Reviews | When it comes to healthcare, America is the go-to nation in the world

Because we can’t. In fact, the option do what everyone else does is unique andat our disposal.

The rest of the world’s health care systems survive only because they receive a massive and continuous, but hidden, subsidy from the inefficient system in the United States. Two unique features of our arrangement – ​​the absence of price controls and the profit motive of physicians and hospitals – allow other countries to transfer the risk and cost of medical innovation to Americans.

And unlike any other industry, once Americans have borne the costs of vital breakthroughs and incremental improvements in tools and techniques, these can be used elsewhere at little additional cost. The American exorbitance allows other nations to offer universal, price-controlled care without any decline in quality, technology, or productivity that would otherwise result from central planning.

A similar complaint has been made about the country’s defense alliance: US allies profit from US defense spending for free. Health care, in effect, is a sort of second NATO.

The United States cannot cut costs by doing what other countries do, because what others do depends on maintaining our unique system as is. Our only hope is to put in place more sensible economic structures that might introduce the competition needed to bring prices down.

The size of the US healthcare system is almost impossible to overestimate. With just four percent of the world’s population, the United States accounts for almost half of the $8 trillion global healthcare economy. England’s National Health Service is tiny by comparison – barely larger than funding for the US veterans health system. Canada’s total expenditures are comparable to the revenues of a single US company, United Health. Free-market star Singapore spends as much as New Jersey’s Medicaid program.

That’s why all healthcare innovators – makers of drugs, devices, diagnostics, medical software – share the same business plan: Make money in the United States and take everything you can get in other markets.

The pharmaceutical industry generates nearly 50% of its global turnover there, as do medical information technology companies. Device makers make 40% of their money in the United States. And that understates things, because US revenue is driven by higher prices, so margins are more important. If the United States accounts for half of a company’s revenue, it probably contributes at least 75% of its profits.

America’s dominance may not seem obvious. After all, high-tech healthcare exists all over the world. Even in emerging economies, brilliant researchers, top universities, and cutting-edge companies are conducting cutting-edge research. Many have close relationships with their country’s health systems, and some innovations are being introduced in other countries. But the profit opportunity – the reason to invest – is still generated in the United States.

Consider the well-known miracle drug Gleevec. Before his arrival in 2001, less than 30% of patients diagnosed with chronic myeloid leukemia survived at least five years; today, 90% do.

Gleevec is also a poster drug for American dysfunction. Novartis steadily increased its price in the United States – even after its patent expired – eventually reaching more than $123,000 per year in 2020. Yet in Canada, Gleevec was priced at $38,000. A generic version in India now costs just $400.

Drugmakers and their adversaries are vying for the “fair” returns on innovation that companies need to maintain their incentive to invest in new drugs. Critics point to how much of the pharmaceutical industry’s profits come from barely legal anti-competitive behavior or drugs created with strong public support – like the US government’s $12 billion investment in coronavirus vaccines .

But the huge returns of a few blockbuster drugs make up for the many unsuccessful products from drugmakers. That’s the business model, and these large, “unfair” returns are only available in the United States.

If the world’s largest healthcare economy limited pharmaceutical companies to “fair” returns – as other countries are trying to do – then few new drugs would be created. The United States does not pay $123,000 a year for Gleevec despite Canada paying only $38,000; Canada can pay $38,000 only because the United States pays $140,000.

And while pharmaceuticals are the most obvious area where the U.S. economy is driving innovation, the $3.5 trillion we spend on healthcare other that medicines contributes even more to global progress in health care.

In 2000, Intuitive Surgical Systems introduced the first commercially successful robotic surgery system. The company’s da Vinci robots carry price tags of $2 million plus expensive service contracts. In the first 20 years, 6,000 robots were sold worldwide, and US hospitals bought about two-thirds of them.

Why? In the United States, prices charged by hospitals and doctors are unlimited. American doctors earn about two to three times more than their Western European counterparts. Hospitals charge two to five times as much for their services.

The obvious question, so rarely asked, is: why isn’t competition driving down US health care prices? The answer: America’s stagnant third-party payment system allows hospitals and physicians to avoid price competition. Instead, they compete for innovation. That’s why hospitals advertise advanced, high-tech cancer therapies; surgeons are building a reputation for cutting-edge procedures; and even your family doctor has to invest to keep up.

Right now we are stuck. We want what all other countries have. American reformers believe we are just one smart policy adjustment away from getting it – perhaps by instituting accountable care or “values-based” care.

But the only way to reduce health care costs in the United States is to redesign the system’s top-down political structures that rely on huge centralized payers.

What is needed is a way to separate the safety net function that insurance provides from consumer decision-making. If insurance covered only major and unforeseen health problems, a consumption economy could stimulate competition in the rest of the system. This would give physicians and hospitals an economic incentive to consolidate services, improve efficiency, reduce waste, and provide truly “value-driven” care.

In this century, the world has seen the democratization of many services considered “too complicated” for consumers – computers, finance, international travel, furniture construction, etc. All of this happened because people had enough control over their own spending to drive competition among innovators. This is how the industry managed to put the power of supercomputers in everyone’s pocket, while reducing the price by 99%.

Until the same kind of competition is introduced into health care, the American system will continue to subsidize the world – and cost us a fortune.