I began this project with a simple question: Which country has the best health care system?
After studying 11 systems, my answer is: None.
None is a frustrating, annoying, and evasive answer. The reader might feel disappointed—even duped—and tempted to throw this book in the trash. That would be a mistake—or I hope it would be a mistake. Although it is not possible to select the best health care system overall, it is possible and reasonable to make judgments about better and worse systems.
In this book I analyzed each country by considering 7 topics: history, coverage, financing, payment, delivery, pharmaceutical regulation, and workforce. Across these topics I delineated different dimensions of analysis: 3 historical lessons and 22 discrete criteria for evaluating health system performance (see Table 12-1). Countries can—and typically do—perform well on some dimensions and poorly on others. I provided a detailed evaluation based on each criterion. Clearly, just like countries, patients prioritize each dimension differently. That is why it is impossible to claim one system is the “best.” It is always important to ask the question: best for whom?
Whereas health policy wonks may care about all 22 evaluative criteria, including effective limits on total spending, alignment of payment incentives, and progressivity of financing, my discussions with patients suggest that they have different priorities. They tend to zero in on health care for themselves and their families. Older patients or those caring for parents put a high priority on long-term care. Conversely, many people emphasize choice of insurer or physician. Today in the United States, many people ask about prescription drug costs. In other countries there tends to be more preoccupation with shorter waiting times for important elective procedures like hip replacement or cataract surgery.
Table 12-1. Performance on 22 Dimensions
| Domain | Dimension | Best-Performing Countries | Notably Poor-Performing Countries |
|---|---|---|---|
| Coverage | Universal coverage | Australia Canada France Germany Netherlands Norway Switzerland Taiwan United Kingdom |
United States |
| Simplicity and ease of obtaining coverage | Australia Canada Norway Taiwan United Kingdom |
United States | |
| Comprehensiveness of benefits | France Germany Netherlands Norway Taiwan United Kingdom United States |
Canada China |
|
| Affordability at point of service | Canada Germany Norway United Kingdom |
France Switzerland United States |
|
| Financing | Progressive financing | Canada United Kingdom |
Australia Switzerland United States |
| Specially subsidized groups—low income, children, and chronically ill | Canada Germany Netherlands Norway Taiwan |
Switzerland United States |
|
| Dedicated mechanism for financing long-term care | Germany Netherlands |
China Taiwan |
|
| Effective limits on total health care spending | Netherlands Norway Taiwan United Kingdom |
Australia France Switzerland United States |
|
| Payment | Alignment of payment incentives | — | China Norway Germany |
| Simplicity in paying by patients | Canada Germany Taiwan United Kingdom |
United States | |
| Simplicity in payment to physicians and hospitals | France Taiwan |
United States | |
| Innovation in payment | Netherlands United States |
China | |
| Delivery | Choice of physicians and hospitals | France Germany Netherlands Norway Switzerland Taiwan |
China United States |
| Simplicity of getting services | Canada Germany Norway Taiwan United Kingdom |
China United States |
|
| Excellent primary care | Netherlands United Kingdom |
China | |
| Excellent chronic-care coordination | Netherlands United Kingdom United States (all selective areas) |
China France Germany Norway Switzerland |
|
| Waiting times | Germany Switzerland Taiwan |
Australia Canada Norway United Kingdom |
|
| Excellent mental health care | Netherlands United States (all selective areas) |
China Switzerland |
|
| Innovation in care delivery | Netherlands United Kingdom United States |
China Germany Switzerland |
|
| Pharmacy Prices | Low drug prices | Australia Norway Taiwan |
Switzerland United States |
| Access to innovative drugs | Switzerland United States |
||
| Rigorous and objective mechanism to price drugs | Australia Norway United Kingdom |
United States |
Taking these different dimensions into account, it is clear that although not outstanding in every way, some countries are performing very well. The top tier would include Germany, the Netherlands, Norway, and Taiwan. The top achiever among them would depend upon which set of criteria is being prioritized. For instance, the Netherlands excels at choice of primary care physician and hospital as well as chronic care coordination, and it is one of only 2 countries not muddling through the financing of long-term care—it has explicitly tackled the issue. Importantly, the Netherlands does not perform poorly on any specific dimension. Similarly, Germany offers free choice of sickness fund, any physician, and any hospital in the country; affordable care; no waiting times; and, like the Netherlands, a dedicated funding mechanism for long-term care. Its deficiencies are a significant overuse of hospital care, no system for chronic care coordination, and no real data and incentive to systematically improve the quality of care. In addition, Germany has over 100 sickness funds (insurance companies) that do not seem to really compete and strive to improve quality, thus consuming money with no clear added benefit to patients. Norway is another top-performing country, with good affordability of physicians, hospitals, and pharmaceuticals. It also has a wide choice of physicians and hospitals, although choices narrow for patients once they are admitted to a hospital. The deficits are a heavy financial burden for long-term care on patients and families; suboptimal care coordination, especially for chronic illnesses; and persistent waiting times for certain procedures. Taiwan has excellent choice of physicians and affordability of care, including pharmaceuticals; an outstanding electronic health care system; and nonexistent waiting times. The flip side is that Taiwanese patients have very limited interaction with doctors, who see way too many patients very quickly, Spartan hospitals, no chronic care coordination, and no coherent system for long-term care.
Many countries might be just below the top tier because they do excel at certain metrics but face bigger challenges. For instance, the Swiss are excellent on free choice of physicians and waiting times. The French are excellent on choice of physicians and pharmaceutical costs. The Australians—in the public sector—excel on affordability of services including pharmaceuticals. But each has other deficiencies: The Swiss face high costs, including for pharmaceuticals—2nd only to the United States—and quality is more an article of faith in all things Swiss than an empirical fact. The French have poor care coordination and utilization of preventive services such as vaccines and cancer screening tests. And the Australians have long waiting times (in the public health system) for many procedures.
Finally, there are 2 decidedly poor performers. Maybe not surprisingly, I confirmed the view that the United States underperforms across many dimensions. By far the United States is the most expensive country overall, at the point of care, and on pharmaceuticals. Ironically—and maybe surprisingly to many readers—the choice of physician is much more limited in the United States than in most other countries—not by the government, but by private insurers. (Medicare has excellent choice, but private insurers have constantly changing networks.) And there is no coherent mechanism for financing long-term care. Conversely, probably to the surprise of many readers too, the United States does excel in having many delivery organizations with best-in-class chronic care coordination. It is also the case that although no country has found a “solution” to mental health, the United States—like the Netherlands—has pockets of excellence and promising, innovative initiatives that are worthy of further study and, potentially, emulation.
Even worse than the United States is China. The Chinese system is overly focused on hospitals, with a poorly developed ambulatory care sector and very low patient trust. This is a structural problem built into how doctors are licensed and public perceptions, neither of which are easily altered. There is extensive lack of trust in the system and its physicians, even leading to violent attacks on doctors. There are challenges regarding mental health care and long-term care based on stigma and demography that also seem structural. Maybe most importantly, there is little private-sector experimentation and little sustained drive in the public sector to innovate, especially in trying new mechanisms to improve the delivery of care.
