Long Read: The Root of America's Healthcare Problem Is Cartel Pricing by Monopolies
The high-pitched ambulence siren had ceased, but the swirling red strobe continued to draw attention. We were at a gas station just outside of Jacksonville, Florida. My husband, Caffrey, was hooked to a ventilator and the EMT took his vital signs, radio’ing ahead before transporting him to a nearby emergency room.
In January 2019, my husband had a severe asthmatic episode that resulted in a panicked roadside 911 call and two hours of emergency care. We had recently returned from a year of global travel and had not yet purchased health insurance upon returning to the United States[1]. A few weeks after the asthma incident, our initial letter from the emergency facility indicated that our care cost would be $13,800[2] dollars. We received another $750 bill for the ambulance, paid $150 for prescribed medicines, and were billed $2,500 as a separate charge for physician services. We were looking at over $17,000 for an asthma attack.
High medical bills are normal in the United States and Americans rarely bat an eyelash at thousands of dollars, so allow me to put the price in context. Caffrey had a similar asthmatic experience in Nairobi, Kenya, that cost us a mere $750 (total) and that included seeing two specialists at Aga Khan University Hospital -- a modern, renowned medical facility -- for nearly an hour each, a battery of blood tests, nebulization, and the same drug regimen at half the price. We paid cash for all services and medicine. In the United States, the cost was 21 times higher.
The letter from the Florida emergency facility included a form to request financial relief for the projected cost (in other words, request government assistance to pay the projected hospital bill). Before we could even mail the financial assistance form, we received an actual bill from the emergency room in the amount of $1,525. In the fine print of the bill, a note indicated that an 89% “uninsured discount” had been applied to the cost of treatment.
Confused, my husband called the number on the bill and spoke with a third party billing company. The representative confirmed that this was the final bill and that, indeed, an 89% discount had been applied. We owed just $1,525, rather than the expected $13,800. Yay, whoopie (and still twice higher than in Kenya)! But, huh??
We hadn’t asked the emergency facility to apply any type of discount. We had not even applied for financial assistance yet. Why had we received an 89% discount? The representative had no answer; in fact, she indicated that the percentage was arbitrary. Thankful for the discount, but thoroughly intrigued, we embarked on a quest for understanding. What was this mysterious “uninsured discount”? Why hadn’t we heard of it before? Did everyone without insurance get the discount without question? If so, then why have insurance at all?
Prior to our short trip to Florida, we had been researching private health insurance options and were dismayed to find our options included a “Value” plan at $1,800 a year with a $12,000 deductible and a “Select” plan at $10,600 per year and a $1,000 deductible. Neither of these plans covered asthma (pre-existing condition). This episode in Florida wherein we received an automatic 89% uninsured discount suggested to us that buying insurance was an exercise in folly!
When we initially shared our story with a few people, the reaction was icy. As if we were leeching off the system, we heard comments that suggested working taxpayers pick up the tab for jobless free-loaders (like us, I presume was the unspoken barb). To set the record straight, we are self-employed, have a steady income, and do pay taxes. We have always had health insurance, until this recent gap after our travels (while traveling, we had travelers’ medical insurance).
Draconian List Price Versus Discount Price
After much scouring of the Internet, we learned that hospitals are now required to post their list price for services online. This was one of the mandates of the Affordable Care Act, initially ignored by health care providers. The mandate was actually enforced by the Trump administration[3] (led by HHS Secretary Alex Azar), which set a deadline of December 31, 2018 for all hospitals to comply. Sure enough, the hospital we had visited in Florida on January 3, 2019 had dutifully posted their “chargemaster” price list online (buried, inaccessible through any navigational link on their website; we stumbled upon it through honed Google search tactics). We compared the itemized bill we had requested from the hospital against the hospital’s published price list and saw that, indeed, the list price for services rendered tallied to $13,800. But then we noticed that the price list included the government-negotiated Medicare price, in addition to the list price. The Medicare price for most services was 90% less than the list price (often up to 97% less).
Snippet of the chargemaster sheet for the hospital we visited. Column D is our own calculation of the percentage of list price that Medicare deems acceptable.
