Does the U.S. Pay More and Get Less?

If you were to experience a hospital stay, would you want a private room? Cable TV? Gourmet choices on your dinner menu? A couch or second bed for a loved one? And would you insist on a doctor as your primary caregiver, rather than a nurse? 

Or would you be willing to give up these amenities in return for a less costly experience? 

What brings this to mind are some charts at Austin Frakt’s blog — showing international comparisons of the costs of common procedures. For example, the chart below suggests that we spend a lot more than other countries for normal baby delivery. In fact, we’re paying about two to three times the developed country average.

Austin then delivers the coup des gras: In addition to all this extra spending, we also have higher infant and maternal mortality rates than everybody else.

But if you are willing to forgo what I am calling the “amenities” of care, you can have a baby delivered in the U.S. for less than the OECD average. And if you stick with the prenatal regime, your expected infant mortality will be below the OECD average. Details below the fold.

As readers of this blog know, we have been critical of international cost comparisons that show we spend more and get less. The reasons are: (1) normal market forces have been so completely suppressed in health care all over the developed world, that spending data in no way reflects the true costs of resources used; (2) making the data even more suspect, other countries do more than we do to shift costs and disguise costs; (3) if you count up real inputs — doctors, nurses, hospital beds, etc., per capita — we arguably spend less than the OECD average; and (4) such outcome measures as life expectancy and mortality compare our heterogeneous population with the homogenous populations of Europe, instead of comparing Europeans with Americans of European descent.

There are two other points we have previously made that are also worth reiteration: (1) with respect to real resource use, there is nothing other countries are doing that we Americans cannot do on our own; and (2) far from needing government help, if we want to copy methods of other countries, we mainly need government to get out of the way.

All that said, one of the things I (and others) generally ignore is the role, importance and cost of amenities. This is a mistake. In a system in which the money price of care is basically zero and there is excess capacity, there is nothing left for providers to do but compete on amenities!

Okay, time to fulfill my previous promise. Here is something from our book, Handbook on State Health Care Reform:

Parkland Memorial Hospital in Dallas…delivers 16,000 babies a year — more than any other hospital in the nation. Almost all the mothers are uninsured. The vast majority are Hispanic (82 percent) and illegal (70 percent). By almost any definition, these mothers are “at risk.” But among those who take advantage of Parkland’s prenatal program (more than 90 percent), the infant mortality rate is only half the national average. How does Parkland do it? By being very good at what they do. Despite being a publicly funded health delivery system, Parkland operates what Regina Herzlinger, of Harvard University, has described in other contexts as a “focused factory.” They are so good at delivering babies, they produce an annually updated, internationally praised textbook on how to deliver babies, and their methods are being copied in Britain and other countries.

However, Parkland’s methods will not satisfy everybody. Prenatal care is delivered in clinics staffed by nurses, not doctors. Hospital deliveries are usually executed by midwives rather than OBGYNs. And like public hospitals in Toronto and London, Parkland is perpetually overcrowded. In fact it is not unusual to find patients on beds in hallways.

Although Parkland is quite good at some things, it is not as good at others. As is the case with many other inner-city public hospitals, patients who do not face life-or-death emergencies can wait hours for care in Parkland’s emergency room. A migraine headache patient might wait all day. In fact, almost any nonemergency service involves inordinate waiting. Getting a refill on a phoned-in prescription, for example, can typically take three days. By contrast, Dallas-area Walgreens stores refill prescriptions in less than an hour and some Walgreens outlets will do it in the middle of the night.

So why not replicate Parkland’s baby delivery system all over the country? One thing standing in the way is government. If all of Parkland’s 16,000 expectant mothers were enrolled in Medicaid or had private insurance, for example, much of what Parkland does might not be possible:

Prenatal care delivered by nurses rather than doctors might not be allowed under many states’ Medicaid rules. Ditto for deliveries performed by midwives. And under typical state insurance regulations, patients with private coverage would be encouraged to see OBGYNs (because of zero patient cost sharing), where the cost would be higher and the overall quality of the pregnancy/delivery episode might not be as good (because of fragmented care).