Having tiered the countries, I hope the reader will refrain from chucking the book and read on to my analysis of all 22 dimensions. I begin with 3 key lessons from my historical survey of how the health care systems evolved to where they are today. There are some important surprises in the history worth highlighting.
When it comes to health insurance, many people believe that all high-income countries achieved universal coverage long ago and that the United States is a historical outlier. This impression is misleading. Although many countries began extending coverage to portions of their population many decades ago—even in the 19th century—the assurance of universal coverage is much more recent.
The earliest truly universal health insurance scheme was established in 1946 when the UK implemented the National Health Service Act. Although many people identify Bismarck’s enactment of health insurance in Germany in the 1880s as the beginning of universal coverage, Bismarck’s plan only applied to urban industrial workers—10% of the population. The other 90% remained uninsured. Only in 1972, after adding select groups—such as agricultural workers, the self-employed, and the unemployed—in a stepwise fashion over many decades, did all segments of (West) German society achieve truly universal coverage.
Most other countries have had similar paths of slowly expanding coverage. France introduced national insurance in 1945 for commercial and industrial workers, but it was not until 2000 that coverage became truly universal. In 1912, Switzerland began regulating and subsidizing health insurance funds. In 1914, Basel became the first Swiss municipality to mandate health insurance coverage. Other municipalities and cantons followed suit, and by 1959 80% of the Swiss population had health insurance. However, Switzerland did not achieve universal coverage until 1994, with the passage of the Federal Health Insurance Law, which legally mandated that individuals purchase health insurance or face severe penalties. Australia uniquely achieved universal coverage, repealed it, and then reinstituted it. In 1972, the Labor Party passed Medibank, a compulsory universal health insurance system. The Liberal coalition repealed Medibank in 1981, but the Labor Party returned to power in 1983 and passed Medicare, the current compulsory universal health insurance system.
China’s first universal health plan began in 1949 when Mao Zedong came to power, but it only theoretically covered the entire population. Much of rural China lacked access to basic medical services. Over the next 30 years barefoot doctors helped expand care, mostly rudimentary and preventive services throughout the country, but true universality for all 1.4 billion Chinese to modern medicine remains elusive.
Universal coverage came to Taiwan in 1995—in a single burst. Taiwan had relied on independent insurance funds, which served different parts of the labor market, leaving 40% of the population with no coverage. Then, in the 1990s, the economy was growing at breakneck speed and the political system was liberalizing rapidly. The public demanded health insurance coverage, and political leaders wanted to “catch up” with other developed countries.
Although other countries may have achieved universal coverage much later than is commonly assumed, they have insured over 99% of the population. The United States has not, making it an outlier among developed countries. The Affordable Care Act created a framework for universal coverage, but about 10% of the US population remains uncovered. However, that some states, such as Massachusetts, have achieved nearly 98% coverage suggests the framework can get universal coverage. Unfortunately, due to ideology, inadequate subsidies, and complexity, universal coverage remains elusive for the United States.
Different countries have come to universal coverage in different ways.
Conventional wisdom suggests that countries enact sweeping legislation only during crises: wars, economic depressions, or both. Germany enacted its first health reform in 1883 in response to major labor unrest and threats of revolution during industrialization. During World War II the United States incentivized expansion of private employer-based health insurance to keep the labor market afloat, and Nazi occupation brought to the Netherlands mandatory health insurance for low- and middle-income people. World War II catalyzed the establishment of the British NHS and France’s expansion of health insurance coverage to all workers. Even the Affordable Care Act coincided with the Great Recession.
However, in many other countries neither military nor economic crisis precipitated universal coverage. The Dutch began considering a system of managed competition among private insurance companies with an individual mandate in the late 1980s and finally enacted the system in 2006, an otherwise quiet period in Dutch history. The current managed competition system in Switzerland was legislated in 1994—not a time of military or economic crisis. In the mid-1960s, Norway made health coverage one of the tax-financed benefits as part of an integration of its welfare state programs; no war or major economic crisis prompted this legislation. In Australia, health care was the focus of political conflict between the Liberal and Labor parties for decades. A sweeping Labor Party electoral victory—in a campaign focused on health care—was the pivotal event. The impetus for universal coverage in Taiwan was when its political system opened up. The nationalist party that had run the country since the 1940s began to allow real democracy and competition among parties, unleashing public demands for better health care that officials felt compelled to answer.
There is no consistent path to universal coverage. Sometimes a crisis catalyzes a leap to universality. Sometimes the path is more gradual or piecemeal. Importantly, except for a brief, 2-year moment in Australia, there is no case in which universal coverage, once achieved, has been undone. And even in Australia, when the Liberal (conservative) government repealed universal coverage, they were devastated at the polls.
The global story of universal coverage vividly illustrates how path dependence works, both within countries and across them. The German health and pension systems, instituted in the 1880s, had significant influence on subsequent policies adopted in Europe and the United States. Germany institutionalized 65 as the age of eligibility of government-funded pensions, used payroll taxes with employer and employee contributions, and cultivated a central role for employer-based private insurance—that is, sickness funds. Other countries subsequently adopted many of these structures. The United States, France, and the Netherlands all use payroll taxes to finance government-supported health coverage. Similarly, private insurance plays a major role—with government sanction and/or financial support—in France, the Netherlands, Switzerland, Australia, and the United States.
On the national level certain structural decisions are hard to undo. Subsequent reforms almost always work within the constraints of existing institutions. Even Taiwan’s single-payer system, which represented a relatively clean break with its past, adapted elements of its earlier sickness fund system. Officials deliberately created a benefits package that would resemble—but exceed—what prior sickness funds offered.
When financing models do shift, the most typical change is gradual: from exclusively single payer to a greater role for private health insurance. This is usually intended to lower health care costs and restrain government spending by shifting costs to the private sector and attempting to inject more competition into the system. In the mid-1990s and 2000s, both Switzerland and the Netherlands introduced a kind of managed competition with an individual mandate to purchase coverage from competing private health insurance companies. Similarly, Australia, France, and the UK have encouraged private insurance so as to restrain government health care spending.
I found no system that transitioned from well-developed private financing to single payer. Two factors probably explain this single direction of evolution. Shifting toward government financing requires higher taxes, which is politically difficult in any country, especially ones with aging populations and increasing demands for pensions and long-term care. Moreover, once insurance companies become entrenched, their economic power, political influence, and central administrative role stymie efforts to dislodge them. If the United States successfully shifts to single payer, that would be a historic moment, unique among the countries I examined.