After further research, we learned that insurance company discount rates also average near or greater than 90%. This means that the vast majority of patients with health insurance do not pay list price (except for out-of-pocket expenses and deductibles – more on that later); most insured patients pay the discounted price. It’s like in the world of commoditized software, where a price list is merely a negotiation mirror in which to project a fictionalized steep discount that is actually the real price the company expects to receive (with margins baked in, of course). I always found that particular “psychological” pricing practice ludicrous and to see it used in healthcare is absurd!! In fact, chargemaster prices are often more than 10 times higher than the actual cost of care. There is no relationship between the price on the pricing sheet and cost[4]. Our 89% discount was, in fact, more than the average Medicare or health plan-insured patient would pay.
If you have any type of insurance coverage, you may be thinking, “Okay, but most people don’t pay list price, so who cares? I have insurance and the insurance company ensures that I get a 90% discount on pricing. Right?” If you have a high deductible health plan or co-insurance (e.g. you pay 20% of the cost of care after you meet your deductible), you should care…because the discounted rate that your insurer gets doesn’t kick in until you’ve paid your deductible or your co-share at list price. For example, let’s say you have a simple bone fracture and the list price is $2500. The hospital will calculate your 20% share of the bill at $2500 (you would pay $500); your insurance company will pay their “80% share” at their pre-negotiated rate that is 90% less than list price (the insurance company would pay maybe $250). Does that really look like 20% price co-sharing when you pay twice as much as the insurance company?
Furthermore, how do you know what your insurance company’s discount rates for various services are? How do you know if 90% off the list price is fair? Maybe 90% of list price is still twice the cost of the Rest of the Developed World? (In fact, it is.)
U.S. Healthcare Prices are TWICE as High as Comparable Countries
Americans spent $3.5 trillion dollars on healthcare services in 2017, which averages to $10,739 per person and 18% of U.S. GDP.[5],[6] Other wealthy countries spent an average of $5,280 per person, representing an average of 11% of GDP[7] -- nearly half of American spending. Yet, America ranks at the bottom for quality and health outcomes5! We spend (we are charged by hospitals) twice as much but get nothing to show for that money. Let me repeat: we pay twice as much for no beneficial reason.
Still don’t care? Let me explain it to you this way. In the average wealthy country around the world, people are spending $5,000 less every year on healthcare ($417/month). $5,000 a year with an annual compounding interest rate of 3% for 45 working years is $500,000. At the end of their careers, people outside the USA in comparable-wealth countries could presumably have half a million dollars more for retirement than the average American because they did NOT spend that money on excessive healthcare costs. (The median retirement savings for working-age families in the United States is just $5,000[8].)
$5,000 a year -- $417/month -- spent on excessive healthcare could be going towards retirement, college savings, mortgage debt, and car loans. Or hey, even a raise once in a while…but that’s out of the question, as your employer directs those funds towards their increasing share of employer-funded insurance programs. The rising cost of healthcare directly impacts every American, whether or not you have the invisible blanket of insurance covering you. Americans are over-paying for healthcare, with no additional benefit.
Where’s the Money Going?
So, where’s the drain? Where’s the money going? We are spending twice as much on healthcare to pay for:
Billing and Insurance Related (BIR) administration costs (mostly because of inefficient private insurers, the “monkey in the middle”)
Physician wages that are twice the international norm
Defensive medical practices that drive up cost and increase risk
Overpriced drugs
Excessive CEO salaries and benefits
Price inflation by health group cartels with obscene market power (the root cause)
You are also paying more because the American lifestyle consisting of fast food, fast cars, and fast pace makes us all sicker (now there’s a cost variable that is under your immediate control!). That’s a topic for another day. Let’s take a look at each bullet individually.
Billing and Insurance Related (BIR) Costs ($460 Billion+ Annually)
Costs related to billing and insurance represent 14% of total national expenditure on healthcare in the United States (hundreds of billions of dollars). BIR costs for government-run programs like Medicare and Medicaid average around 3%, while those for private insurance average 17%[9],[10]. The average BIR administrative cost for healthcare in other countries is typically 3% or less (so Medicare/Medicaid is actually in line with the government-run programs in other countries, while the private insurers are nearly 6 times less efficient). This is just billing and insurance costs.
