Heroes, Villains and ‘Perverse’ Incentives. Story of Big Hospitals vs. Big Pharma


A recent article in Fortune (April/May 2021, pg 94, Big Hospitals vs. Big Pharma: Which industry is most to blame for soaring health care costs?) provides a lot of insight into the costly, complex U.S. healthcare system. Thanks to Stan Cohen for the article.

Key points:

  • U.S. spent 17.7% of GDP on healthcare expenditures in 2019, comparable OECD country averages were 10.7%
  • U.S. per capita costs were $10,966; next closest were Switzerland at $7732 and Germany at $6646
  • Despite are higher costs, U.S. has highest age-adjusted mortality rates (compared to these countries) and higher pregnancy-related deaths.
  • The U.S. has the highest rates of obesity among these countries; however, other countries smoke more and drink more
  • The biggest part of healthcare costs is from hospital care at 33%; medication costs account for ~10% but play a role in hospital costs.
  • The article makes the point that some high-priced medications, including the $2.1 million dollar Zolgensma, are worth it and others are overpriced
  • Recently both the hospitals and pharma have had good press with heroes like frontline healthcare workers and vaccine scientists. Recent villains include Martin Shkreli for excessive price hiking. However, most people are “just businesspeople responding rationally to the incentives they face.”
  • Medical costs for pharmaceuticals are complicated by an ‘insanely complex’ drug distribution system with hidden incentives and rebates. In many situations, “patients can’t get access to the better or more affordable drug because there’s some rebate happening behind the scenes”
  • In the U.S. “a majority of people are almost entirely separated from the market mechanism…Out-of-pocket spending is only 13% of total health care expenditures… most people have little incentive to shop carefully. Economically, the real consumer, the patient, is a bit player in this drama.”

My take: Improving the healthcare system is a great challenge. “It’s a lot harder than placing blame.”

Related blog posts:

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