An overriding goal of every health care system, regardless of the country, is to provide health care to all its citizens. Universal coverage is necessary, but it is not sufficient. The simplicity of obtaining coverage, comprehensiveness of benefits, and affordability to individuals are also of fundamental importance. This yields 4 dimensions for evaluating countries’ performance coverage: (1) universality, (2) simplicity and ease of getting care, (3) comprehensiveness of benefits, and (4) affordability at the point of service (see Table 12-1).
All countries make trade-offs between universality, comprehensiveness of benefits, and affordability. When the US National Academy of Medicine made recommendations regarding essential benefits in the ACA, it noted that universality and affordability should take priority over comprehensiveness of benefits. This is a common—and correct—view.
Gro Brundtland, former prime minister of Norway and former director general of the WHO, said that the goal is for a system to achieve universality and retain affordability before covering every possible benefit. It is widely accepted that some health care services provide less benefit than others and can ethically be left to individual discretion without a major impact on health. But it is important that those trade-offs not exclude benefits that are truly indispensable, such as cancer care or vaccinations. Consequently, many countries have excluded coverage of dental and vision care from their health care benefits, leaving it to supplemental insurance or out-of-pocket costs. Other countries exclude these services for adults but cover them for children. These decisions may be controversial, especially with our growing knowledge about the link between oral and more general physical health, but it is the norm rather than the exception.
Norway may have the best performance on all 4 dimensions. Coverage is universal: fully 99.6% of Norwegian residents have health insurance. Getting coverage is simple: all residents—not just citizens—are automatically enrolled when they pay taxes. The tax-financed benefits are comprehensive, with the major exception being long-term care, which has high out-of-pocket costs. Similarly, Taiwan’s National Health Insurance (NHI) is also truly universal, simple, comprehensive, and affordable. The benefit package includes just about everything—inpatient and outpatient services, Western medicine, traditional Chinese treatments, and dental and vision care for both children and adults. The excluded benefits in Taiwan are idiosyncratic, including birth control, abortion, smoking cessation therapy, and drug addiction therapy. Although there is significant cost sharing for some, Taiwan, like many countries, reduces or eliminates out-of-pocket spending for people with certain serious conditions or low incomes. Similarly, the UK’s National Health Service is universal, simple, comprehensive, and affordable at the point of care. Just showing up to get care ensures enrollment. NHS benefits are also relatively comprehensive—dental care is covered with a co-pay—and there are no costs at the point of service.
France has achieved universal coverage with a broad benefits package, but the financial protection is shallow. The French benefits package, though comprehensive, requires significant cost sharing. Consequently, about 95% of the population has supplementary private insurance to address cost-sharing burdens.
As France opted for comprehensive benefits with significant co-pays, Canada went in the opposite direction. Canada has no cost sharing for any service deemed medically necessary, although “medically necessary” is more narrowly construed: it does not cover dental and vision care nor long-term care. And, perhaps most surprisingly, most provinces do not cover prescription drugs. Consequently, nearly 67% of Canadian residents purchase supplemental insurance for drugs, dental care, and vision care.
In Germany, the Netherlands, and Switzerland, coverage is universal, but the process of getting it is more complex. Individuals must select a plan and pay premiums to private insurance companies or sickness funds.
Clearly the United States performs poorly on universality, simplicity, and affordability. About 10% of the population still has no health insurance, and getting coverage is complex and cumbersome. It is estimated that most of the uninsured actually are eligible for some sort of coverage at a reasonable price, but the processes of establishing Medicaid eligibility or buying insurance on the exchanges are complex, time consuming, and confusing.
However, the 10 essential benefits that US health insurers are required to cover are comprehensive, including the usual care categories as well as services for mental health and substance abuse, drug coverage, and dental and vision care for children. In addition, some crucial services, including an annual wellness visit and a host of preventive services, are free at the point of care. As with many countries, a big deficiency for an aging population in the United States is the absence of long-term care insurance except if a person becomes impoverished and is eligible for Medicaid. And affordability for individuals is increasingly problematic: high-deductible plans have become more pervasive and drug costs increasingly burdensome, especially for individuals with chronic illnesses—only Switzerland imposes higher out-of-pocket costs than the United States.
Health care in any developed country is expensive, and financing it requires substantial, value-laden decisions. I identified 4 dimensions to assess health care financing across the countries: (1) progressivity of financing, (2) financial protections for vulnerable populations, (3) sustainable long-term care financing, and (4) mechanisms to control health care spending growth.
The American debate over health care financing is often between advocates of single payer versus those of private insurance. As I learned, this is too simplistic—and, in some countries, just inaccurate. There are at least 5 different ways of financing health care (see Table 12-2). How the financing measures up against the 4 dimensions is more important than whether it is structured more as single payer or private insurance.
The UK is at one end of the spectrum, with a socialized system funded through taxes and with government ownership of most of the delivery system. A private health insurance system parallels the NHS, but it is not integral to the function of the NHS. There is no dedicated NHS tax, so the financing is as progressive as the underlying tax system—which by OECD measures is the 4th most progressive, after the United States, Italy, and Ireland.
Many countries have eschewed fully socialized medicine, opting for single-payer systems, with the government financing almost all health care, while leaving some insurance and much of the delivery system private. In Canada and Norway, over 90% of financing is public, but there are tiny private insurance sectors and predominantly private physicians, and some hospitals are private.
In France and Australia, a single-payer system is the foundation of the coverage model. But unlike Canada and Norway, there is a substantial and structural role for the private health insurance system. Put another way, the public system heavily relies on—and encourages—a functioning private insurance market.
Germany and the Netherlands have a single payer but rely on multiple private insurers to actually pay for care. In Germany, the public statutory health system covers nearly 90% of the population and is financed by payroll taxes that are distributed to private sickness funds. In addition, about 11% of the population, based on income and type of job, have private health insurance totally separate from the statutory health system. In the Netherlands, the government requires that all people have health insurance, collects payroll taxes to distribute to private insurers, and uses general revenues to subsidize the purchase of private insurance.
Table 12-2. Different Mechanisms of Financing Health Care
| Country | Socialized Medicine | Single Payer with Very Limited Private Insurance | Single Payer with Substantial Private Insurance | Single Payer Channeled Through Private Insurance | Individuals Purchase Private Insurance with Government Subsidies |
|---|---|---|---|---|---|
| Australia | X | ||||
| Canada | X | ||||
| China | X | ||||
| France | X | ||||
| Germany | X | ||||
| Netherlands | X | ||||
| Norway | X | ||||
| Switzerland | X | ||||
| Taiwan | X | ||||
| United Kingdom | X | ||||
| United States | VA | Traditional Medicare parts A and B, some state Medicaid | Traditional Medicare and Medigap | Medicare Advantage and Managed Medicaid | Exchanges and employer-sponsored insurance |
Switzerland is not a single-payer system at all. It mandates that individuals purchase private health insurance. It provides government subsidies to help low- and middle-income families pay the private insurance premiums.
