By NextBestFitU.S. prices are far higher than in other countries
The U.S. uses about as much care as peer countries but pays much more per unit: hospital stays, physician fees, drugs, devices, and administration all cost more.
Evidence
- Private hospital prices average 254% of Medicare.Sources: RAND Corporation (2024)
- U.S. drug prices average 278% of 33 OECD countries; brand-name drugs 422%.Sources: RAND Corporation (2024)
- Pricing failure wastes an estimated $231–241B a year.
Who's affected
- People with employer coverage: Private plans pay the highest prices, passed on through premiums.
- Taxpayers and public budgets: Public programs pay more than peer countries too.
- Hospitals and specialist groups with high private prices: Providers with pricing power earn more per service.
- Drug and device makers: U.S. prices are well above those in peer countries.
Under your mix of paths
- Fragmented buyers with little leverage
- Provider consolidation
- Patents and exclusivity
Related costs
Open questions
- Should prices be set publicly, negotiated by one buyer, or left to markets with transparency?
Caused or worsened by these paths
This problem only matters if one of these paths is chosen.
Limits on debt collection may reduce hospital collections and lead hospitals to raise other prices.
Hospitals may respond to the fee ban by raising professional fees.
Gradually moving to uniform payment rates prolongs today’s high prices.
Restricting public funding to neglected research areas leaves reliance on high prices elsewhere.
Solution paths (6)
Open a path for what it fixes, what it creates or worsens, who gains and who loses, precedents, and how it connects to other paths. See all paths as a decision tree.
A public commission sets the same rates for every payer (public and private), as in Maryland or Germany.
- +U.S. prices are far higher than in other countries
- +Patients can't know prices in advance
- +Hospital and physician consolidation raises prices
- −Faces political, industry, or legal opposition
- −Price limits can cause shortages, launch delays, or exits
Commercial insurers may not pay more than e.g. 200% of Medicare rates.
- +U.S. prices are far higher than in other countries
- −Reduces income or business for affected groups
- −Price limits can cause shortages, launch delays, or exits
Antitrust enforcement, ban anti-competitive contract terms, and site-neutral pay; prices still set by negotiation.
- +U.S. prices are far higher than in other countries
- −Takes years, or money up front, before it pays off
- −Solves only part of the problem
Each hospital receives an annual budget for operations, negotiated with the payer, instead of per-service billing; capital is funded separately.
- +U.S. prices are far higher than in other countries
- +About $1 trillion a year in administrative cost
- +Rural hospital closures
- +Low-value care and overtreatment
- −Simplifying billing would displace hundreds of thousands of workers
- −Fixed budgets can ration care
- −Paying a fixed amount per patient rewards doing less
Keep paying per service, but at national rates (like Medicare or Japan's fee schedule).
- +U.S. prices are far higher than in other countries
- +Longer waits if demand grows faster than capacity
- −Low-value care and overtreatment
- −Solves only part of the problem
Pay a fixed amount per enrolled person per year to a primary care practice or integrated system.
- +U.S. prices are far higher than in other countries
- +Prevention and public health are underfunded
- −Reduces income or business for affected groups
- −Paying a fixed amount per patient rewards doing less
- −Targets and quality metrics invite gaming
Also addressed by paths for other problems
One buyer sets rates for all care. Employer plans paid hospitals 2.54× what Medicare paid in 2022, and that gap is what one rate schedule closes.