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Placing blame for health costs | Rich Elfers
Time Magazine’s March 4 cover notes that a 1.5 cent acetaminophen tablet costs 10,000 times that much in a hospital. This introduces the reader into the featured story of the issue: “Why Medical Bills are Killing Us,” by Steven Brill.
Brill’s article was readable and eye-opening, but since it was about 30 pages in length, it took me nearly two hours to read. To save you time, I’d like to give you the highlights of Brill’s research because it deals with a complex issue dear to all of us: paying for health care.
Brill spent seven months doing the research and, as the managing editor noted in his introductory letter, “Brill’s story is resolutely nonideological, but it resets the terms of one of our most important policy debates. Both sides of the aisle are culpable, as our elected leaders refuse to rein in hospitals and health care providers.”
That’s Brill’s thesis. The reason for high health care costs lies in the high costs of medical bills, not in debating who should pay the bill. Let’s examine some of the major points of Brill’s article.
About 20 percent of the Gross Domestic Product goes into paying health care costs ($2.8 trillion per year). That’s twice as high as other developed nations. Yet, our health care system is often worse than other comparable countries.
Brill first lays the high costs at the door of the hospitals with what are called “chargemaster” rates. They’re the costs applied to every procedure in caring for the sick and injured. “They were set in cement a long time ago and just keep going up almost automatically, says one hospital chief financial officer with a shrug.” In actuality, the people who pay these high prices are usually the poor and uninsured who have few resources to fight them.
As hospitals grow larger and merge and take over doctors’ clinics, even insurance companies have less leverage due to less competition and transparency and more unnecessary testing.
Nonprofits, according to Brill, are some of the worst abusers. They pay their executives seven-figure salaries. Hospitals are like utilities that have a monopoly but no regulatory agency overseeing prices. Each year the industry spends $5.36 billion lobbying Congress to keep it that way.
These nonprofit hospitals are beloved by communities because they are some of the largest charities. But, Brill points out, the amounts they give are also calculated by the chargemaster rates rather than reality. In actuality, their charity work is less than 1 percent of their profits, which number in the millions and billions of dollars.
Another major cost driver is all the medical tests. “These tests become a cash generator.” In-house testing, especially, drives up income and costs because of a lack of competition.
Another cost driver is pharmaceuticals.
“The difference between the regulatory environment in the U.S. and the environment abroad is so dramatic that McKinsey & Co. researchers reported that overall prescription-drug prices in the U.S. are 50 percent higher than comparable products in other developed countries.”
The pharmaceutical response to the price difference is that “U.S. profits subsidize the research and development of trailblazing drugs that are developed in the U.S. and then marketed around the world.” Brill responds to this argument with a question: Why should a country with a health care crisis subsidize the rest of the world, and who decided that should be the U.S. mission?
Pharmaceutical numbers do not add up. Research and development is actually a small portion of medical costs in relation to profits.
Hospitals and doctors who complain about the lack of income from Medicare are blowing smoke, according to Brill. They make plenty of money but don’t like the regulation.
“Put simply, the bills tell us that this (the high cost of medical care) is not about interfering in a free market. It’s about facing the reality that our largest consumer product by far – one-fifth of our economy –does not operate in a free market.”
The problem with medical care is that people who need it are not concerned about price until after the medical crisis. Market forces do not apply.
Brill’s solutions are as follows:
• Regulate drug prices the way other countries do. This would save tens of billions of dollars while still offering profit margins that would keep encouraging the pharmaceutical companies’ quest for the next drug.
• Pass laws to keep hospitals from merging and creating monopolies in a region by buying up doctors’ practices so insurance companies have little leverage to negotiate prices.
• Tax hospital profits at 75 percent and put a surcharge on all non-doctor salaries that exceed $750,000.
• Outlaw chargemaster rates.
• Pass medical-malpractice reform laws. Democrats fight this because these lawyers fund the Democratic Party, but these laws raise medical costs and force doctors to order unnecessary tests.
Brill argues the real problem with high medical costs is the high prices that hospitals, drug companies, testing clinics, and medical suppliers charge, not who pays those bills. Government politicians are in the pockets of these medical megaliths. As with the banking industry that helped to cause the 2008 economic meltdown, these corporate giants are taking advantage of a lack of transparency and regulation to milk the nation of its money,