The complex US system has every kind of financing arrangement. Like the UK, the Department of Veterans Affairs is a socialized system. Like Canada and Norway, traditional Medicare payment for hospitals (Part A), physician services (Part B), and some state Medicaid programs are true single-payer systems. Like France, Medicare patients are able but not required to buy supplemental private insurance—Medigap plans—to help cover co-pays and additional services in traditional Medicare. The German model is analogous to Medicare Advantage (Part C) and states with managed Medicaid plans. In these cases, the federal and state governments collect money and then allocate it to private insurers who organize and pay for the actual care. Like Switzerland, the health insurance exchanges and employer-sponsored insurance allow individual Americans to buy insurance with government assistance. In the insurance exchanges the subsidies are income based, and in the employer-sponsored part of the American system, subsidies flow through the tax exclusion. One way of describing this complexity in the US financing of health care is an incomprehensible mess that has grown up over time devoid of design and rationality—and now justification. Doubtless, that fuels part of the appeal of Medicare for All.
The first financing dimension is how progressive or regressive the system is. Ultimately, because health costs are so large, few citizens can afford to pay for health insurance on their own. Every system relies heavily on government financing, either directly or through subsidies for private insurance. Thus, how progressive a system is depends on how much it relies on premiums and which taxes are used for financing. In general, relying heavily on a flat premium—that is, the same across income levels—is regressive because it is more financially burdensome to low- and middle-income individuals even if there are some subsidies. Similarly, heavily relying on premiums and some taxes, such as value-added taxes (VAT), means the system will be regressive.
Switzerland may be the most regressive country in this regard because it heavily relies on individuals paying premiums that are not income linked, with modest government subsidies for low- and middle-income individuals. The United States heavily relies on private insurance premiums, and the tax exclusion for employer-sponsored insurance that disproportionately benefits high-income citizens further exacerbates the system’s regressivity. A surcharge on the wealthy, implemented by the ACA, to finance expansion of coverage has slightly ameliorated the regressive payroll tax that funds part of traditional Medicare.
In primarily publicly financed systems—such as Australia, Canada, China, France, the Netherlands, Norway, and the UK—the progressivity of financing health care is a function of the underlying tax system. For instance, the relatively high Norwegian VAT used to finance much of the government is regressive. Germany largely uses more regressive payroll taxes for the statutory health system. Conversely, in Canada payment comes from general tax revenue, which is mostly generated by progressive income taxes. Overall, the UK and Canada, with their relatively progressive tax systems, probably have the most progressive health care financing arrangements.
The 2nd dimension of financing is how well vulnerable populations are protected from excess health care costs. There are 3 specific financially vulnerable groups who typically receive special financial protection: low-income individuals, those with chronic conditions that require significant amounts of health care, and children.
All systems have some way of subsidizing low-income individuals, with varying degrees of effectiveness. In some cases—such as Canada and the UK—low-income individuals pay little to no taxes but get the same health benefits as everyone else in the public system, often with no co-payments at the point of service.
Australians earning under about US$16,000 are exempt from the 2% Medicare tax, and those earning under US$20,000 pay only a portion of it. Despite the fixed income payroll tax in the Netherlands, the government subsidizes the additional premiums paid to insurers for all families with incomes under US$41,000. Taiwan subsidizes low-income residents and has some other plans to help them, including interest-free loans for people who have outstanding medical debt.
Similarly, Americans who earn below 138% of the poverty line (approximately $34,000 for a family of 4) are eligible to receive premium-free health coverage through Medicaid, but only in the 37 states and Washington, DC, that have expanded Medicaid. In Medicare, the premiums assessed for physician services and drugs are income-linked and subsidized at about 75% of the cost. In addition, the exchanges have income-linked subsidies for the purchase of private insurance for households earning up to 400% of the poverty line ($100,000 for a family of 4).
Switzerland may have the worst subsidization of low-income individuals. Although the government requires that all cantons subsidize low-income individuals and provides funds for those subsidies, the number of subsidies, income level for eligibility for subsidies, and how individuals apply for relief varies by canton.
Low-income populations also receive special treatment with regards to co-pays and other out-of-pocket payments. The UK and Canada have no payment at the point of service, automatically making it friendlier to people with low incomes. In Germany, low-income individuals are exempt from all co-pays. Taiwan waives out-of-pocket expenses for its poorest residents, veterans, children under 3, and patients with catastrophic illnesses like cancer. Additionally, Taiwan’s NHI waives prescription co-pays for roughly 100 chronic conditions—including diabetes and high blood pressure—as well as co-pays for certain intense physical therapies; it also reduces co-pays for people living in remote areas. In Norway, the government handles all co-pays once they exceed about $250 per year for an individual, regardless of income. The Australian government sets an annual out-of-pocket limit of $330 on payments for all nonhospital care.
In the United States, the states set the co-pays on Medicaid, although the federal government establishes a low out-of-pocket maximum for those co-pays. For instance, co-pays cannot exceed $4 for physician office visits and $75 for hospitalizations. In the insurance exchanges cost-sharing subsidies are applied for all individuals earning under $30,000 per year and families earning under $60,000. (Previously the federal government compensated insurance companies for these subsidies, but now they are built into the premiums because President Trump canceled the payments.) Many people in the employer-based market have out-of-pocket limits as well, but they are set too high to offer relief for many middle-class Americans.
Many countries also protect patients with specific expensive conditions. In France the government pays 100% of health care costs for people with a chronic illness. In the Netherlands and Switzerland community rating subsidizes the premiums for sicker-than-average patients. In many countries patients with chronic illnesses are often not required to pay co-pays or they pay much lower rates. For instance, in Norway, patients with HIV/AIDS—but not other chronic diseases—have no co-pays for primary care physician visits. In Germany, patients with chronic illnesses are exempt from co-pays once they pay 1% of gross income in co-pays. The UK waives prescription co-pays for people with some chronic illnesses, including diabetes and cancer, and Taiwan does the same.
Most countries insulate families with children from pediatric health care costs. In the Netherlands, the government pays premiums for all children under 18. Similarly, in Germany the payroll taxes used to finance the statutory health system are the same for single individuals and those who are married or have children, and there are no co-pays for children. Norway covers all dental and vision care for children at no cost to parents. Switzerland subsidizes 50% of insurance premiums for children and young adults aged 18 to 25 in low- and middle-income households. The UK waives all co-pays for prescription drugs for children.
The United States has the least financial protection for families with children. Private health insurance premiums for such families are not subsidized, placing a huge burden on families. Frequently, families face high deductibles and co-pays for pediatric care. The difference between individual and family premiums in employer-sponsored insurance is about $14,000.
A 3rd dimension is the financing of long-term care. Every developed country is facing both increases in the absolute number of elderly people and a relative rise in the proportion of nonworking elderly compared to workers who finance their care.