Comments (16)

Trackback URL | Comments RSS Feed

  1. Joe Barnett says:

    Amenities: Does this explain why M.D.Anderson Cancer Center (Houston) has a multistory lobby, wood paneled patient rooms, a piano bar, a cappuccino bar and a shopping mall?

  2. Linda Gorman says:

    Anyone who repeats the canard about higher US infant mortality rates is unqualified to make international health policy comparisons.

  3. Harry Cain says:

    John, since you’re getting off on tangents, here’s one I’d like your view on. I think that the Exchanges could be the most valuable item in ACA, and if done well (with not so much total control of private insurers’products, prices, MLRs, customers, etc.) could make another important reform much more feasible — moving Medicare to premium support. One reason that idea has been hard to sell in the past is that the elderly and disabled are widely seen as too vulnerable to become effective consumers in the private market. Exchanges, available everywhere, could easily facilitate their insurance shopping. [Then if we can drop the tax breaks for employers, we might get a very vibrant individual market serving most everyone.] Your view?

  4. Joann says:

    Um, that’s coup de grace. You must have been thinking of pate de foie gras……

    Agreeing with Linda Gorman – those infant mortality rate comparisons must be taken with a grain of salt due to differences in definitions (infant mortality vs stillbirth, for instance) and the preterm births resulting from poor prenatal care in some high risk populations. The Parkland example works wonderfully for those mothers who care enough to come for prenatal care – not so much for those who would rather smoke crack.

  5. Matt says:

    Joe,MD Anderson’s casino style strategy must be working. Accourding to The American Hospital Directory ( they are showing net income of $1,013,000,000 (yes that is a billion) over the past five years. Not bad for a not for profit that crys broke and doesnt pay taxes

  6. Charlie L says:

    Since Parkland is government (it’s the Dallas County Hospital District, a public tax-funded hospital district), are you saying that government regulators need to get out of the way so that a government provider can do the right thing?

  7. John Goodman says:

    @Harry Cain

    I have written about the dangers of exchanges under the heading of “Managed Competition.” See the chapter in “Lives at Risk.” For Medicare, there is a very sophisticated risk adjustment mechanism wich over comes a lot of the problems that would otherwise undermine quality health care.

  8. Ralph F. Weber says:

    I don’t know where he’s getting estimated childbirth costs of almost $9,000. On MediBid, depending on the state, we are getting all inclusive bids between $2,400 and $4,000. He must be quoting chargemaster rates, not paid rates. Very misleading.

  9. Vicki says:

    I would like to second Ralph’s question? Where are these numbers coming from?

  10. Woody says:

    Along the same lines as Ralph and Vicki, there is a huge difference (3 or 4 times) between billed charges and what contracts actually pay (what providers are willing to accept). The latter is the real cost. Do these “studies” correct for this?

  11. Greg says:

    The nice thing about this site is that it is about the only place where you get the other side of the story.

  12. John Goodman says:

    See Arnold Kling’s comments on this post at EconLog:

  13. steve says:

    This issue is not limited to hospitals. Virtually all of the new surgicenters being built in our area are called Taj Mahals for their level of opulence. Fountains, flat screens all over the lobbies and lots of marble and granite are the norm.


  14. SmartFire says:

    For those looking for the underlying costs quoted, refer to John’s earlier post found here:

    This article–and some less than impressive prenatal physician experiences–has been very influencial in my decision to have my first child in a birthing center staffed with midwives vs. a hospital setting.

  15. Beverly Gossage says:

    Most individual policies cover complications of delivery and pregnancy but not normal maternity and delivery,saving policy holders $200 to $300 per month. Many young couples have found that they can save up those premium dollars and pay cash for maternity services if and when they choose to conceive a child.

    Some legislators want to require that ALL policies cover normal maternity. This, of course, would raise rates, pricing some out of a policy. That leads us to the next logical step…..subsidizing.

  16. Tom H. says:

    Good point Beverly.