Why Health Care Costs So Damn Much (part 3 of 3)

(On Monday we looked at health care monopolies, the myth that Americans over-consume medical services, and the high cost of prescription drugs.  Yesterday we considered whether it’s really necessary for every doctor to get rich, looked at out-of-hand hospital charges, and considered how pharmaceutical companies don’t really compete with one another.  Today we conclude.)

Bye Bye, Non-Profits; Hello, Profiteers

Let’s digress here for a minute and take a closer look at this non-profit/for-profit business.  When those of us of a certain age were younger, the health care world consisted mostly of non-profits and small businesses.  The hospitals were all non-profits and your Blue Cross plan was, too.  Your doctor worked for himself, or maybe with two or three other doctors; they were, in every sense, a small, cash-only business.  If you needed a blood test, they sent your blood to a local lab; the father of one of The Curmudgeon’s fourth-grade classmates owned such a lab and that family was pretty middle class.  If you needed an x-ray, you went to the office of a radiologist who had an x-ray machine, he read the x-ray, and he called your doctor and told him what he saw.  You paid the doctor and the dentist in cash for their services; there was no such thing as dental insurance and health insurance was for hospitalization, not for ordinary doctor office visits.  Your pharmacy was owned by the guy in the white coat behind the counter, and usually, his wife worked there, too.  They did better than your family financially, but not necessarily by a lot.  There were few chain drug stores and none in many communities.

It’s so different today because somewhere along the line, people decided there was real money to be made providing health care and serious opportunities for getting rich.  People who already had money started buying hospitals; it’s no coincidence that the people who bought hospitals installed business executives, not doctors, to run those hospitals and it’s also no coincidence that this is when hospital prices started going through the roof.  Doctors are judged based on the care they provide but business executives are judged on how much money they make, so of course they raised their prices, raised their own salaries through the roof, employed lots of people whose job was to push paper, and turned health care into something that has become increasingly unaffordable.

Meanwhile, drug store chains started sprouting like weeds on an untended lawn while national companies providing blood lab services and regional radiology businesses sprouted as well.  Health insurance companies took as their primary goal making money, plain and simple.  Even those non-profit Blue Cross plans got in on the action:  today, most of them continue to be non-profit in the technical sense but they own lots of for-profit subsidiaries that do things like manage pharmacy benefits and provide health insurance to Medicare and Medicaid patients – all for huge profits.  They complain bitterly when government expects something from them in return for their non-profit status but you know – you just know – that they’re absolutely itching to be sued over it so they can throw up their hands and insist that government forced them to relinquish their non-profit status and become for-profits.  It’s going to happen eventually:  mark The Curmudgeon’s words.  The only mission these companies are driven to fulfill is to make as much money as they possibly can.

So what we’ve experienced over the past 30 years, in essence, is the disappearance of a service and the emergence of an industry – an industry that wants to take every dime it possibly can, and then more, from its customers.  The profit motive, for so long not a major factor in health care costs, is now the biggest factor driving up those costs as the people who deliver the services and the people who run the companies that deliver the services pursue wealth at all costs.

Worse Care at Greater Cost

Getting back to our story, what these folks don’t particularly pursue is better care; they’re more interested in lucrative care.  That’s why every hospital, for example, eagerly chases joint replacement procedures and heart surgery business – because that’s where the biggest money is.  But the overall care hospitals provide isn’t really any better.  Plenty of people still get sick in hospitals, in fact.  Do you think that would happen if there was more competition and hospitals where people were less likely to get sick while there advertised their success rates as a way to draw patients?

So how does all this affect patients?  The Washington Monthlyfound an explanation.

The effect of this massive consolidation on prices is predictable. According to a study by Yale economist Zack Cooper and others, if you stay in a hospital that faces no competition, your bill will be $1,900 higher on average than if you stay in a hospital facing four or more competitors.

Pay more, get…less?

Then there’s the combination of doctors and hospitals, the Washington Monthlyexplained.

As hospitals combine into local and regional monopolies, they can leverage their power by buying out local physician practices. Consider the anticompetitive effects of these deals. Doctors play a large role in steering patients to different hospitals, and anti-kickback laws prevent hospitals from paying doctors for these referrals. Yet those laws become inoperative when a hospital simply buys a doctor’s practice and puts him or her on its payroll. Such a deal not only allows a hospital to effectively buy referrals, it also forecloses future competition. To win the business of these referred patients, a rival hospital would generally first need to convince them to change doctors.

Have you ever visited with your family doctor and she (“she” because The Curmudgeon’s current family doctor is a she) said you need to see a specialist? And wasn’t the doctor she referred you to employed by the same hospital that employs her?  The Curmudgeon has found an interesting away around that: knowing that his family doctor lives in the same general area in which she practices, he asked her recently, in response to her referral to a podiatrist, “If I was your older, charming brother, is that where you’d send me?”  She paused for a moment, declared “That’s an interesting way to look it, I never thought about it that way,” and gave her patient the name of the podiatrist who had treated both her husband and her son.

Continuing with that subject,

The absorption of physicians into monopolistic enterprises is highly inflationary. A 2014 study of physician organizations in California found that groups owned by local hospitals charge 10 percent more per patient than physician-owned groups. Meanwhile, groups owned by multi-hospital systems, which tend to be even more monopolistic, charge nearly 20 percent more per patient. A 2015 study by the National Academy of Social Insurance found that “there is growing evidence that hospital-physician integration has raised physician costs, hospital prices and per capita medical care spending.”

Which means that without intervention from government, this trend, which has led to worse care at greater cost, is only going to continue. Or accelerate.

Health Care Overhead is Overwhelming

Finally, we come to the last major driver of health care spending in our country: the cost of administering the mess of a system we now have.  Administrative costs now account for more than 25 percent of our health care spending, about twice what Canada spends.  That’s a lot of people doing a lot of work preparing, filing, and paying lots of insurance claims – work that barely exists in other countries.  People like to complain about government inefficiency, but overhead costs for Medicare and Medicaid are well under 10 percent – yes, government is more efficient than the private sector in this particular area.

Then, of course, there’s executive salaries.  The person who leads the federal agency that runs Medicare (and Medicaid, too), which insures 44 million people, is paid around $225,000 a year while the head of the largest Blue Cross company in the area where The Curmudgeon lives, which insures 8.5 million people – many of them in for-profit subsidiaries in which he’s barely involved – was paid $3.6 million in 2016.

*     *     *

And these are just some of the reasons why our health care today costs so damn much.


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