A study in the New England Journal of Medicine estimated that over 30% of our total national expenditure on healthcare, or about $1.1 trillion, is related to administration (not actually curing people or fixing broken legs). This is the price we pay for middlemen, paper-pushers, proprietary IT systems integration, marketing programs, complex legislation compliance, and general waste, fraud and abuse across all players in the medical system. Eliminate the middlemen (private insurers) and you eliminate an enormous administrative cost that does zero to improve patient health.
Physicians: Too Many Specialists, Not Enough Generalists ($100 Billion+ Annually)
According to the 2016 Medscape Physician Compensation Report[11], the average salary of physicians in the United States is nearly $300,000.
General practitioners and specialists’ salaries in the U.S. are twice as high as similarly trained doctors in other countries[12],[13] (adjusted for purchasing power parity).
Even when the lowest-paid outliers are removed from country comparisons, physician salaries in the United States are 60% higher than the average across Europe[14]. I will remind you that our health outcomes are not twice better than comparable countries; in fact, quality of care by U.S. physicians is the lowest.
Furthermore, two-thirds of physicians in the United States are higher-paid specialists. In all other countries, two-thirds of doctors are general practitioners incentivized to prevent diseases, while only a third are specialists. “Since there is little evidence of better outcomes, the increased use of specialists [in the United States] does not appear to be driven by medical necessity[15].”
No, the reason we graduate more specialists is because it serves the bottom line for hospital groups. Specialists bring in up to $150,000 more in terms of “guarantees offered” per patient than primary care. While general practitioners might encourage obese patients to lose weight to ease chronic knee pain, an orthopeadic surgeon is more likely to recommend knee surgery. More emphasis is placed on expensive procedures than prevention.
We also face a shortage of doctors in the U.S., increasing physician workload. I might sympathize with this shortage, except that the Accreditation Council for Graduate Medical Education (an organization dominated by physicians) controls the number of medical slots and residencies in the United States14. They have the power to produce more doctors, but they prefer to keep the profession “elite”. One obstacle cited is funding. Medicare (taxpayers) currently pays the $150,000 per resident salary tab for the majority of residency slots at teaching hospitals[15]. Twenty years ago, in 1997, Congress froze the number of residency slots at the request of the American Medical Association and doctors’ organizations. By pointedly limiting the number of graduating doctors to 100,000, wages stay high.
Further limiting competition in the United States is the requirement that a physician complete a U.S. residency program before they can practice in the United States (which can take 5-7 years for a practicing physician trained in another country). This requirement is unique to the United States system. Other countries allow qualified doctors who have completed an equivalent residency to become licensed. An influx of doctors from other countries would exert downward wage pressure, so what physicians’ organization would lobby for that?
Defensive Medicine ($45 Billion Annually)…and hey, ever heard of sepsis?
Another major factor contributing to rising healthcare cost is “defensive medicine”. This is where doctors over-prescribe drugs, tests, imaging, and procedures to avoid a malpractice suit. Defensive medicine costs the United States $45 billion annually[16],[17].
The cost of defensive medicine does not include physician insurance against malpractice or the cost of malpractice suits. Contrary to common belief, doctors do not spend very much on malpractice insurance. The majority of physicians spent around $5,000 a year on malpractice insurance…and the number of malpractice suits has been falling steadily since 2001 (as much as 30% in some states), as have the payout amounts when a plaintiff wins[18] due to significant tort reforms in 33 states.
No, the cost of defensive medicine is solely about unnecessary hospitalization, imaging, procedures and drugs, supposedly to avoid a (decreasing) risk of malpractice. There is no evidence that defensive medicine practices improve overall patient health. But it sure rakes in the money! Speaking of medical malpractice, let’s take a look at the nation’s leading cause of death in hospitals: sepsis.
