While population growth and increasing demand contribute to higher spending, price inflation plays a bigger role. According to the Health Cost Institute, price hikes accounted for three-quarters of the rise in U.S. medical spending between 2014 and 2018.
A Health Affairs study found that U.S. drug prices tripled between 1997 and 2007. Americans now pay four times as much on average for drugs as consumers in 11 similar countries, according to a 2019 congressional report. A separate Health Affairs study revealed that hospital prices are 60 percent higher in the U.S. than Europe.
Higher prices in the U.S are all the more perplexing in view of our emphasis on market forces in health care. Unlike many countries, we have no government-run single-payer system dictating prices for drugs, medical equipment and hospital stays. Yet we’ve seen little of the price competition free markets are supposed to generate. Drug companies routinely raise prices at rates far exceeding overall inflation, without making meaningful improvements in their products. Hospital price increases also outstrip inflation, Health Cost Institute data shows.
The reason, of course, is that American health care mostly honors free market principles in the breach. U.S. drugmakers enjoy extensive protection from competition. Patents bar generic competition for a period of years, and pharmaceutical companies have become adept at extending those monopolies through litigation and “pay for delay” deals with potential rivals. North Chicago-based Abbvie, for example, has blocked competitors from challenging Humira, the world’s top-selling drug, for two decades. The lack of competition gives drugmakers like Abbvie a free hand to raise prices.
U.S. hospitals, meanwhile, are increasing their pricing power through consolidation. As expanding regional and national chains absorb more hospitals, competition declines and prices rise. Multiple studies have found that significant price increases follow hospital mergers.
Higher prices might be easier to swallow if we were getting more for our money. But the U.S. trails other developed countries on a range of health metrics. And COVID-19 laid bare many previously unappreciated shortcomings in American health care. We were utterly unprepared for a pandemic, with critical shortages of testing and tracing capabilities, trained medical professionals, ICU capacity, and personal protective equipment. Perhaps worst of all, we had no comprehensive plan for marshaling and deploying the necessary resources to fight a rampant contagion that has killed more than 350,000 Americans so far.
Is it any wonder the Journal of the American Medical Association found that the U.S COVID death rate far exceeds the rate in other wealthy countries? A death rate like Canada’s would have saved nearly 118,000 Americans, according to the study.
Even the great triumph of the pandemic—highly effective vaccines developed in record time—is imperiled by inadequate systems for inoculating hundreds of millions of people. Again, some other countries are vaccinating their people at a faster rate.
The pandemic should be a wakeup call on the need for major change in U.S. health care. But as Messrs. Bezos, Buffett and Dimon learned, the forces supporting the status quo are powerful.
Industry lobbyists have proven themselves more than a match for would-be reformers. Huffing and puffing from Congress and the White House hasn’t led to meaningful drug price restraints. Tactics drugmakers use to extend patent protections far beyond their original exclusivity period are still legal, and Medicare is still barred from negotiating drug prices. Hospitals, meanwhile, continue buying up rivals and eliminating competition with little interference from antitrust enforcers.
Perhaps the Biden administration will push harder for reform. But I have more confidence in our ability to get COVID-19 under control than our chances of reining in health care costs.