The Netherlands and Germany stand out because both have dedicated taxes to finance long-term care. In the Netherlands payroll taxes, patient co-pays for services, and government subsidies from income taxes finance long-term care. Coverage historically focused on institutional care, but it has since evolved to include care at home. Germany’s long-term care insurance parallels its health insurance, functioning partly through statutory sickness funds and partly through private health insurance. Most of the 3.3 million beneficiaries receive cash payments for care at home. The payments can compensate family caregivers or be used for the hiring of professional care providers.
In Norway, municipalities are responsible for funding long-term care through the single-payer social and health insurance system. This creates a trade-off between funding primary health care services and long-term care. Norway prioritizes younger people, subsidizing primary care, especially for children, and imposing high out-of-pocket costs on the elderly for long-term care.
In recognizing its oncoming demographic crisis, China is beginning to experiment with long-term care insurance at the provincial level. A pilot program is focused on those with disabilities and aims to cover 70% of the costs of care. Long-term care is the biggest gap in Taiwan’s coverage scheme. Paying for it remains a challenge and, since 2000, has been the subject of 2 major legislative efforts. An attempt to integrate long-term care into national health insurance fell apart when the party that favored it lost control of the government. Taiwan presently handles long-term care through a separate program that operates more like welfare than social insurance, leaving many residents paying large out-of-pocket costs.
In the United States Medicaid covers long-term care for low-income elderly people, but qualifying is complex and requires impoverishment. For the vast majority of elderly, there is no mandatory long-term care coverage. Indeed, an attempt to include voluntary long-term care insurance in the ACA was repealed because of insufficient and unstable financing. In addition, private, long-term care insurance is disappearing. Where it continues, it is limited to short, usually 3-year terms.
THE FINAL DIMENSION of financing relates to whether a country has effective limits on total health care spending. Many countries have a fixed health care budget that imposes discipline on spending and spending growth. The UK, with its socialized system, and other countries with predominantly single-payer financing and limited private insurance have governmental budget limits on total health care spending. Norway’s Ministry of Health sets the budget for the 4 regional health associations that, in turn, set total hospital spending. The Dutch minister of health sets a total health budget and, if it is exceeded, is empowered to recoup money from insurers. Initially, Taiwan did not have a national health budget, but shortly after introducing the national health insurance scheme it added one to control spending. Taiwan adjusts payment levels to physicians quarterly to remain within its budget.
Conversely, countries such as Switzerland and the United States, which rely on private insurance for a substantial portion of the financing, have no mechanism to establish a total health care budget and cannot impose limits on spending growth. In the United States, Medicare and Medicaid comprise over $1.3 trillion in spending, and while they are government programs, they do not have fixed budgets; they are open-ended entitlements. Although the government sets prices, total expenditures fluctuate based on use, which is determined largely by physicians—and often the severity of an influenza season. However, to limit health care cost increases, several US states, such as Massachusetts, have begun linking permissible increases in spending to a combination of the aging of the population and growth in the state GDP.
Because many factors affect per capita health care expenditures, a budget alone does not correlate with low spending. For instance, we know that the higher a country’s per capita income, the higher its per capita health care spending. Norway is the best example of this. Nevertheless, countries without budgets, such as Switzerland and the United States, tend to have higher per capita health care spending. Conversely, countries with strict government budgets and effective enforcement mechanisms—such as Canada, Germany, Taiwan, and the UK—have lower per capita health care spending (see Table 12-3). France, which depends heavily on private insurance to supplement the public sector, has a moderately high per capita spending. Thus, it appears that having a global, government-established budget restrains health care costs and cost growth effectively.
There are 4 key dimensions of payment: (1) alignment between different providers to optimize care and care coordination, (2) simplicity for patients, (3) simplicity for physicians and hospitals, and (4) introduction of innovative mechanisms to achieve higher quality and lower costs.
Table 12-3. Health Care Spending
Country: Australia
Health Care Spending as Percentage of GDP (2017 or most recent available): 10.31
Health Care Spending per Capita in USD (2017 or most recent available): $5,2001
Country: Canada
Health Care Spending as Percentage of GDP (2017 or most recent available): 11.32
Health Care Spending per Capita in USD (2017 or most recent available): $4,8002
Country: China
Health Care Spending as Percentage of GDP (2017 or most recent available): 6.23
Health Care Spending per Capita in USD (2017 or most recent available): $9603
Country: France
Health Care Spending as Percentage of GDP (2017 or most recent available): 11.54
Health Care Spending per Capita in USD (2017 or most recent available): $4,6005
Country: Germany
Health Care Spending as Percentage of GDP (2017 or most recent available): 11.56
Health Care Spending per Capita in USD (2017 or most recent available): $6,2006
Country: The Netherlands
Health Care Spending as Percentage of GDP (2017 or most recent available): 10.17
Health Care Spending per Capita in USD (2017 or most recent available): $5,0007
Country: Norway
Health Care Spending as Percentage of GDP (2017 or most recent available): 10.48
Health Care Spending per Capita in USD (2017 or most recent available): $7,4008
Country: Switzerland
Health Care Spending as Percentage of GDP (2017 or most recent available): 12.29
Health Care Spending per Capita in USD (2017 or most recent available): $9,7009
Country: Taiwan
Health Care Spending as Percentage of GDP (2017 or most recent available): 6.310
Health Care Spending per Capita in USD (2017 or most recent available): $1,50010
Country: United Kingdom
Health Care Spending as Percentage of GDP (2017 or most recent available): 9.611
Health Care Spending per Capita in USD (2017 or most recent available): $3,90011
Country: United States
Health Care Spending as Percentage of GDP (2017 or most recent available): 17.912
Health Care Spending per Capita in USD (2017 or most recent available): $10,70012
No country had optimal alignment of payment incentives. Many systems have legacy payment mechanisms that rigidly segregate ambulatory care from hospital care and hospital-based specialty care. This is a cautionary lesson. Segregating payments inhibits—if not totally precludes—alignment in care delivery, especially between hospitals and primary care. It impedes the shift of medical services out of expensive hospital facilities and into lower-cost ambulatory care settings and even patients’ homes. This frustrates the coordination of care, which is especially important for chronically ill patients. Typically, the party financially responsible for ambulatory and home care resists shifting care out of hospitals.
In Norway, municipalities pay for primary care, home care, and long-term care, whereas the national government pays for hospital services. In Australia, it is the reverse: the national government pays for physician services, whereas the state and territory governments have the largest financial liability for hospital care. In Germany, sickness funds pay hospitals for services, state governments pay hospital capital costs, and sickness funds pay the state physician associations, which then pay physicians based on a risk-adjusted fee-for-service basis.
These types of divided payments create misaligned incentives. In Norway deinstitutionalization lowers costs for the regional health authorities that cover hospital costs while also increasing costs for the municipalities, thus disincentivizing municipalities from expanding ambulatory care services, home care, and long-term care. Germany’s divided payments lead to over-hospitalization. For political reasons, German states are loath to close hospitals, so they spend on hospitals’ capital and building costs, generating an oversupply of hospital beds and increasing costs for sickness funds.