What is sepsis? It’s an overreaction by the body to infection, with over 1.7 million cases per year[19] and a 50% mortality rate. It is the #3 leading cause of death in America, behind heart disease and cancer, killing more than 250,000 people a year. Sepsis is the #1 cause of in-hospital deaths. Sepsis also happens to be the most expensive condition for hospitals to treat (by far!) – costing over $20 billion a year[20]. While a person can acquire sepsis anywhere, at any time, the cost of sepsis acquired in the hospital (about 20% of all sepsis cases) was four times higher ($38,000/patient) than the cost of treating community-acquired sepsis ($7,000/patient)[21].
Septicemia is ranked the #1 most expensive diagnosis, costing $20 billion annually in the U.S.
The number of sepsis cases (and the cost to us all) continues to rise by 10% each year. Researchers suspect that the increased use of antibiotics and auto-immune drugs (corticosteroids) prescribed by doctors, along with an increasing number of invasive procedures (such as organ transplants and “safe” laparoscopy) prescribed by specialists, are a few of the reasons that the number of sepsis cases keeps rising every year. In fact, surgical patients account for 30% of sepsis cases[22]. Patients with sepsis are 2 to 3 times more likely to readmit to a hospital, as well, and the 30-day readmittance cost for sepsis patients is two times higher ($500 million annually) than the readmittance costs for heart attack victims ($229 million). (If you only read one of the articles cited in the footnotes, I recommend: “The Centrality of Sepsis: A Review on Incident, Mortality, and Cost of Care” in Volume 6, Issue 3 of Healthcare journal (click here). )
The #1 most expensive condition to treat and the #3 killer of Americans (with a 50% mortality rate and nearly triple the readmittance rate at twice the cost), sepsis is a condition exacerbated by defensive medical practices, over-prescription of drugs and an increasing number of invasive medical procedures by specialists. We go to the hospital presumably to get cured, yet doing so increases our risk of dying by sepsis.
Irrational Pharmaceutical Drug Pricing ($325 Billion)
We recently needed to refill my husband’s emergency inhaler and allergy control prescriptions. When we went to Walmart to pick up the medications (ProAir, Dymista, Dulera), the pharmacist told us the price was $600 without insurance. This is insane and unreasonable. My husband’s sister is a pharmacist in Seoul, South Korea. She sells these same drugs for a totalcost of $30. We ended up purchasing his medicines in Slovenia a month later for $30 in Europe. Why do the exact same medicines cost $600 – 20 times higher! -- in the USA? Like medical care, the list price of pharmaceuticals is inflated and unregulated. A study published by Actuary.org shows that U.S. retail prices for patented brand name drugs were 20-40% higher than Japan and European countries[23].
“Drug manufacturers in the United States set their own prices, and that is not the norm elsewhere in the world,” a spokesman for the 28-member European Union said. “E.U. member states have government entities that either negotiate drug prices or decide not to cover drugs whose prices they deem excessive. No similar negotiating happens in the U.S.[24]”
Drug prices in the United States rose 62% between 2011 and 2015, with the biggest increases seen on commonly used drugs (diabetes insulin, high cholesterol meds, asthma control…). U.S. prices for top brand-name drugs jumped 127% between 2008-2014. I’ll remind you that inflation has remained steady at 2% or less. Wherever there are inflated prices, look for a monopoly or the monkey in the middle. In the world of U.S. pharma, there are both.
Patents: Legal Monopoly
The United States’ patent system rewards innovators by offering a period of market protection from competition. Pharmaceuticals are typically protected under patents for a period of 13 years[25]. This gives biotechnology companies a legal monopoly on brand-name drugs, enabling them to charge literally whatever price they want for their product without fear of competition.
Bringing a new drug to market is expensive. Pharmaceutical companies cite that rational for their pricing schemes time and time again. If they are simply recovering the costs of research and design, how is that they are so extraordinarily profitable? Are their prices fair and reasonable?
