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McKinsey Global Institute

Why do Americans pay the highest healthcare costs?

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McKinsey Global Institute It’s widely recognized that the US citizens have the highest healthcare costs in the world. Have you ever wondered why Americans spend so much more? The majority cost revolves around inpatient and outpatient care sectors but can you guess what takes up the next largest sector? Hint? It’s the prescription drugs.

McKinsey & Company recently wrote about this issue. They are a leading management consulting firm that advises governments and private businesses from all over the world. The article explains that America spends $2.1 trillion on healthcare every year and it breaks down the healthcare costs into categories. Out of this $2.1 trillion, roughly $650 billion is spent above the expected predictions. Out of this $650 billion over spending, $98 billion was overspent on medications. That’s a vast amount of above expected pending on drugs!

Many people argue that this figure is so high due to the high price of medications and the fact that the US prescribes an expensive mix of drugs. Others feel that it’s down to American citizen being sicker than other nations. Therefore, it’s a simple case of supply and demand. This is a compelling and logical case but MGI analysis actually suggests the opposite.  The only diseases where Americans have a higher prevalence are Diabetes, trauma related disorders and cancer.

The MGI report confirms that the rise in drug costs is down to numerous factors. Primarily, there has been an increase in volume and price. Branded drug use was 40% lower while generic drug use was 12% higher. On top of this, in general, drug prices were 50% higher.  Surely the drop in sales of branded drugs by 40% should have helped lower the overspending? Apparently not. While branded drug use did go down by 40%, the costs of these drugs actually went up by 77%, therefore the cost of those branded medications still amounted to more money than expected. The report by MGI also confirms that “US patients use a more expensive mix of drugs, driving the price gap up to 118%, due partly to more rapid adoption of new drugs”.

The original article highlights main healthcare overspending issues and suggests ways for reformers to act so over expected spending is reduced. Reducing the over spending can only be a good thing for US citizens and should ultimately result in curbing the rising costs and even (with any luck) reducing healthcare contributions. To see an interactive graph on this subject, please visit the original article at mckinsey.com.

What’s your opinion on why Americans have the highest healthcare costs? Do you agree with these facts?

 

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