Alignment is more likely when the same organization pays for both ambulatory care and hospital care. This typically occurs when insurance companies or one governmental body is responsible for the full payment. Therefore, in addition to having one party be financially responsible for both settings, the mechanism of payment matters too. Fee-for-service tends to inhibit alignment, whereas capitation and bundles improve it. No country excelled at aligning payment to incentivize coordinated care. More work needs to be done in this area.
Simplicity in payment is a virtue. There are 2 main perspectives on simplicity—the patient’s, and the physician and hospital’s. A simple, successful payment system should be easily navigable for patients and should minimize administrative hassles for hospitals and physicians. The UK excels at such simplicity. Patients have no deductibles and co-pays for primary care; co-pays are restricted to a limited range of services, such as examinations for life and disability insurance. Primary care providers are paid risk-adjusted capitation, with bonuses for quality performance and some fee-for-service payments for providing “enhanced services.” Hospitals are paid DRG and receive additional add-on payments for research, training, and services not in the DRG, such as mental health. In the world of health care financing, this qualifies as simple.
In Canada, payment is also simple for patients: most physician office visits and hospitalizations have no co-pay and no coinsurance. In Germany, there is a low, flat, daily co-pay for hospitalizations and no co-pay for physician visits. However, payment from sickness funds to physicians is more complex: physicians receive only a percentage of their total billings; the amount depends upon total billings of all primary care or specialist physicians in the state. Hence, their exact payment for services is known only after they have delivered the services—a point they sorely complain about.
In Switzerland, primary care physicians and specialists are paid fee-for-service, based on a uniform, national fee schedule (tariff). Billing patients above the set fee is illegal. In managed care some primary care physicians are paid capitation. Swiss patients choose their insurance option and know what they are paying in advance, and physicians know the fee schedule for each visit and procedure.
The French payment system is also laudably simple. Physicians are paid fee-for-service, based on rates set in a national contract between the Ministry of Health and the National Union of Health Insurance Funds (UNCAM). Less than 10% of physician payment comes from incentive payments. Physicians who do not balance bill receive the fixed rate per patient as well as certain financial benefits, including a 2% reduction in the rate for social security payments.
In Australia, payment is simple for patients with Medicare at a publicly financed hospital: free—no deductible, no co-pay, no coinsurance. Patient payment to physicians is a bit more complicated, though. For primary care, Medicare pays 100% of the Medicare schedule fee, but if the physician’s charge is higher than the Medicare schedule fee, the patient is responsible for the difference (gap fees). Typically, the patient pays the physician the full amount, and Medicare electronically reimburses the patients’ bank account within a few days for the Medicare schedule fee amount.
Taiwan’s system is relatively simple. Patients face modest out-of-pocket expenses at the point of service, with certain vulnerable populations facing no out-of-pocket payments. However, the back-end system—the payment to physicians and hospitals—is more complex. The primary method of reimbursement is fee-for-service, with payments that the government adjusts each quarter based on use patterns to stay within the national budget. But there is also a DRG system that covers about one-quarter of inpatient care.
Finally, because fee-for-service and DRG payments do not reward higher quality or more efficient care, some countries are innovating and experimenting with new payment models, with the United States and the Netherlands leading the way. Ironically, the complexity and high cost of the US health care system incentivizes innovation. Under the label of value-based payments, for the last decade the United States has been actively experimenting with alternatives that incentivize greater attention to restraining total cost of health care while also improving quality. For primary care, this typically means some kind of risk-adjusted capitation that includes financial risk for total cost of care and/or quality. In addition, there are experiments with bundling, which are lump-sum payments mainly to surgeons and specialists to reimburse for all costs associated with an episode of care. Bundles usually include hospital care, all physician visits, and posthospital care for a period of time, typically 90 days. The payment innovations are moving toward 2-sided risk: financially rewarding higher-quality and lower-cost care and penalizing lower quality and higher costs. Increasingly, the emphasis has been on total cost of care, which incentivizes shifting care to lower-cost settings such as the home. Similarly, the Dutch have experimented with bundled payments for certain chronic conditions, such as diabetes and COPD.
Other countries are tracking these innovations in the hopes of implementing the most successful policies. For example, several of the French health policy experts I met with were interested in the design and results of bundled payment experiments in the United States.
I have identified 7 important dimensions of health care delivery systems: (1) choice of physicians and hospitals, (2) simplicity of navigating the system to get appropriate care, (3) quality of primary care services, (4) good coordination of care for chronically ill patients, (5) waiting times, (6) mental health care, and (7) innovation in care delivery methods.
When it comes to choice, Germany, Switzerland, and Taiwan seem close to ideal. German patients can see any primary care or specialist physician they want anywhere in the country, and they can see as many of them as they want without restriction. German patients also have free choice of any hospital in the country. And there are no complaints of waiting lists.
Swiss patients with the regular, basic insurance can go to any doctor (insurers are required to cover any willing provider) and can go to any hospital in any canton. Similarly, the Taiwanese have unlimited choice of both physician and hospital without a referral; the only incentive for obtaining a primary care referral is a relatively modest discount in out-of-pocket costs. Patients can even show up at ambulatory centers and hospitals and ask for tests on their own, without physician orders.
Other countries have free choice of primary care providers, but there are restrictions on access to specialists. In Norway, patients have the right to choose any primary care provider and can switch twice a year. Similarly, in the Netherlands, France, and Australia, patients have free choice of primary care provider and can switch at any time. But the primary care gatekeeper model may restrict choice of specialists and hospitals. France has a relatively weak primary care gatekeeper model, and patients can easily go to any specialist. In Australia, Norway, and the Netherlands, access to specialists and other parts of the system requires a referral from a primary care provider to a specific specialist or clinic. This is typically enforced by limiting or prohibiting payment when there is no referral.
Simplicity for patients is a crucial dimension of delivery. It should be easy for patients to navigate the health care system and get care without barriers. The Norwegian, Canadian, German, and UK systems shine here. Although there may be wait times and primary care referrals are necessary, there are no prior authorizations from insurers, no out-of-network providers with higher co-pays, and no or few costs at the point of service.
On the dimensions of patient choice and simplicity in use, the United States fails miserably. Many patients are subject to opaque and constantly shifting networks that limit their choice of physicians and hospitals. In addition, many patients need navigators to help them figure out who to get care from. With ever-shifting networks of physicians and hospitals and physicians at in-network hospitals who themselves might be out of network, the need for prior authorization, along with many other barriers, it is hard to figure out who and what is actually covered by insurance.
