, but in other cases, you don’t know that you’re not going to make it.

Sojourners: It seems as if just from this CRS report, that it’s harder to get in the primary care office door in the U.S., partly because of lack of coverage, partly because of fewer office slots, and then, but then, once you do get in, you can get a large amount of expensive stuff, whether specialists, or scans or even organ transplants or staff or hospital bed or whatever—but much of which is apparently not so useful, or at least more expensive. Is that a fair overgeneralization?

Anderson:  Well, let’s take ‘em in pieces. The first one is, is it hard to get into a primary care facility, the answer is generally, yes. But everything is local, so in some places it’s not hard, some geographic areas it’s not. But in general, yes. The problem is that we don’t have, compared to other industrialized countries, very many generalist physicians, primary care physicians, significantly less than other industrialized countries and we pay them very little compared to what we pay specialists in the United States. And the only they can really make any money is to go in and to do a lot of specialty services, and increasingly they’re buying equipment and they’re basically becoming more like specialists in that they do a lot of procedures. So that’s how they’re making their money in the United States.

Now what we see around the United States is lots of geographic variation. So if you’re in Miami Florida, you’re going to get twice as many services than if you’re in Baltimore or Minneapolis. Not that you’re twice as sick; you just are in an area where there are lots of doctors, lots of availability of services …you know, why not? So it’s local factors that determine how much you’re going to get, not necessarily your needs, but what doctors are in your neighborhood, how many of them are in your neighborhood. They like to keep busy. In health care, everything is local. You’re not likely to get very many neurological services if there are no neurologists in the area. But if there are three in the area, you’re going to use a lot of neurology.

Sojourners: The stereotype is that the U.S. might not be doing a very good job on some of the primary health screening or preventative care, but in certain cases, at least, has the best specialty care in the world.

Anderson:  And I think that’s a true statement. We can do things in the United States that virtually nobody else can do, for very high-tech kinds of services. If something was seriously wrong with me, I would want to be in Johns Hopkins or the Mayo Clinic over anywhere in the world. At the same time, there’s lots of things that we get in the United States that probably don’t help us at all—even very high-tech things. Lots of services that probably have no value and actually might incur a risk that’s greater than the potential benefit.

Sojourners: So I’m not sure whether this is going to wind up in my story, but I’m kind of a winner in this because five years ago I had chemotherapy-resistant lymphoma, and I got an autologous stem cell transplant at Johns Hopkins. Is there any way for me to find out whether, if I lived in Canada or the U.K., would I be dead? Or, more precisely, whether I would have had an increased risk of death?

Anderson:  Now you’re getting into a detailed thing of your specific condition. If you go onto the OECD website, they will tell you what the five-year cancer survival rates for breast cancer or lung cancer or a couple of other fairly common cancers are in various countries. But the very specific thing that you had, probably is too detailed for them to have. The general answer to your question is if it’s really sophisticated, if it’s really difficult to treat, the United States probably does it the best.

Sojourners: If you didn’t have to think about political realities at all, what health-care policies would you suggest the U.S. adopt?

Anderson:  Basically, that everybody has the same health care and access to the same health care.

Sojourners: Through a single-payer system?

Anderson:  Well, that’s the payment side. And then access to the same delivery system as well.

Sojourners: So, both single-payer and a standardized quality of care?

Anderson:  Correct. What we know is, if you’re in an affluent area, [even if] you have the same insurance like Medicare—all people over 65 have the same insurance, effectively—but they don’t still have the same access to care. If you’re in an affluent area, you’re going to have better care in most cases. Not necessarily more care, but better care than in a poor neighborhood. Same insurance, but not exactly the same care.

Sojourners: Same question, except this time thinking about political realities in the U.S.: policy suggestions?

Anderson:  I think, with [the health-care reform that] passed in 2010, we’ve done the best we can with the congress that we’ve got. [Some of] us would hold our nose a little bit. But I think [it’s] the best that we can get out of the existing political system and the special interests that are beating on Congress.

Sojourners: So my impression of the health-care reform that we got—assuming that it’s successfully implemented, of course—

Anderson:  One [thing] is the legal challenge and the other is the implementation issue.

Sojourners: … I have noticed that if you let people who believe government doesn’t work, they can make that a self-fulfilling prophecy. But my understanding was that, even if the reform is implemented, while it would certainly increase access and would decrease costs some, wasn’t going to make a macro different in the level of health-care costs.

Anderson: There is no appetite for cost containment in the United States. I’ve been working on cost containment since 1978 and there is political constituency for cost-containment anywhere.

Sojourners: Well, if the costs keep growing faster than GDP—

Anderson:  And they have since 1960—

Sojourners: At what percentage of GDP will that change? We can’t reach the point where we pay100 percent of GDP in health-care costs. That’s not possible. At what point does that change?

Anderson:  I don’t know. In 1978 when it was 8 percent, I said it couldn’t go beyond 10 percent and I totally believed it. I’m sitting here at 17 percent and I can tell you right now, I don’t know.

Basically, there is no political will on behalf of any constituency to control health-care costs. There’s just no political will to do it. Yes, Congress wants to control entitlement programs, but anything that you propose—and it’s not that there aren’t lots of proposals out there—but anything that you propose, has a strong constituency as to why that’s no good. So, we talked about the fact that the prices are twice as high in the U.S., so a logical thing would be to control prices. Well, there is no constituency for controlling prices. Anything that we choose to do, there are more people that are against that option than are for that option.

Sojourners: I wonder if at some point U.S. business will overcome its ideological concerns—I mean, U.S. business minus the part of it that’s working on health care…

Anderson:  …which is a large portion! Like General Electric and all these places, it’s a huge portion. They have not put forward any significant proposals that I can see that would really control health-care spending. What they’ve done as a corporation or what they’ve said in the National Association of Manufacturers or the Chamber of Commerce, I just don’t see anything that they have proposed that would slow the cost curve growth. You should ask them, but there’s just nothing there.

Sojourners: One proposal that I’ve heard is to simply transfer pharmaceutical research and development to government, rather than run it through a patent system. Which makes sense to me. I loved benefitting from Nulasta, which kept my immune system working, but I didn’t think that needed to be advertised on American Idol. Prime time advertising is not a good use of the money that Kaiser Permanente is paying the drug manufacturer. What do you think of that?

Anderson:  Researchers/ the National Institutes of Health are not good at developing new drugs. We’re developing new knowledge, but not new drugs. We’re just not motivated by the same things that the pharmaceutical industry is motivated by. I’m not a friend of the pharmaceutical industry at all, but at the same time, I don’t think if you put a team of researchers at Johns Hopkins together with a team at the NIH, that we would have any new drugs in the next ten years.

Sojourners: Just not willing to take enough risks?

Anderson: Yeah, and we’re just not motivated. There’s just a whole bunch of intellectually boring steps that are necessary to get it to market, and we’re just not good at that. That’s not who we are. The NIH has been putting lots of money into drug development with almost no success, in terms of new drugs. They try to get it together, but they just never get far enough along that Merck will pick it up and say yeah, that’s a great new drug we’ll use.

Sojourners: That’s a little counter-intuitive for me because I would have thought that, while it’s more intellectually sexy to come up with a brand-new far-away-from-market chemical insight, still, curing disease would bring a sense of purpose and satisfaction.

Anderson:  Right, but it takes a set of skills that most researchers just don’t have. The best scientists are really the best scientists; we belong in the ivory tower as opposed to the real world.

Sojourners: Notwithstanding that statement, I have found this interview extremely helpful in understanding the real world. Thanks for sharing your expertise.

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