Let’s look at a common 3-drug RVD (Revlimid, Velcade, Dexamethasone) cancer-treating regimen for multiple myaloma, which costs the average patient $150,000 a year[26]. The average cost to develop a cancer drug is $648 million[27]. At $150,000 per patient per year, it takes just 4,320 cancer patients to recoup R&D costs. There are nearly 37,000 new cases of multiple myaloma diagnosed every year in the United States. There is no question that pharmaceutical research companies are getting their fair R&D return over 13 years of patent protection! Their prices are unjustifiable.
PMBs: The Monkies
To ensure that any competition remains at bay after their period of patent protection ends, drug companies use strong-arm market tactics -- legal bribes in the form of kickback incentives -- to keep generics from undercutting the price. Enter the monkey in the middle: the Pharmacy Benefits Manager (PBM).
These multi-billion dollar organizations (of which you’ve never heard) work with private and public health insurers to determine which drugs to include in their health plans and at what price to the consumer. Their original role in the system was to lower administration costs for insurance companies by handling the interactions and negotiations with pharmaceutical companies; PBMs create a “menu” of covered drugs for each health plan (called tiered formularies), negotiating lower drug prices in exchange for higher volume. The PBMs get kickbacks -- called “rebates” in pharma lingo -- from drug companies for promoting certain brand name drugs over lower-cost alternatives.
Three PBMs control 72% of the market[28].
Express Scripts, a Fortune 100 company (25th on the list) with $100B in revenue in 2018; merged with Cigna Health in December 2018.
CVS Caremark, another Fortune 100 company (7th on the list) with $198B in revenue in 2018; purchased Aetna insurance this year for $70B.
OptumRx, which is now owned by UnitedHealth, the largest health insurer in America and 5th on the Fortune 100 list with $200B in revenues. The Optum division saw a 9.1% revenue spike year-over-year in 2018 ($91B)
Until recently, these three companies were middlemen between the insurers and the pharmaceutical manufacturing companies. After a series of acquisitions last year, however, all three are now part of a health insurance organization. Through collusion with drug companies, kickbacks now go into the profit pockets of health insurance organizations; there is no longer an incentive for insurers to negotiate the lowest-cost, most-comprehensive drug coverage because the rebates are more lucrative.
**By the way, UPMC is the only health insurance choice offered in my zip code on Healthcare.gov. UPMC does not offer any insurance plan on the government exchange that covers the basic asthma medicines that my husband needs. We will be expected to over-pay for the medicine he needs, even with coverage.
Exhorbitant Health Care CEO Wages ($10s of Billions Annually)
I went back and forth on including executive pay in this write-up. In America, we love to defend the leaders…the men[29] on the front line with exceptional insight and business prowess, guiding their troops towards maximum shareholder profit. But the truth is, in the United States, our healthcare costs include billions of dollars in C-level pay and benefits. I will simply state the facts and let you judge if they “earned” their wealth in a system that ranks at the bottom for health outcomes but costs twice more than the rest of the developed world.
Chief executives at health care companies – which include hospital groups, health insurers, biotechnology, medical suppliers, and pharmaceutical companies -- earned over $10 billion since 2010 (the year the Affordable Care Act was passed), with CEOs bringing home a median salary of $13.6 million in 2014[30]. Since 2010, when the Affordable Care Act went into effect, health care CEO payout has increased 11%. Between 2005-2015, CEO compensation in major nonprofit hospitals rose 93%, while the average health care worker wage rose 8%[31]. Outstanding salary increases while crying loudly that the Affordable Care Act is “causing” rising health care costs…
2017 salaries for the CEOs of the nation’s largest hospital systems range from for-profit HCA Holdings CEO R. Milton Johnson’s $17.3 million in compensation to Peter Fine, CEO of non-profit Banner Health in Arizona, whose salary was nearly $9 million[32].
Jerry Romoff, CEO of non-profit UPMC health system (monopoly market dominator in western Pennsylvania) makes over $6 million in salary. He has a personal chauffeur, chef, and a private jet. He also has a staff of 12 people, each of whom makes over $1 million in salary each year. UPMC – a non-profit health system – somehow managed to make nearly $1 billion in profits between 2011-2012[33]. All while maintaining a $200 million tax break[34] and dedicating just 2% of revenue to charitable care. Seven of the 10 most profitable hospitals in America are tax-designated as non-profit[35]. While Mr. Romoff enjoys his taxpayer-supported jet, personal dietician, and chauffeur, my husband and I will pay $600 for medicines that cost $30 elsewhere in the world.
