This nation spends 3 trillion dollars yearly on healthcare, representing 17% of our total economy, which is—per capita—about double that of other western nations. Of that total, 40-50% goes to hospital charges, 20-30%, to tests and other services, 20% to doctors, 15% to drugs and devices, and 5% to nursing homes.
Conventional wisdom teaches us that prices for healthcare should come down when subjected to “free-market” forces, i.e. supply and demand, like the pricing of automobiles, household goods, etc. But nothing could be further from the truth! When did we see hospitals advertise the lowest rates in town, or healthcare purveyors state that hip replacements or cataract surgery was going on sale next month—or any month? Or, when confronted by an emergency, the cost of an ambulance would be based upon a prearranged lowest competitive price to transport a stricken patient to a nearby hospital offering competitive daily occupancy rates? And this extends to virtually all of healthcare. If we are lucky enough to possess good insurance, we may not worry about these charges, but history shows that once a procedure is covered by insurance, its sticker price generally goes up because patients (and physicians) are largely insulated from the costs, and this further prevents a “free market.”
In the face of rising healthcare costs in the early 20th century, Medicare first entered the market and covered usual charges from 1965 until the 1990s, but because of rapidly increasing charges, Medicare began limiting payouts, which served as a partial restraint on some of the rising charges: For instance it applied a system to bundle and restrain allowable hospital charges for given diseases/and or treatments. Also Relative Value Units extended to physicians’ compensation. But such limits don’t extend to private insurance or to the uninsured, unless by negotiated agreement.
Working through private insurers, the ACA (Obamacare) has provided some financial support for people needing insurance, but it also provided no effective means to control healthcare charges, which are continuing to spiral even higher. Notwithstanding Medicare, there are no real limits on most charges, meaning that most healthcare facilities can charge what they wish, free of any governmental or outside interference.
For instance, hospitals can pad their bills through the use of inscrutable charges that include all sorts of add-ons such as “facility fees,” needles, pills, laundry, multiple doctors, various tests etc. Moreover, excessive hospital charges encompass administration that often rewards CEOs with millions of dollars yearly, includes billing and collection costs, extensive gardens and physical additions, etc. Despite their being called “non profit,” most hospitals are de facto private entities, calling profits “operational excesses” and reaping the benefits of the avoidance of local taxes, while, at the same time, encouraging tax deductible contributions.
With regard to drug prices, there are no effective restraints on pharmaceutical companies’ charges. Unlike other countries, our government-run Medicare program is prohibited by federal law from negotiating lower drug prices with manufacturers. Prices for newer patent protected drugs are often excessive, and overcharges for older, generic drugs are also commonplace. In the case of certain cheaper generic drugs whose interest and availability are waning, they may become subject to a single company’s seizure of exclusive control of limited supplies, and then becoming a de facto monopoly, allowing for prices to suddenly surge to stratospheric levels. Collusion between competitors has also been alleged as another means to raise these latter prices.
In contrast with all western countries save New Zealand, pharmaceutical companies in the U.S. are legally allowed to advertise prescription drugs on television, provided that they list various side effects and dangers as well. Predictably these products are regularly expensive and may or may not be superior to older generics. Advertising costs these drugs generally account for about 30% of the companies’ expenditures, whereas research in new drug development amounts to a paltry 15%.
In order to deal with our broken healthcare system, we can learn from other countries’ experiences. Although some pundits claim otherwise, our outcomes are clearly not better than those of other advanced countries, meaning that our profuse money outlay is largely wasted. Although there are several contrasting methods, they all contain governmental price controls and universal participation. The best examples are provided by Germany, Japan and Belgium, in which rates for all services are set that include upper caps. In Germany, for instance, most individuals must purchase state sponsored insurance, with premiums based upon one’s income. Private insurance is allowed and may supplant the base insurance for the few who can afford deluxe services. Canada, Australia, the United Kingdom and Denmark, use variants of a single payer system, all of which couple price limits for services together with a mandate that the entire population will be insured.
The U.S. could adopt any of these methods, but a single payer (“public option”, or Medicare for all) would seem to be the most cost-effective. Administrative costs for Medicare average about 2-3%, in comparison to about 20-30% of most private insurers.
Expanded Medicare would not preclude the addition of supplemental private insurance, as we now have in combination with its basic coverage. An overall plan directed by the single payer must be empowered to control prices for all methods and procedures, allowing us to approach costs of other western countries. A single payer system would also simplify record keeping and unify documents, reducing time required by physicians and office personnel. It could be phased in gradually by lowering age eligibility for Medicare.
Given these facts, the underlying problem becomes clear: We are overpaying for virtually all components of our health care system, and governmental restraints on charges are necessary. This must be coupled with universal participation.