White paper – Paris/New York, April 25th, 2016

Key findings

Why Americans pay so much for healthcare but get so much less in terms of quality and efficiency than any other developed nations?

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European patients can access high quality hospitals with well trained medical staff, using the same technologies, pharmaceutical products and devices,for half the price they would pay in the US.

Main findings:

  • The training and quality of medical staff is very similar both in USA and Europe, but for the same experience, the average wage in the USA is much higher than in Europe;

  • The cost of real estate is, on average, greater for hospitals located in European cities than in the USA, with the exception of the four biggest cities in the USA;

  • The rate of adoption and spread of technology, both in terms of pharmaceutical products and medical devices, is very similar. In fact European health systems adopt technologies from the US more quickly then vice versa,thanks to quick approval regulatory paths;

  • For the 20 biggest selling pharmaceutical products, prices in the USA are much higher than in Europe.

We can argue that a national system that negotiates with medical providers, including both independent providers such as medical specialists or institutions such as hospitals or pharmaceutical companies, can have, for the same services or products, a strong advantage for the population in terms of quality and prices. This is the main reason behind the huge difference in medical costs between USA and European healthcare systems for similar services and products. 

An analysis of the differing costs of healthcare in the United States and Western Europe

According to 2015 OECD datathe average person living in the United States spent USD 1,074 on out-of-pocket healthcare costs (including physician visits, prescription drugs and health insurance deductibles) in 2013. In France and the Netherlands, residents spent less than 25% (USD 277 and 270 respectively) of this amount. Meanwhile, US residents spent USD 3442 per head on other private health expenditure, including their health insurance premiums.

In this article we will attempt to explain the reasons for the differing costs for healthcare for patients in the US and Western Europe.

In any developed country, the costs associated with providing healthcare are related to four main factors:

1. The cost of medical staff including physicians, surgeons, radiologists, nurses and other healthcare professionals.

2. The costs of real estate

3. The cost of researching, developing and purchasing medical technology including robots, radiological equipment, new drugs and genetic therapies.

4. The price of pharmaceuticals.

We will examine each of these factors in turn.

1 http://www.commonwealthfund.org/publications/issue-briefs/2015/oct/us-health-care-from-a-global-perspective

The cost of medical staff

Skilled medical staff are in demand, and there is a relatively restricted supply. To become a junior doctor or graduate nurse takes several years of study, and to become a fully fledged professional, surgeon, nurse practitioner or consultant many more. As a result, people at the upper reaches of medical discipline careers are well paid around the world. But data show there is a difference in magnitude between salaries for these people in the US and in Western Europe.

In the United States in 2015, surgeons in three disciples had the following median incomes (salary + bonus):

  • Surgeon (all disciplines) USD : 356,9652

  • Orthopedic surgeon USD : 421,0003

  • Cardiology surgeon USD : 376,0003

  • Primary care physician USD : 195,0003

  • Specialty physician USD : 284,0003

In France, the publicly run health system offers the most senior surgeon (Level 13) a national average monthly salary of EUR 7,411 (USD 8,255)4. Added to any bonus and any income they generate from treating “private” patients, this results in a total average salary of EUR 176,000 (USD 195,711). An independent cardiologist in France earns around EUR 150,000 (USD 167,000)5.

This simple analysis reveals that there is approximately a 45% difference in remuneration for doctors between the two countries. Furthermore, this differential is extended into different healthcare professions. For example the average salary for a registered nurse in the USA is USD 67,9306, while a registered nurse with at least 10 years of experience in France earns EUR 27,000 (USD 30,125)6.

Though we have used France as a convenient comparison country, the average compensation levels for surgeons and nurses are very similar to those in Italy and Germany, two countries with very similar healthcare systems to France in terms of organization, finance and structure.

What is the explanation for this differential? It is down to a difference in philosophy. Training costs for healthcare professionals in Europe are, to a large extent, paid for by the state. In return, trained professionals are offered a managerial-level salary that ensures them a good standard of living as part of a system that believes in healthcare as a public mission.

