Most health care reform advocacy – from single payer to Obamacare – has focused on the question of how our health care system should be financed, given the high number of uninsured and underinsured people and the suffering caused by an insurance industry whose business model depends on denying access to care. Yet insurance corporations are not the only ones profiteering from market-based health care: the pharmaceutical industry, medical equipment companies and private hospitals are also raking in huge profits.That’s why human rights advocates have long argued for any profit motive to be removed from the system and for providing health care as a public good.
An investigative article published in Time Magazine earlier this month (Bitter Pill: Why Medical Bills Are Killing Us, by Steven Brill, now behind a subscription wall but downloadable below) offers unsurprising but nevertheless stunning evidence of the extraordinary scale of profiteering in the health care industry, along with the complete absence of transparency and accountability. The article sets out asking some simple questions: “What are the reasons, good or bad, that cancer means a half-million- or million-dollar tab? Why should a trip to the emergency room for chest pains that turn out to be indigestion bring a bill that can exceed the cost of a semester of college? What makes a single dose of even the most wonderful wonder drug cost thousands of dollars? Why does simple lab work done during a few days in a hospital cost more than a car? And what is so different about the medical ecosystem that causes technology advances to drive bills up instead of down?”
The article’s investigation exposes a medical-industrial complex led by hospitals, drug corporations, medical device makers and lab test companies, all of whom are raking in exorbitant profits. “The result is a uniquely American gold rush for those who provide everything from wonder drugs to canes to high-tech implants to CT scans to hospital bill-coding and collection services.”
“Taken as a whole, these powerful institutions and the bills they churn out dominate the nation’s economy and put demands on taxpayers to a degree unequaled anywhere else on earth. In the U.S., people spend almost 20% of the gross domestic product on health care, compared with about half that in most developed countries. Yet in every measurable way, the results our health care system produces are no better and often worse than the outcomes in those countries.”
The article examines the severe financial hardship caused to underinsured patients, links this to excess profits made by corporations, and draws conclusions for the economic sustainability of a health care system designed to make money rather than improve health: “[T]he drag on our overall economy that comes with taxpayers, employers and consumers spending so much more than is spent in any other country for the same product is unsustainable. Health care is eating away at our economy and our treasury.”
“The health care industry seems to have the will and the means to keep it that way. According to the Center for Responsive Politics, the pharmaceutical and health-care-product industries, combined with organizations representing doctors, hospitals, nursing homes, health services and HMOs, have spent $5.36 billion since 1998 on lobbying in Washington. That dwarfs the $1.53 billion spent by the defense and aerospace industries and the $1.3 billion spent by oil and gas interests over the same period. That’s right: the health-care-industrial complex spends more than three times what the military-industrial complex spends in Washington.”
Because of the industry’s lobbying cloud, the article is also skeptical about the feasibility of moving to a publicly financed, universal health care system. Yet by comparing cases of privately insured patients with those enrolled in the public Medicare program, it illustrates how Medicare is vastly superior to private insurance when it comes to facilitating patients’ access to care while holding down costs. To illustrate its operational efficiency, the article calculates the administrative and management cost incurred by Medicare and a leading private insurer: while Medicare spends $3.80 per claim, Aetna’s per claim cost is $30. The article also offers detailed evidence of Medicare’s patient-friendly, transparent and accountable operations. The only area where Medicare is unable to counter industry profiteering is prescription drugs, as Congress does not allow it to negotiate drug prices or take the effectiveness of drugs into account when making payment decisions.
This is not an article written by a single payer or human rights advocate in a progressive media outlet; the author’s intent is to use “hardheaded arithmetic” to understand market failures. He argues that if we do the math, the biggest failure still lies ahead, just as universal health care advocates have predicted: the implementation of the Affordable Care Act, which subsidizes private insurance without capping the rates charged by insurers, is likely to create enormous costs to the public payer. “As currently constituted, Obamacare is going to require people […] to get private insurance coverage and will subsidize those who can’t afford it. But the cost of that private insurance — and therefore those subsidies — will be much higher than if the same people were enrolled in Medicare at an earlier age. That’s because Medicare buys health care services at much lower rates than any insurance company. Thus the best way both to lower the deficit and to help save money for [individuals below the current Medicare age] would be to bring […] near seniors into the Medicare system before they reach 65.”
The article shows how “the way Medicare works does demonstrate, by comparison, how the overall health care market doesn’t work.” Those who pay the bills “are powerless buyers in a seller’s market where the only sure thing is the profit of the sellers.” Although this analysis inevitably skirts over the private insurance industry’s own money-grab, it offers a clear reminder of why health care does not belong in the market. If it were not for the lobbying power of the medical-industrial complex, Medicare-for-All would be the author’s go-to solution.
Obamacare neglected to address the fundamental market failure in health care: “lopsided pricing and outsize profits [show that the] market that doesn’t work. Yet there is little in Obamacare that addresses that core issue or jeopardizes the paydays of those thriving in that marketplace. In fact, by bringing so many new customers into that market by mandating that they get health insurance and then providing taxpayer support to pay their insurance premiums, Obamacare enriches them. That, of course, is why the bill was able to get through Congress.”
The article concludes by proposing a strict regulatory framework for the health care industry, which would include the following measures:
- Tightening hospital anti-trust laws to prevent further consolidation of the market, including takeovers of lab test companies and doctors practices.
- Taxing hospital profits at 75%, including the operating surpluses of non-profit hospitals, and capping or imposing tax surcharges on hospital administrator salaries. This suggestion seeks to address the lack of regulation of hospital profits, which causes particular problems in the non-profit sector. Despite not paying income taxes, non-profit hospitals have morphed into high-profit, lavishly spending (salaries, capital improvements) companies with higher profit margins than for-profit hospitals. While hospitals are by no means the only ones profiting from the health care gold rush, their role appears particularly unacceptable since hospitals are supposed to be “government-sanctioned institutions accountable to the public.”
- Setting price limits or profit margin caps on prescription drugs. The article shows how drug companies’ profits far exceed their research and development costs. The industry also benefits from a lack of price transparency requirements; both drug and medical device companies currently insert non-disclosure clauses into their sales contracts.
- Reducing economic incentives to conduct tests, and to use and sell medical equipment. The article has few suggestions for preventing the often harmful overtreatment of patients, beyond a call for medical malpractice reform to eliminate excuses for extra exams, tests, and equipment use. Ultimately, only a fully public health care system, including salaried doctors, can remove the economic incentives for overtreatment.