Time magazine recently published one of the most impressive news stories in years on the subject of the U.S. health care system, and it’s generated a lot of attention, for good reason. Unfortunately, at 26,000 words (the longest story ever published by Time), the opus: “Bitter Pill: Why medical bills are killing us,” by longtime journalist Steven Brill is a heavy lift for most casual news observers.
It’s too bad, because if everyone in America read the story, they would begin to understand just how difficult it’s going to be to fix the underlying fatal flaw in the U.S. health care system— and why Obamacare isn’t going to do it, at least as currently written.
Brill’s basic argument— that the pricing for medical services is completely opaque and bears little or no relationship to actual costs— is illustrated through a series of case studies of patients who got burned in one way or another, whether they had insurance or not. Brill explored each case, and asked hospital administrators to explain, for example, why the same over-the-counter medication costs pennies at the local pharmacy, but $12 in a hospital room. He had hundreds of other examples, of course, where hospitals routinely marked up their actual cost for goods and services by factors of ten times or more.
It turns out it is all part of an elaborate game, since most people don’t actually pay these exorbitant rates. Insurance companies and the government— who pay most medical bills— negotiate discounts on these sky-high prices from health care providers. But when insurance coverage runs out, or, heaven forbid, someone enters a hospital without insurance, these discounts don’t apply and the cost of seemingly minor procedures can quickly send the average individual or family into bankruptcy.
Need a blood protein test? Medicare will pay $13.94 for the test, but if you’re not covered by insurance, you pay $199. Three CT scans? Medicare pays $825 total. Your price? $6,583. Keep in mind, the Medicare payments more than cover the provider’s cost of offering that care. The eye-popping mark-ups just pad their profits, which Brill found are substantial, even for supposedly “non-profit” hospitals. Various medical suppliers also reap huge proifit margins.
Brill’s article doesn’t offer a lot of love for some long-held notions about how to bring health costs down. Brill stated outright what many critics of the “free market” approach to health care have been saying for a long time— namely that free market principles do not apply to the health care system, and they realistically never will. The free market assumes informed buyers, who understand pricing structures as well as qualitative differences. But Brill found that even hospital administrators in most cases don’t know what their facilities charge for services, or why. Patients don’t have a clue what things cost until they open their bill, and drop dead of a heart attack.
Brill didn’t leave liberals unscathed either. He said Democrats should support changes in medical malpractice law to reduce the amount of tests conducted for merely defensive purposes, although this change by itself will likely do very little to tame the explosive rise in medical bills. In states like Texas, where such malpractice reform has already been adopted, medical costs remain among the highest in the country. In Minnesota, where such reform has not yet been adopted, average medical costs per resident are near the bottom, and quality is right at the top. I don’t oppose some malpractice reform, but the evidence suggests the impact on prices would be small.
While Brill’s story generated lots of attention, one finding in particular should be making more of a stir than it has so far. Brill found that because of Medicare’s huge influence in the medical industry, it has, in most cases, managed to rein in medical bills quite effectively— and far better than private insurance companies.
In determining what to pay providers, Medicare investigates what it actually costs hospitals or other service providers to supply a good or service, adds a small profit margin, and pays no more than that. That means Medicare typically pays about one-tenth what the doctor or facility would charge a regular, uninsured patient, since providers normally charge many times what it actually costs to provide a service.
Brill goes on to note one obvious corollary of Medicare’s low cost: if we’re serious about containing the cost of health care in the U.S., we should be talking about lowering the age of eligibility for Medicare, not raising it as many in Washington currently advocate. Brill doesn’t actually recommend an expansion of Medicare, but I suspect he wanted to let the data speak for itself rather than risk charges that he wrote his story to promote a particular agenda. The indisputable fact is this: health care is cheaper when Medicare is involved.
And Republican calls for converting Medicare into a voucher system would only reduce Medicare’s benefits, since the effect is to undermine Medicare’s negotiating power with providers.
Brill also points out that while Medicare has used its clout to rein in the cost of medical services, it has been unable to do the same to bring down pharmaceutical prices. Here in the U.S., we pay far higher prices for prescription drugs than any other country on Earth, because Congress won’t allow Medicare to negotiate better rates, even though private insurance companies do so all the time. Brill estimates that Medicare could save tens of billions of dollars annually if Republicans in Congress would only allow the agency to negotiate drug prices, just as it does with hospitals and other service providers. So when you hear Republicans calling for cuts to Medicare, tell them to quit blocking one of the easiest and most effective cuts of all.
While Brill’s findings argue strongly for a single-payer system like Medicare, the private sector alternative would be price controls. Every developed country in the world, except the U.S., uses one method or the other (if not both) to keep costs in check. If Medicare has already determined what it costs to provide intensive care services, a hip replacement, or an appendectomy to a patient, why should anyone, particularly a working class stiff without good insurance, have to pay ten times that price? Put a limit on it and watch hospitals and other health care providers start finding ways to cut costs.
As long as we sit back and allow health care providers to continuously ratchet up prices year after year, they have no incentive at all to look for efficiencies. Brill estimates that the U.S. economy already wastes $750 billion a year on unnecessary medical charges. That’s real money. It’s time to put it to better use.