2 http://www1.salary.com/Surgeon-Salary.html

http://www.businessinsider.com/how-much-salary-does-a-doctor-make-2015-4?IR=T An echo of the Medscape Physician Compensation Report 2015

http://www.emploi-collectivites.fr/grille-indiciaire-hospitaliere-praticien-hospitalier-medecin-chirurgien-psychiatre-specialiste-biologiste-ph/6/6195.htm

http://www.lefigaro.fr/conjoncture/2015/04/04/20002-20150404ARTFIG00006-combien-gagnent-reellement-les-medecins.php

6http://archives.coordination-nationale-infirmiere.org/images/pdf/SALAIRES/nouvelles_grilles_ide_iade_ibode_puer_cadre.pdf

The cost of hospital real estate

We can compare the relative prices of land in the centers of cities housing major medical centers in France, Italy and the US by comparing the price per square meter (in USD) of buying an apartment7.

France :

  • Paris USD : 10,960

  • Bordeaux USD : 6,141

  • Nantes USD : 2,851

Italy

  • Milan USD : 9,057

USA

  • New York, NY  USD : 17,666

  • Los Angeles, CA  USD : 7,559

  • Boston, MA  USD : 7,268

  • Cleveland, OH USD : 613

  • Houston, TX USD : 2,042

  • Baltimore, MD USD : 2,661

  • Rochester, MN USD : 1,668

This rough analysis shows that land costs, except in New York City, Los Angeles and Boston, which compare to the biggest cities in Europe in terms of price, real estate prices are not a factor in the price differentials of services provided by major medical centers.

7 http://www.numbeo.com/property-investment/

Technology and innovation in healthcare

We will examine two major cost drivers in this area:

  • The location of the companies and institutions investing in medical device and drug research and development.

  • The speed and ease with which new innovative devices and drugs can be approved and adopted between countries, specifically between the US and the EU.

We will analyze two different sectors: Biotech and medical technology.

According to the EY Pulse Medical Technology Report 20158 there were 403 biotech companies at the end of 2014 operating in the US, 196 in Europe, 52 in Australia and 63 in Canada. Meanwhile in the Medical Technology sector, the report identified 58 companies with annual revenues of USD 500m and above. Of those, 40 are based in the US, while the remaining 18 are in Europe.

So according to this analysis, the US has more than two times as many representatives in these two sectors, which one could reasonably expect would correspond with quick and significant access for the US healthcare system to the discoveries and innovations these companies introduce to the market.

If we analyze the sales breakdowns of these companies, however, we can see the EU is an extremely significant market for these companies, and that serving EU customers is an important factor in their development9.

For both sectors, the institutions in the US and the EU which approve their products, therapies and treatments for sale and use in their countries play an important role. So it is both valid and interesting to compare the US Food and Drug administration and the EU approvals process – a comparison performed in the “Comparison of market authorization systems of medical devices in USA and Europe” study by the Dutch Ministry of Health, Welfare and Sport’s National Institute for Public Health and the Environment. In its conclusion, the report says that though FDA approvals typically take longer than it takes for a new product or treatment to be approved in Europe, this should not be taken to imply that the US approvals process is more rigorous:

“The FDA has indicated several times that the USA system is better than the European system in providing safe and effective medical devices to the market. In its 2012 report “Unsafe and Ineffective Devices Approved in the EU that were Not Approved in the US”, the FDA portrays 12 medical devices that were marketed in Europe, but not in the USA, and for which problems were found, often during clinical investigations to obtain PMA clearance. Among these 12 devices are an elbow implant, which was predicted by FDA – and in practice shown – to be prone to fractures and a non-invasive method to measure blood glucose levels. Although these examples indicate a positive effect of the high requirements of the FDA on clinical investigations on safety and performance/clinical value, the downside is that on average, it takes two years longer to get a device approved in the USA. This could mean that a life saving device is withheld from US patients, whereas it is available to European patients. This even leads to American citizens going abroad to get a specific medical treatment. Also, companies choose to first introduce their device on other markets than the USA or even contemplate not introducing specific devices in the US. 