The Power of Market Monopoly
Through the 1990s, most communities had independent hospitals, physician offices, and local pharmacies. Over the past 15 to 20 years, however, mergers and acquisitions led by billion dollar conglomerates skyrocketed. By 2017, approximately 2/3 of community hospitals were acquired by a mega-hospital chain.
96% growth in hospital M&A activity, with a 231% growth in the number of hospitals involved
Mega health care conglomerates[36] (such as HCA, UnitedHealth Group, UPMC and Ascension Health) and mega-insurance companies[37] (like Aetna, Anthem, Cigna, Humana, and UnitedHealth Group) dominate the market and, in certain regions, create local monopolies that enable them to exercise opaque price control over healthcare, insurance and drug prices. They use their monopoly power to maximize profits and keep out competitors. Quality of care is not guaranteed nor proven in any way superior to the rest of the developed world. There is no competition, no choice, and no transparency. In fact, “not a single highly competitive hospital market remains in any region of the United States” [38].
When market consolidation happens, prices rise by an average of 20%[39]. Multiple research reports consistently measure this phenomenon. Reseachers point to “exploitation of payment rules” (gaming the complicated insurance system with irrational, opaque, inconsistent pricing) for more than half of the price increases. Where I live in western Pennsylvania, UPMC now owns the entire supply chain: the hospitals, emergency care facilities, ambulance services, pharmacies and insurance plans. They can charge whatever they want for any health service – while also keeping their insurance business risk in check -- because a patient’s only alternative is to drive hundreds of miles outside of UPMC territory (where they would likely encounter yet another market bohemoth).
Why are health care monopolies legal in a supposedly open market economy with anti-trust laws? Several reasons, one being that the Federal Trade Commission is not permitted to prosecute anticompetitive practices by nonprofit organizations. Nearly 60% of all hospitals fall into that category (ironic, given that 7 of the 10 most profitable health organizations are “non-profit”). Another reason is that hospital and physician office acquisitions are often too financially small to trigger an FTC investigation; the FTC rules do not consider the volume and/or concentration of acquisitions.
But there is pause for hope. In 2017, multi-billion dollar merger announcements by Aetna and Humana and by Anthem and Cigna were both blocked by federal courts on anti-trust grounds[40]. With the 5 largest insurance companies (Aetna, Humana, Anthem, Cigna, and United Health) dominating nearly 90% of the market, consolidating that market share into just three companies would drastically restrict competition. We need to see more of that anti-trust action happening with health care service providers.
Political Action: What You Should Demand
“…local monopolies that now dominate health care delivery present a deep threat to meaningful health care reform. Even under a “single-payer” or “Medicare for all” payer system, health care monopolies might well have a power akin to sole-source Pentagon contractors as their size, political power, and lack of competition allows them to set their own prices. Meaningful reform of the American health care system requires shrewd use of competition policy to tame monopolies and restructure health care markets.”[41]
Not a single politician on either side of the spectrum talks about breaking up the monopolies, minimizing the role of private insurance middlemen, or price transparency. They throw out abbreviated slogans like “Medicare for all” or choose an anti-Affordable Care Act stance that leaves the broken system unchanged. Neither of these positions fixes the root cause of our health care cost crisis in America. Perhaps politicians have become too intimidated to challenge the medical goliaths. These giant conglomerates donate significant campaign contributions, afterall.
Who’s Getting Funded? Everyone! (Source: OpenSecrets.org)
Who’s Contributing? Everyone! (Source: OpenSecrets.org)
Rather than challenge their sugar daddies, politicians divert your attention to talking points that do nothing to solve the real problem. Republicans tout the Medical Savings Account as a way for individuals to manage their health care costs; this is laughable in a system with cartel pricing (it is an impossible notion that Americans could save a million dollars for cancer treatment). Democrats want taxpayers to pick up the tab for everybody; this would amount to massive corporate welfare in a system with cartel pricing (a single-payer model would bankrupt America without price controls). Neither of these propositions is useful without a break-up of the cartels that control and obscure pricing.
