Report summary: Cost of Healthcare in US; McKinsey study

I read through a 94 page McKinsey report on the costs & economics of US Healthcare.

Here’s a summary.

1. 7 cost categories of healthcare: hospital care, outpatient care, drugs, administration & insurance, public investment, long term care & durable medical equipment.
2. US spends more on healthcare than any other nation. 16% of GDP or $1.9 Trillion in 2003, compared to 6.5% in 1960
3. Why: a) Not enough incentive for patients and consumers to make value-conscious choices b) not enough incentives for providers and suppliers and c) no reliable mechanism to drive down input prices
4. Despite higher costs, US does not deliver any better medical care than any peer country.
5. Additional spending in US NOT explained by more diseases in US
6. US outspends more in hospital care and outpatient care. (Which make up over 80% of spend over comparable countries)
7. Three main components of US healthcare: a) inputs consumed – salaries, drugs, devices, etc. ARE the largest portion of the spend b) inefficiencies in operational costs are 2nd and c) intermediation processes – administration & regulation.
8. US consumes 20% LESS prescription drugs than other countries (Canada, Germany, UK), but pays a lot more.
9. Prices of branded products in US are 60% higher.
Why? 1: 10. Use of Pharmacy Benefit Manager (PBM) is unique to US – 1 to 3% extra costs to US system
Why? 2: 11. Use of rebates between pharma and PBM – average about 10% of the cost of drugs
12. US drugs on overall cost 50-70% higher than peer countries.
13. In US physician compensation is 6.6 of GDP per capita compared to 4 times GDP per capita elsewhere.
Why? 1: 14. Fee for service creates incentives to see more patients
Why? 2: 15: Physicians tend to co-own outpatient facilities like ambulatory surgery, imaging centers, etc.
16. US spends more on nurses. Why? We employ more nurses per patient & Complex structure in regulation mandates higher staffing

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