“Although the requirements are different in both systems, it cannot be stated, based on the requirements, that one system will lead to a different level of quality and safety than the other when correctly applied.” 

8 http://www.ey.com/Publication/vwLUAssets/ey-pulse-of-the-industry/$FILE/ey-pulse-of-the-industry.pdf

9http://www.rivm.nl/en/Documents_and_publications/Scientific/Reports/2015/februari/Comparison_of_market_authorization_systems_of_medical_devices_in_USA_and_Europe

Drug pricing

According to an article10 by Nate Kamrany, professor of economics at the University of Southern California, pharmaceutical spending per capita in the United States in 2010 was USD 983 at current prices and PPPs. In France, however, for the same period, equivalent spending was USD 634 per capita. 

The United States healthcare system means that healthcare providers are paid different sums depending on the patient’s health insurance coverage. This gives them an incentive to select treatments according to their cost, rather than their value they offer. The US system also lacks flexibility when it comes to determining the costs of drugs and health care services. For example, changes in Medicare rates must be approved by Congress, which is a cumbersome and often lengthy process and reduces the system’s ability to react to changing market needs and conditions.

In France, an organization (CNAMTS) monitors spending on drugs and healthcare services around the country. If spending rises in a particular area, CNAMTS can reduce the price of a particular drug or service to make it more accessible. France also has a standard price for procedures across the country, regardless of a patient’s health insurance cover.

The prices of individual drugs also vary widely between the US and Europe. A study11 for Reuters found that the world’s 20 top selling drugs – which together account for some 15% of global pharmaceutical spending – were, on average, three times higher in America than in the UK. Pricing in the US is determined by the market, while in the UK, like in other western European markets, the government controls medicine costs. 

This market led pricing led to the recent decision by Turing Pharmaceutical to increase the price of an old drug which treats a parasitic infection from USD 13.50 a pill to USD 750. In the UK, the same drug is sold by GlaxoSmithKline for GBP 0.43 (USD 0.66).

In the US prices for top brand-name drugs increased by 127% between 2008 and 2014, while the impact of the financial crisis has actually seen drug prices fall in many European countries.

10 http://www.huffingtonpost.com/nake-m-kamrany/obamacare-vs-the-french-h_b_4573596.html

11 http://www.reuters.com/article/us-pharmaceuticals-usa-comparison-idUSKCN0S61KU20151012

You don’t always get what you pay for

We have seen a number of explanations for the differences between healthcare costs between the US and western Europe. But we have not yet looked at what is, in many ways, the crucial question: does a more expensive healthcare system yield better results?

The Commonwealth Fund’s national health system scorecard, which included data from the World Health Organization and the Organization for Economic Cooperation and Development, ranked the healthcare systems of 11 of the world’s richest nations, including the US, the UK, France, Germany and the Netherlands. The US ranked last overall, scoring badly on Access, Efficiency, Equity (fairness) and healthy lives.

Furthermore, healthcare costs can have a severe negative effect on the financial health of Americans. Medical bills are the leading cause of personal bankruptcy. And as more new, expensive medical technology becomes available, and as more and more of us live longer, often with one or more chronic conditions, these financial issues can only increase.

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Main points:

  • Cost-effective: thanks to Indigomed.net, patients can obtain, on average, a 35% to 50% reduction in medical expenses in comparison with the U.S

  • Unique: Indigomed.net is be the only platform currently serving this strongly growing market with a full European network

  • Complete offer: strengthened by “best practice” analysis and “permanent medical security control”

  • Quality and Security: HIPAA (USA) and ASIP (Europe) – compliance ensures continuity in healthcare

  • Tailor-made service: covering medical quality, case management and privacy.

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