Saturday, September 28, 2013

The REAL "real" reason for ridiculous medical care costs in this country

In the past few weeks, this video:



Explaining some of the reason Americas health care costs are so high, has become very popular... And it's got some good points to be sure; in fact, it's one of the first and best relatively plain language explanations I've seen outside of Libertarian circles, of the basic economics that drive healthcare pricing in America.

Unfortunately, many seem to take the message out of this that "Oh well, it's just because the government doesn't regulate how much things cost, and the health care companies are gouging us for evil evil profit, we MUST get the government to take over" etc... etc...

Today, a friend linked this NYT article on colonoscopies as a good example of how American health care pricing is out of whack... And again, it raises some good points, but again misses the point completely in some ways... Perhaps intentionally.

Watch the video and read the article for context before you read on...

I say "perhaps intentionally", because although the article (and the video) both make clear that certain procedures, medications etc... are priced FAR higher in the U.S. than elsewhere, they didn't really get into why the "price" invoiced is so ridiculously high.

They did touch a bit on a few areas, but both simply seemed to suggest that it is because the government doesn't regulate the prices and therefore the healthcare companies gouge Americans for huge profits just because they can.

Knowing me... One might have certain suspicions as to my thoughts on that concept...

Although, as the article suggests, it sometimes IS because of gouging, or because of unnecessary profit motivated procedures (particularly the overprescription of marginally effective, marginally necessary medications; and the over use of preventative or diagnostic procedures with marginal value), most of the time our ridiculous health care costs (and they absolutely are ridiculous) are NOT the result of gouging for profits.

Both the article and video highlighted the market failures (and yes, without doubt healthcare is a failed market in this country), but other than saying "doctors charge too much and do unnecessary high profit things", and "it's because the government doesn't set the prices lower", and that the market is distorted and largely failed... again, they don't really explain why the prices are what they are.

In addition to the points raised in those pieces, there are three major factors:


  1. The price listed or invoiced is nowhere near the price actually paid. Often the total the insurance company (or medicare/medicaid/state health care) pays is up to 80% less than that invoiced.

    This comes from negotiation, pricing arrangements, discounting plans.... and sometimes just pure fiat. The doctors submit their invoices, and the payers send back how much they are willing to pay, and if you don't like it, too bad, you agreed to take this insurance. The only recourse is to drop that insurance and those patients.
  2. The healthcare providers, device makers, drug makers etc... inflate the official list prices, so that those who do pay, cover the costs for those who don't, or who pay much less.

    U.S healthcare consumers subsidize the cost of those on medicare, and the uninsured (either paid for through emergency care which cannot be turned down in this country, or through state healthcare programs); as well as healthcare consumers in other countries where their governments regulate far lower prices.

    Rather than take a loss, or lower profit, because of all of those who don't pay, or pay less, they jack up the price on U.S. consumers.

    Because we as individuals don't directly pay for the majority of our healthcare expenses (typically we only pay 20% of our insurance premiums, our copays typically max out at 20% of the invoiced cost), and those costs are kept opaque from us, we can't shop around, or even demand a better price... if we even know the price at all, which, most often, we don't.
  3. In the U.S. up to 80% of every "healthcare dollar" isn't spent on healthcare, it's spent on lawyers, taxes, administration, and insurance.

    For example, just on the care delivery side of our healthcare industry today (meaning doctors, nurses, hospitals, and the companies that "manage care", do their billing and paperwork etc...), there are actually EIGHT people working in administrative roles, for every person actually delivering healthcare to the patient.

    Simply for billing alone, there's generally one person working on billing, insurance, medicare, paperwork etc... for every two doctors.

    For an even more costly example, the article highlighted the increased costs of surgical centers over doctors offices for outpatient procedures, suggesting the widespread use of outpatient surgical centers was solely so that doctors could gouge patients.

    What they didn't mention is that malpractice insurance for doctors who do inpatient surgery in their offices is anywhere from 2-8 times as expensive (if they can even get coverage) as for doctors who do not. Whereas in the surgical center, the additional malpractice insurance burden is covered by the center itself, with the individual doctor bearing far less of the cost.

    These are not trivial insurance costs... a single doctors insurance premiums can go over $300,000 a year in some specialties and some markets. Anesthesiologists and Ob/Gyns in particular pay among the highest insurance premiums.

    This is why there is an nationwide shortage of OB/GYN's. In some markets, there aren't ANY independent Ob/Gyn's who actually deliver babies. In Las Vegas anymore for example; they simply cannot get malpractice insurance in that market anymore, and have to be covered under a hospitals or group practices group/umbrella policies.

    And THAT isn't just insurance companies gouging doctors... Industrywide, from 2004 to 2009, payouts in settlements and lawsuits against several different categories of doctor (including OB/GYN) exceeded premiums.

    And THAT isn't because doctors are making more mistakes, or worse ones; in fact the reverse is true. Infant death particularly during the final few weeks before delivery and first few weeks after, is vanishingly rare in this country among otherwise healthy babies; and is becoming more so every day.

    There are two issues there.

    The first is that we are saving more and more pregnancies and more and more babies, that in other countries, or in the past, would not have been saved, gone to term, or survived delivery. This results in far more high risk pregnancies and high risk infants in this country than in other countries (and by the way, that's also why our infant mortality statistics are worse than many european countries. They don't count marginal viability pregnancies and deliveries as infant mortality in their statistics). The fact is, the best doctors in the world, with the best gear, drugs, and techniques... sometimes fail to save those who are at high risk, without any error or fault of their own.

    Which feeds into the second issue...

    Which is the jackpot court system in this country. Presented with a tragic story of a high risk infant and suffering angry parents, juries largely don't give a damn if there was malpractice or not. They figure hell, the doctors are rich and have insurance, they can afford it; and so they give grieving families, or families facing a huge burden of care for their disabled children, massive awards (many of which end up being dramatically reduced by judges).

    Meanwhile, actual malpractice, if it isn't sexy enough to get a big trial lawyer involved, is nearly impossible to show

So yes, the U.S. healthcare market has failed, badly... but it's not because markets are bad, or healthcare is some weird special beast. It's because the market is horribly distorted and opaque, often deliberately so.

If the market were allowed to function with far less distortion and forced to function with transparency, it would be an entirely different situation.

I don't know about you... but my personal experience... and for that matter their track record in healthcare... Suggests to me that counting on the government to fix ANY market in general, and the healthcare market in particular, is a SPECTACULARLY bad idea.

... But maybe this time will be different... because... umm... unicorns and rainbows and Barack Obama?