It is a common belief that because the United States spends by far the most per capita on health services that it must also be providing the highest quality of care. However, in looking at comparative health data this appears to only be sporadically true. The United States has an infant mortality rate of 6.7 percent, which is significantly higher than the OECD average of 4.7. It’s also middle of the pack in life expectancy (28th in the world, at 78.2 years), trailing far behind countries like Japan (86.4 years) that spend about a third as much as the U.S. per capita. In terms of access, the United States is the only OECD country that has a significant population that has been left uncovered by the healthcare system. Staffing is another measure where the United States lags behind the OECD average, with 2.7 physicians per 1,000 people; the OECD average is 3.1, and 8.1 nurses per 1,000 people, trailing the OECD average of 9.0.

System Inefficiency tied to Crippling Administrative Costs

A primary factor in the rise of healthcare costs has been escalating financial inefficiency in the form of extraordinarily high administrative expenses in both the private and public sectors. A Harvard study conducted in 1999 found that healthcare costs associated with administration were $294.3 billion and equated to $1,059 per capita in the United States. It’s important to remember that these aren’t costs for providing actual medical care, but rather the bureaucratic processes involved in maintaining the system. Overhead costs, particularly in the private insurance sector, made up a sizable percentage of overall administrative costs.

In 1999 for instance, private insurance entities spent 11.7 percent of total premiums collected on administrative overhead, compared with Medicare (3.6 percent) and Medicaid (6.8 percent). Hospital administration also accounted for a significant percentage of total costs at $315 per capita.

In order to put the high level of these costs into context the study compared the data with that from equivalent sectors in the Canadian healthcare system. The administrative costs in the United States were consistently much higher than those in Canada, especially when considered at a per capita level. Total administrative costs were $1,059 per capita, compared to only $307 in the Canadian system. It’s important to note that Canada operates under a publicly funded national health system, whose uniformity effectively cuts out much of the bureaucracy and allows for the elimination of many of the administrative expenses present in the public/private system.

Rise of Medical Malpractice Awards and Insurance

One of the primary concerns both inside and outside of the health industry in recent years has been the increase in the amount physicians are required to pay for malpractice insurance and an associated reduction in the workforce. This has mirrored a general rise in the number of annual malpractice lawsuits over the past 50 years in the United States. Data presented in the Journal of Health Affairs indicated an increase from 1.5 suits per 100 physicians in 1956 to 15 lawsuits per 100 physicians in 1990.

The average amount of damages paid has also risen dramatically moving from $154,000 in 1991 to $291,000 by 2003. In an effort to combat this trend, 38 states have adopted policies that place a cap on the maximum amount of damages that may be awarded. Typical limits are $250,000 for suits against individual physicians and $500,000 for those involving hospitals or clinics.

Byline: Frank Anderson writes on everything health-related from Medical Equipment Fraud to health insurance law.