Americans pay twice as much for healthcare as the rest of the world. As informed, concerned, impacted citizens, we must remain focused on the pricing problem, which goes hand-in-hand with the monopoly problem. We deserve real solutions.
Look, this isn’t rocket science. There are models of better health systems all around the world that deliver higher quality care at far lower prices. Middlemen and monopoly conglomerates dominate none of these models. Do not believe the negative, distracting talking points that attempt to persuade you that these systems are somehow inferior. As a nation, we need follow the example of other countries.
Demand that your politicians address the root cause. If they are not talking about price transparency and market monopolies, they are not capable of fixing the problem. Boo them off the stage until they come back with already-tried-and-true solutions that both reduce costs and improve health outcomes.
Summary
It’s open enrollment time for Healthcare.org. My husband and I will not be missing our only window of opportunity to snag some subsidized insurance that will help us contain the damage to $15,000 if or when we need health care[42]. It pains me to the core that I have to fork over taxpayer money to a market monopolizer (UPMC) to protect myself in a corrupt system with inflated prices (also UPMC); it feels like a mafia scenario. But we also cannot rely on the whim of billing agents to discern whether or not we receive an “uninsured discount” in the future. There are no published rules explaining who gets the discount, when, or why.
This was a long paper and, if you’re still reading, bless your heart! Our current system is not working for Americans and is irrational. Feel free to use these talking points in your next letter to your fav politician:
We pay twice as much in medical care as the rest of the world with poor, lower quality outcomes.
Corporate giants control the supply chain in most regions. Pricing is inflated and opaque.
Billing and Insurance Related (BIR) costs are six times higher than government-run health systems in other countries.
The number and types of physicians in this country are carefully controlled and manipulated to ensure higher wages and higher per-patient spending.
Defensive medicine practices increase the cost of care while also contributing to an increased risk of hospital-acquired sepsis (costliest, deadliest condition patients and hospitals face).
Drug companies charge extraordinarily higher prices in America than elsewhere in the world, simply because they can get away with it.
Non-profit hospitals are actually highly profitable, but use their tax status to receive tax breaks and avoid anti-trust lawsuits.
Executives in healthcare organizations are among the highest paid individuals in America, while delivering poor quality services at inflated prices.
The entire system is absurd… but the solutions are out there. Canada, Switzerland, Germany, Japan – there are many models of healthcare that work. They may not be perfect, but any of them are better than what we have now. We just need the political will – and the civic engagement to form and push that political will.
Final Note: Words Matter
The “socialized medicine” rehetoric used by Republicans as a scare tactic is nonsense. I’ve remained politically agnostic in this paper, but this I have to address. Socialized medicine is a system in which the government provides health care services in government-owned and operated hospitals with physicians employed by the government. The Veterans Administration (VA) is the quintessential example of socialized medicine. We already implement socialized medicine in the United States and it actually works quite well. The VA’s bad press is unwarranted. A study published by the New England Journal of Medicine in 2003 compared VA hospitals with non-government-run hospitals and found that across 11 quality measures, VA hospitals had the highest quality of care[43]. The United Kingdom, New Zealand, Cuba and Spain (and the VA system in the United States) are examples of socialized systems.
Most democrats today are proposing a single-payer system, which is not the same thing. In this system, the government/taxpayers pay for health services provided by private organizations. Healthcare funds (insurance) are public resources generated by taxes; private insurance can be optionally purchased to augment public health insurance. Canada, Germany, South Korea, Japan, and Switzerland have some version of this model[44]. It is similar to Medicare and Medicaid, except that it is not based on age or income (hence why Democrats call their proposals “Medicare for all”). I’ve already explained why this model is now problematic for the United States: our healthcare providers have become behemoth monopolies that control all aspects of pricing. For the United States to implement this model, we would have to implement price transparency and controls and create a more competitive health care delivery system. Other countries have done this; it’s not groundbreaking.
