The recent increased scrutiny on the US healthcare industry—and on health insurers in particular—has generated an intense public display of complaints and finger pointing to different segments that might be to blame for the problems that exist within our current system. The public discourse has also shown, in many cases, a fairly widespread lack of understanding on how the industry actually works. Over-simplified or partial information is often presented to conveniently shift blame on one segment over another (i.e., insurers, providers, pharma, government). These public attacks encourage division rather than uniting together to find solutions.
The reality is Americans spend far more on health care than anywhere else in the world but we have the lowest life expectancy among large, wealthy countries. Perhaps all players within this troubled system should lay down their political megaphones and choose to focus on developing a deeper and more introspective understanding of why our healthcare system is so expensive. In order to solve complex problems, we must first seek to understand the root causes of those problems.
This article from USA Today, authored by Ken Alltucker, explores seven answers to the question Why is healthcare in America more expensive than any other comparable nation?
I have summarized the information with some commentary under each reason:
- A Lack of Price Limits
Of the $4.5 trillion spent on U.S. health care in 2022, hospitals collected 30% of that total spending according to data from CMS. Doctors rank second at 20%, prescription drugs at 9%, and health insurance collects 7% for administrative costs.
In US medical facilities, we have more specialists available than in other nations. Access to 24/7 specialty care drives up costs for these facilities. Another difference in America is privacy. In most American hospitals, a patient room will have one or two beds. In many countries abroad, beds are organized into wards, with rows of beds and much less elbow room. These luxuries we are granted in American hospitals come with their hefty costs, but certainly do not entirely absolve hospital systems of blame for high prices.
Many hospitals are nonprofit, meaning they are spared from federal, state, and local taxes. In 2021, they were spared $37.4 billion in these taxes. This tax break is designed to allow these nonprofit hospitals to fulfill community promises to the underserved and low-income. However, nonprofit hospitals only paid out $15.2 billion in charity care that same year. To what did they devote the remaining $22.2 billion?
- Hospitals and Doctors Are Paid Based on Services Delivered, Not Outcomes
Hospitals and doctors do not necessarily receive payment if their patient gets better, but rather based on the tests and procedures they have ordered and performed. This “fee for service” payment method leads to an issue of quantity over quality in health care, leaving patients saddled with a heavy bill inflated by occasionally unnecessary costs. How people get paid (or reimbursed) can be a major factor in how people behave—both at the individual level and across broader organizations.
- Specialists Get Paid More Than Primary Care Doctors
Specialists get paid more from the government and private insurers than primary care doctors do. Some see that as a system that rewards doctors who specialize in caring for patients with complex medical conditions while skimping on pay for doctors who try to prevent or limit disease across the population. If more payment was dedicated to primary care doctors to prioritize preventative care, it could help make people healthier and reduce costly spending on specialists.
- Too Much Spending Is Wasted on Administrative Costs
David Cutler, a Harvard University economist, estimates that 25% of medical spending is due to administrative costs. Essentially, too large of a portion of health costs stem from the complexity of the system, and not from actual patient care. Administrative tasks, complications, busywork, and communication barriers add to these unnecessary costs. Rather than relying on dated fax machines, an electronic record system that could more effectively communicate with third party systems would speed up the process and reduce costs. Some systems have begun utilizing AI-powered tools to reduce provider workload and allow for seamless transfers and interpretations of information. However, the expansive adoption of technology in healthcare has been too slow compared to other industries.
- Healthcare Pricing Lacks Transparency
When a patient enters the hospital for a test or procedure, they’re often unaware of what it will cost them. Health care prices are basically hidden from the public. There was a federal transparency law passed and enacted that required hospitals to disclose cash rates negotiated with insurers to a database and estimate prices for at least 300 services to patients. However, a November 2024 report from Patient Rights Advocate stated that only 21% of hospitals fully comply with this rule. Transparency is crucial so patients don’t feel blindsided and betrayed by their care providers when they are sent their medical bills. The same MRI can cost $300 or $3000 depending on where it is performed. A colonoscopy can cost $1000 to $10,000 depending on where it is performed. Prices matter in health care, especially given the large cost variances that have developed over time. Consumers must trust our health system, and full transparency is a commitment we must make.
- Prescription Drugs
In America, prescription drug prices are far greater than other wealthy nations—costing more than 2.5 times the prices in 32 comparable countries according to a 2023 HHS report. In one study of 224 cancer drugs approved by the FDA from 2015-20, the median price for a patient was $196,000 per year.
- Private Equity
Finally, private equity firms have acquired many hospitals and large medical practices with the goal of making a profit. These investors have also targeted specialty practices in certain states and metro regions, which has triggered some scrutiny from regulators and certain elected officials concerned that such structures could result in less consumer choice and potentially higher prices.
At the same time, it’s important to note that there are countless examples of private investment firms funding, driving and accelerating valuable impacts & innovation across the healthcare industry.
The bottom line: Our healthcare system is complex, and certainly in need of significant change. As a society, we must understand how our system really works, where its most prominent faults lie, and why those faults persist. Just as we must study history to learn from past mistakes, we must understand the current state of our healthcare system and the root causes of its most important problems if we hope to improve it.
Through My Eyes 
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