BUSI 429 Week 1 Discussion Board Forum 1 Example

Discussion Board Forum 1: Explaining U.S. Health Care Spending

BUSI 429 Healthcare Economics, Discussion Board Forum 1

Thread by [Student Name]

The workplace details and the classmates are composites; the textbook, Scripture and the peer-reviewed sources cited are real.

Our hospital's finance office recently compared what commercial insurers pay us for a total knee replacement with published figures from Germany and France, and the difference was striking: we are paid well over twice as much for a procedure that uses similar implants and similar lengths of stay. That comparison is a small version of the question this forum asks. Feldstein (2015) frames health spending as the product of two things, the quantity of services used and the price paid for each, and any explanation of high spending has to say which of the two is responsible.

Four explanations come up often. An aging population is one, but the United States is younger than most other wealthy countries. Overuse is another, yet Americans have fewer physician visits and shorter hospital stays than people in many comparable nations. Lifestyle, especially obesity, adds costs, but not nearly enough to explain the gap. Administrative complexity matters more, though it is partly a pricing issue itself, since much of the billing and insurance work exists to negotiate and collect different prices from many payers.

The evidence points most strongly to prices. Anderson et al. (2019), updating a 2003 analysis with Uwe Reinhardt, used OECD data and found that the United States still has significantly fewer hospital beds, physicians and nurses per person than the median OECD country. Because Americans are not consuming more resources, the authors concluded that higher prices are the primary reason the country spends more, and they urged policy makers to focus on prices in the private sector, where the gap with public payers has widened.

Why are prices so high? Feldstein (2015) explains that health care markets lack many features of competitive markets: patients rarely know prices in advance, insurance shields them from much of the cost and hospitals in concentrated markets can negotiate higher rates. In most countries, governments set or negotiate prices across the system, while in the United States each insurer negotiates separately with each hospital and physician group. The United States does not mainly buy more health care than other countries; it pays more for the care it buys.

For a hospital administrator, this matters because price is where scrutiny from employers, insurers and policy makers is heading, through transparency rules, employer purchasing coalitions and proposals to cap commercial rates. The prophet Haggai described people who earned wages only to put them into a bag with holes (English Standard Version Bible, 2001/2016, Haggai 1:6), and a system that pays more for the same care leaks resources that could serve patients elsewhere.

Reply to Jordan

Jordan, you argued that Americans simply use too much health care, pointing to the volume of imaging and specialist visits. Overuse certainly exists in specific services, and the United States does perform more of some high-tech procedures, such as MRI scans, than many countries. Those services are visible and easy to criticize, which may be why overuse feels like the obvious answer. But the broader comparisons do not support overuse as the main explanation. Anderson et al. (2019) found that the United States has fewer hospital beds, physicians and nurses per person than the median OECD country, and other comparisons show fewer physician visits and shorter hospital stays per person. Feldstein (2015) explains that spending equals price times quantity, so a country can spend much more while using about the same amount of care if it pays more for each service. I would suggest separating two policy questions. Reducing low-value care, such as unnecessary imaging for back pain, is worth doing for patients' sake, since every unneeded test carries its own risks, but it will not close most of the spending gap. Addressing prices, through competition, transparency or payment rules, addresses the larger driver. It is also worth remembering that some apparent overuse is a response to prices: when a hospital is paid generously for a scan, it has a reason to invest in scanners and fill their schedules. Which kinds of overuse do you see most often in your workplace? Identifying them could still save money and spare patients unnecessary tests, even if prices remain the main story behind the national figures.

Reply to Amara

Amara, you asked why the same scan can cost very different amounts at hospitals only a few miles apart. Economists have studied exactly that. Cooper et al. (2019) analyzed claims covering 28% of Americans with employer insurance and found that spending per privately insured person varied threefold across regions, with about half of the variation driven by prices and half by quantity. Prices varied widely across regions, across hospitals in the same region and even within the same hospital; for a lower-limb MRI, about a fifth of the price variation occurred within single hospitals. Market structure mattered: prices at monopoly hospitals were 12% higher than at hospitals in markets with four or more competitors. In other words, the price a patient's insurer pays depends heavily on how much bargaining power the hospital holds, not only on what the service costs to deliver. That helps explain why two nearly identical scans can carry very different prices. Feldstein (2015) explains that when buyers cannot easily compare prices and sellers face little competition, prices can rise well above cost. For your imaging center, this suggests two strategies, publishing clear self-pay prices and reviewing contracts with insurers that pay far above or below market, so that your prices can be defended to patients and employers alike. The authors also found that hospital prices bore little relationship to what Medicare pays the same hospitals, which suggests private prices reflect bargaining power more than cost. Do you know whether your region has one dominant hospital system? The answer often explains much of the price variation patients notice, and it can guide which contracts deserve the closest review.

References

Anderson, G. F., Hussey, P., & Petrosyan, V. (2019). It's still the prices, stupid: Why the US spends so much on health care, and a tribute to Uwe Reinhardt. Health Affairs, 38(1), 87-95. https://doi.org/10.1377/hlthaff.2018.05144

Cooper, Z., Craig, S. V., Gaynor, M., & Van Reenen, J. (2019). The price ain't right? Hospital prices and health spending on the privately insured. The Quarterly Journal of Economics, 134(1), 51-107. https://doi.org/10.1093/qje/qjy020

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Feldstein, P. J. (2015). Health policy issues: An economic perspective (6th ed.). Health Administration Press.