Outstanding primary care services are critical for a successful delivery system. In this regard, the Netherlands stands out. Dutch primary care providers are the first and principal line of care for all patients. Primary care physicians ensure that patients receive necessary preventive services, are promptly cared for by someone who has access to their medical history, have access to competent after-hours urgent—but not emergency—care, and get quick referrals to competent specialists. In addition, most primary care physicians have nurses dedicated to providing first-line mental health care. To retain their medical registration, Dutch primary care physicians must participate in after-hours cooperatives for at least 50 hours a year. These cooperatives efficiently provide after-hours care and are open daily until at least 8:00 p.m., including weekends and holidays, providing prompt primary care and emergency referrals. Dutch primary care physicians act as strong gatekeepers. Their professional societies have robust care guidelines, which promote an ethos of not overtesting or overtreating. Providing this level of primary care requires systematic recordkeeping as well as outreach for cancer screenings and immunizations, same-day appointments for urgent problems, and a good call system with shared electronic records.
Other countries, such as France, also have good primary care physicians but may make it easy for patients to go directly to specialists without referrals or fail to disincentivize the use of specialists when primary care physicians might be just as good. Not incentivizing the use of primary care physicians or allowing patients to go to specialists without referrals can inhibit care coordination.
THE 4TH DIMENSION is coordination of care for chronically ill patients—an issue of growing importance as chronic conditions become a greater disease burden. All countries are transitioning from a 20th-century acute and reactive health system, designed around hospital-based interventions, to the 21st-century “chronic, connected, and proactive” health system, designed around frequent and proactive engagement with patients in outpatient settings. Chronic care coordination means not waiting for patients to present with problems but instead having frequent interactions initiated by the medical team to identify problems early and forestall exacerbations that can require expensive hospital care.
Many countries have poor coordination across provider groups—primary care physicians, specialists, and hospitals. As noted, much of this is rooted in the health care system’s structure and financing. In many countries, such as Norway, specialists are frequently restricted to hospital service, and communication with primary care physicians is often haphazard. In many systems these structural barriers are reinforced by anachronistic payment systems that do not incentivize the use of primary care physicians or the coordination of care. For instance, German health policy experts bemoan the rigid divide in payment and administration between ambulatory and hospital-based care that inhibits coordination of care.
No country has systematically and effectively deployed chronic care coordination throughout its health care system. Yet there are 2 bright spots of innovation and achievement in chronic care coordination. The highly regarded Diabeter model for diabetes care in the Netherlands creates a care team, including care coordinators, and uses a data platform that collects and presents to providers physiological, quality-of-life, and other data on patients. Bundled payments facilitate this model of comprehensive diabetes care, and it has achieved high quality of care and low hospitalization rates.
Although far from perfect, the United States has some excellent models of chronic care coordination as well. Interestingly, even though they evolved independently, these models are often similar to Diabeter. They identify patients at risk for high cost exacerbations or hospitalizations. A care coordinator is then embedded in the primary care physician’s or specialist’s office and takes responsibility for monitoring and managing a small group of high-risk patients. The chronic care coordinators ensure that patients are taking their medications and getting the right tests. They reach out to patients if there are medical, family, social, or other problems that could exacerbate symptoms. If so, care coordinators intervene by sending a home care team or bringing the patient to the office for a visit. Many provider groups throughout the United States have implemented this model to improve care and reduce costs, but the model is not yet widespread.
When a patient has a clear medical problem, they should not need to wait for care. In many countries I studied, waiting times are present and problematic, especially for imaging services and elective surgical procedures. The biggest problems are often for hip replacements, cataract surgery, and CT and MRI imaging, but they can sometimes include services that might not qualify as elective, such as cardiac surgery. The public is attuned to long waiting times, and in many countries they have become major electoral issues.
Australia, Canada, Norway, and the UK have highly visible and public waiting time problems. In Australia, it appears physicians manipulate waiting times in the public insurance sector in order to shift patients to the private sector, where physician fees are higher. In Norway one response has been to put waiting times for various procedures online, and patients can use that information to choose the hospital with shorter waits. In Canada supplemental insurance can reduce waiting times.
Waiting times seem to be less salient—but not necessarily less prevalent—in the countries where private financing predominates: the United States, Switzerland, and the Netherlands. This is not because there is hard evidence that waiting times are nonexistent or shorter; rather, it may be because there is no single entity, such as Britain’s National Health Service or Australian Medicare, on which patients can focus their anger and complaints.
On waiting times, Taiwan is an outlier. It is a single-payer system with relatively low spending, free choice of provider, and not a particularly high number of physicians. In short, it is the type of system that would seem prone to long queues. Yet waiting times appear nonexistent, even for specialty care. The dominant explanation is that physicians churn through patients quickly so that the Taiwanese see the doctor frequently and easily, but they do not get a lot of time or attention when they do. So although patients may have high access to physicians and no waiting times, the burden is loaded on overworked physicians. This has Taiwanese officials concerned about burnout and quality.
For more than a century, mental health care has been clinically, financially, administratively, and geographically isolated from “regular” health care. Historically, mental health has been stigmatized as not “real” medicine. The result was poor care, both for patients with severe psychiatric disorders, such a bipolar disorder and schizophrenia, and “normal” patients with comorbid depression and/or anxiety. Increasingly, medical experts and health care systems appreciate that mental health conditions are widespread and both complicate and increase the cost of providing regular care.
Over the last half century most countries have gone through a process of deinstitutionalization, shifting care from sequestered asylums to outpatient settings in communities. But, like chronic care coordination, no country I studied has “solved” mental health challenges, either for patients with comorbid conditions or those with serious disorders. And most countries have poor mental health care.
However, there are some initiatives that were encouraging. In many countries, such as Norway and the Netherlands, treatment for mild or moderate mental health problems has been to entrust primary care physicians with referrals if patients’ conditions require more specialized practitioners. Typically these systems added training and financial incentives for the primary care physicians. In the Netherlands, about 88% of primary care physicians have hired nurses to provide first-line mental health care. It is unclear whether these approaches have significantly improved the identification and treatment of mental health issues, especially for those with comorbid depression and anxiety.
Some health practices in the United States have instituted a process of systematic screening for depression and anxiety and then, like the Dutch, offering care through mental health providers embedded in primary care and specialist physicians’ offices. The embedded providers are usually psychiatric social workers, health psychologists, or specialized nurse practitioners. As providers have increasingly assumed financial risk for the total cost of care, these embedded mental health provider models are spreading. Preliminary data suggest that the model may work well for patients with depression and anxiety. But both rigorous evaluation and refinement as well as scaling throughout the system are needed.
Finally, all delivery systems I studied need improvements to reduce unnecessary and wasteful care, increase the consistency of care, reduce costs, and improve the coordination of chronic and mental health care. Innovation means having a system that offers and encourages opportunities to try new approaches to delivering care, systematically evaluates new interventions, and scales the successful ones.
The Dutch, American, and UK systems excel at innovation in the delivery of care. In part, this may be cultural. Historically, these societies have more open cultures that value innovation and reward entrepreneurs. Whereas the NHS is underfinanced and under pressure to deliver better care within a limited budget, the Dutch and American systems have private payers that are under pressure to lower costs and can align financial incentives across different parts of the delivery system. These systems have experimented with imposing financial risk on physicians and hospitals, which encourages experimentation in new ways of delivering care.