Stay informed. Stay educated. Vary your news sources. Read the articles cited in the footnotes. Do not let the media or the politicians distract you from the root problem.
FOOTNOTES (READING RECOMMENDATIONS)
[1] Actually, we had returned to the United States after the federal marketplace annual enrollment period had ended and we had procrastinated past the 60-day grace period. We were in the process of searching for affordable, sensible insurance on the private market but had found nothing palatable.
[2] All dollar amounts rounded.
[3] https://khn.org/news/as-hospitals-post-sticker-prices-online-most-patients-will-remain-befuddled/
[4] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5429205/
[6] While wages have been stagnant and inflation has hovered at 2%, healthcare expenditures have grown at an average rate of 4% for the past decade, particulary for physician services and hospital care. Prior to the 2000’s, healthcare-spending growth averaged 10% in the 1980s and 5.5% in the 1990s.
[10] https://econofact.org/how-large-a-burden-are-administrative-costs-in-health-care
[12] https://journal.practicelink.com/vital-stats/physician-compensation-worldwide/
[13] https://www.politico.com/agenda/story/2017/10/25/doctors-salaries-pay-disparities-000557
[14] We are inclined to say that doctors deserve high pay. They study for many years and medical school is expensive. Consider this, though. The ratio of student debt to potential earnings is enormously lower for medical students than all other professions. The average student graduates from college owing $35,000 with an earnings potential of around $50,000 in the early years of their career (debt:earnings ratio=0.7). The average medical school student graduates with $170,000 in debt, but a starting salary of $200,000 (debt:earnings=0.85). Graduating doctors do not face a debt burden any higher than other professions.
[15] http://cepr.net/publications/op-eds-columns/the-problem-of-doctors-salaries
[16] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6163143/
[17] https://www.policymed.com/2010/09/defensive-medicine-adds-45-billion-to-the-cost-of-healthcare.html
[18] http://truecostofhealthcare.org/malpractice/
[19] https://www.cdc.gov/sepsis/datareports/index.html
[20] https://www.nigms.nih.gov/education/pages/factsheet_sepsis.aspx
[21] https://www.mdpi.com/2227-9032/6/3/90/htm
[22] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2846560/
[23] https://www.actuary.org/content/prescription-drug-spending-us-health-care-system
[24] https://www.nytimes.com/2018/05/11/us/politics/trump-prescription-drugs-plan.html
[26] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5159700/
[27] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5710275/
[29] Out of 113 health care CEOs in a recent analysis of CEO salaries, only four were women[29]. Shocker.
[31] https://openmarketsinstitute.org/explainer/hospitals-and-monopolies/
[33] https://www.cbsnews.com/news/nonprofit-hospital-makes-billions-should-it-get-a-tax-break/
[34] Non-profits are exempt from property, state, and federal taxes
[35] As an FYI: 59% of hospitals are non-profit, non-governmental, 21% are for-profit, and 20% are state or local government hospitals.
[36] https://www.beckershospitalreview.com/largest-hospitals-and-health-systems-in-america-2019.html
[37] https://www.valuepenguin.com/largest-health-insurance-companies - nogo
[38] https://openmarketsinstitute.org/explainer/hospitals-and-monopolies/
[39] http://www.allhealth.org/wp-content/uploads/2017/01/Consolidation-Toolkit_169.pdf
[40] https://money.cnn.com/2017/02/14/investing/aetna-humana/index.html
[41] https://openmarketsinstitute.org/explainer/hospitals-and-monopolies/
[42] For the record, we chose the plan with the least subsidy. Our deductible is $14,800 before UPMC ever has to contribute a dime towards our medical costs. Instead of paying UPMC’s asking price of $661.87 per month for this awful policy (almost $8,000/year), we will pay just $1.39 per month thanks to the Affordable Care Act’s tax credit scheme. The government will funnel our calculated $787.00 monthly tax credit to UPMC. Works out well for UPMC, don’t you agree?