Taiwan’s major innovation is a well-functioning, advanced electronic medical record—something many other health systems have failed to accomplish. Taiwanese patients’ records are available to any practitioner in any part of the health care system. This successful innovation may have something to do with Taiwan’s booming tech sector and how it created a universal coverage system—virtually from scratch—relatively recently. There were no legacy electronic health records or payment systems to eliminate, as is the case in other countries.
Drug prices are a significant issue in every country. Even those countries that regulate prices and have comparatively low drug spending struggle with rising drug costs. But countries deal with the pharmaceutical market in different ways, revealing 3 important dimensions of pharmaceutical coverage and pricing: (1) low prices, (2) access to innovative drugs, and (3) using a rigorous and objective mechanism to price them.
The first dimension is consistently low drug prices. Norway has, if not the lowest, then nearly the lowest drug prices among high-income countries. It uses strict external reference pricing for outpatient drugs. Norway will not pay more than the average price in the countries with the 3 lowest drug prices. Hence, although no single drug may be the absolute cheapest in Norway, across the board Norway has low drug prices. Clearly the United States is an outlier at the other end, with consistently high prices.
Low drug prices are of little value if patients don’t have access to new, innovative drugs. Ultimately, patients in all these countries have access to all safe and effective drugs. Controversy centers on how quickly access is granted once regulatory agencies certify a drug as safe and effective. For a variety of reasons this focus on speed of approval tends to focus on patient access to high-cost cancer drugs. Some have claimed that price regulation can delay introduction of cancer drugs. The truth—and the impact on actual health—of this claim is hotly debated. At worst, introducing drugs in these different countries varies by a small number of months.
The US FDA approves new cancer drugs more rapidly than the European Medicines Agency, which evaluates medicinal products’ safety and effectiveness for EU countries. A recent assessment of one type of drug used to treat many different cancers suggests that drugs are approved and on the market about 6 months earlier in the United States. Importantly, this difference is not related to the drug price regulation process, but it seems to be linked to when drug companies submitted their drug dossiers for approval. Drug companies decide when they will ask for approval to market a drug in a country, and they do not submit to all countries at the same time. They often determine how such approvals might impact pricing and delay introducing drugs to ensure higher prices in countries that use external reference pricing. In addition, the US FDA employs accelerated drug approval pathways more frequently. Put another way, the FDA is willing to tolerate lower evidence of safety and effectiveness. However, this has resulted in high rates of safety recalls or warnings in the United States. Thus, the difference in timing for access seems to have less to do with price regulation than with drug company behaviors and regulatory approvals based on safety and efficacy.
Indeed, in many countries there are strict timelines for establishing drug prices that prevent or limit delays in access to drugs. For instance, German drug price regulation does not prolong time to market, as companies can market the drug while the ultimate price is being established over a legally determined 12-month period. In the Netherlands, the Ministry of Health, Welfare, and Sport has 90 days after receiving the dossier from the company to establish both the wholesale price to distributors based on the drug price in other countries (reference pricing) and whether it will be included in the basic insurance package.
In some countries, especially those using cost-effectiveness analyses, there is controversy over access to certain drugs that are expensive but either might extend life only a few months or minimally improve quality of life. These controversies are politically charged. In the UK they have led to special approval processes and cost thresholds. Ultimately this is a small number of drugs affecting a relatively small number of patients and providing, by definition, minimal impacts on health.
How countries regulate prices should be evidence driven, objective, and sufficiently transparent to avoid arbitrary decisions. Countries adopt 2 broad approaches to setting prices: (1) reference pricing and (2) rigorous value-based pricing and cost-effectiveness analysis (CEA), or what some countries term health technology assessments.
In reference pricing, a country assesses prices by looking at costs for the same or similar drugs. In external reference pricing, the country assesses the prices charged for the same drug in other countries (external) and uses the median, average, or average of the lowest prices to establish its price. The Netherlands, Canada, France, Norway, and Taiwan use international reference pricing in setting prices, with the exact process varying among countries. Whereas Norway indexes to the 3 least expensive countries, Canada indexes to 7 expensive countries, which has led Canada to pay significantly more for drugs than Norway. One consequence is that Canada is currently changing how it sets drug prices.
Internal reference pricing is when a country takes a newly approved drug and establishes the price based on what is charged in the country for other drugs in the same class. Many countries—such as Australia, Canada, China, and Germany—use internal reference pricing for many drugs, such as statins for cholesterol.
The other main way of establishing drug prices is through rigorous value-based pricing and cost-effectiveness analysis (CEA). Australia, Canada, France, Taiwan, Norway (predominantly for hospital-based drugs), and the UK use CEA. Typically these countries use a sliding scale threshold, usually close to about US$30,000 to US$40,000 per QALY, for noncancer or non-life-saving medications, with higher thresholds for cancer and life-saving medications. CEA analysis is often not used to set a price but instead to inform price negotiations between a governmental agency and the pharmaceutical companies.
I am agnostic about how best to regulate drug prices through price comparisons or value-based pricing. However, it is clear that having some objective and rigorous system for setting prices is definitely better than leaving it to drug companies with monopoly pricing power. Nevertheless, the Australian and UK systems impressed me. They do not rely on the prices charged in other countries, which is probably one reason they are often among the basket of countries used for reference pricing. Among countries using reference pricing, the way Norway pegs its prices to the lowest charged in other countries seems most rational.
THROUGHOUT THIS STUDY it became clear that the United States is a relatively poor performer. Along almost all criteria, the American system is more complex and costlier than any other system. And despite placing a high premium on patient choice, American patients actually have less choice than patients many other countries. In large measure because of the health system’s complexity and high cost, the United States excels at innovation in payment, the delivery of care for the chronically ill, and providing mental health care in some areas. Complex, privatized, and diffuse systems will always be more flexible and innovative but less equitable. Every country will need to determine what kind of trade-offs it will accept between those goals. Hopefully, some successful innovations in payment and delivery of care will eventually permeate across all delivery organizations in the American system and make their way abroad, just as DRG payment did for hospital payment over the last 30 years.
But because the US system is doing poorly overall, it behooves us to return to the motivation behind the question that audiences have persistently asked me:
Based on other countries’ experiences and successes, what changes can the United States adopt to improve its health care?
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2. Data for 2018. Canadian Institute for Health Information, National Health Expenditure Trends, 1975 to 2018 (Ottawa, ON: CIHI, 2019), www.cihi.ca/en/health-spending/2018/national-health-expenditure-trends.
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9. Data for 2016. Swiss Confederation, Statistical Data on Health and Accident Insurance (Federal Office of Public Health FOPH, 2018), www.bag.admin.ch/bag/en/home/zahlen-und-statistiken/statistiken-zur-krankenversicherung/weitere-statistiken-zur-krankenversicherung.html.
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