Why Our Health Care Lets Prices Run Wild

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Juanmonino / Getty Images
Juanmonino / Getty Images

Of all the oddities of the U.S. health care system, one stands out: we spend far more on health care per person than other industrialized nations yet have no better health outcomes.

Understanding why isn’t easy. A 2012 paper by the Commonwealth Fund found that among 13 industrialized countries studied, the U.S. has the highest rate of obesity, which is usually a factor in higher health care costs.

Yet, the U.S. ranks far behind many other countries in our rates of citizens who smoke or are over 55, two other strong indicators of increased spending.

So why is our health care spending more than 17% of our gross domestic product, far more than any other country?

In the recent debate over health care reform, two often cited culprits were fear of malpractice lawsuits and our complex health care payment structure. Doctors and hospitals practice “defensive medicine,” critics charge, ordering extraneous tests and procedures to protect themselves in the event of malpractice claims. This leads to overuse of the health care system.

(MORE: And Now, the Selling of Obamacare)

Likewise, “fee-for-service” medicine, in which hospitals and doctors are paid separately for every treatment, procedure or test they perform, also encourages overuse. And yet, the same Commonwealth Fund study found that while we may be consuming more health care than we need, we aren’t nearly as guilty of this as, for example, Japan. There, patients consult with doctors, on average, more than 13 times a year, compared with the U.S., where patients have about four doctor consultations annually. Or how about Canada, where patients receiving acute care stay in the hospital an average of 7.7 days, compared with our 5.4?

A central reason U.S. health care spending is so high is that hospitals and doctors charge more for their services and there’s little transparency about why. There is no uniformity to the system, in which public and private insurers have separate, unrelated contracts with hospitals and doctors. The result is a tangled, confusing and largely secretive collection of forces driving health care prices higher and higher.

This isn’t possible in many other countries either because governments set prices for health care services or broker negotiations between coalitions of insurers and providers. Known as “all-payer rate setting,” insurers in these systems band together to negotiate as groups. In contrast, U.S. insurers closely guard the secrecy of their contracted prices with health care providers and negotiate individually. This is why a hospital hosting five patients for knee replacements might get paid five different amounts for the surgeries.

(MORE: The Backstory Behind a Hospital Bill)

In Japan, where private insurers cover most of the nonelderly and nonpoor, prices for health care services are the same no matter the provider or payer. Other countries, like Luxembourg, Switzerland, Germany and France, also have rates set or brokered by the government.

Per capita health care spending in all five countries is lower and grew more slowly than in the U.S. between 2000 and 2009, according to data from the Organisation for Economic Co-operation and Development recently cited by Sarah Kliff of the Washington Post.

Yet, you don’t have to go to Europe to find rate setting. The state of Maryland has been setting rates for health care services since 1971, which has helped control the rate of cost increases for patients and public and private insurers. According to a 2009 study published in the journal Health Affairs, if the entire country’s health care costs had grown at the same rate as Maryland’s between 1976 and 2007, we would have spent nearly $2 trillion less on health care.

But Maryland’s system, however economical, isn’t likely to be replicated across the country mainly because providers who now receive uneven, but high, payments from insurers don’t want pay cuts. A study published in Health Affairs in April comparing the health care cost-containment strategies in the U.S., U.K., Canada, France and Germany concluded that “it seems unlikely … that the U.S. system will move toward the types of volume and price controls used in the countries examined.”

(MORE: Why Temp Agencies Are Learning to Love the Affordable Care Act)

During the debate that preceded passage of the 2010 Affordable Care Act, rate setting was mentioned by some policy experts but never gained traction. In the charged political environment surrounding health reform, end-of-life counseling was unfairly maligned as death panels. It’s easy to imagine that a rate-setting system could have been portrayed as giving the government total control over health care, even though most other countries that use rate setting also have robust private health care industries.

The Affordable Care Act, which fully takes effect in 2014, uses some other techniques to curb the growth in health care spending — like phasing down some fee-for-service payment structures — but even if these strategies work to save money, it’s unlikely the price transparency that comes with rate setting will become a reality in the U.S.

MORE: Florida Hospital Takes a Step Toward Price Transparency

66 comments
Sam567
Sam567

 @mahadragon  you are abosolutely wrong!  yes, someone has to pay, but only at 1/10 of the rate that americans pay. here, doctors and hospital  are simply looting the insurance/medicaid/medicare system.  There is NO transparency in their charges.   In all non-emergency situations doctors and hospitals must be forced to disclose their charge to the consumer/patient and must be forced get their consent before proceeding with the treatment.  Also,they must be forced to publish their rates (for the various procedures)  at some state controlled web site so that consumers can make a more informed decision.    Recently, i went for a regular check up at a clinic in houston,  and 2 eeks later they sent me a bill for $1900/-.  Highway robbery!  We must send these crooks to Alcatrez.

mahadragon
mahadragon

Terrible article Kate Pickert. You completely ignored the fact that in countries like Canada and other European countries that have universal health care, the people pay a higher percentage of their incomes towards taxes. That does make a difference. You can't create health care out of nowhere, someone has to pay for it. Yes, their governments do help broker deals between health care providers and insurers, but that's only part of the equation. Someone still has to pay for the health care, and that person is the people, in the form of higher income taxes.

cmmbac
cmmbac

people you all are owned by big business and you like it so stop complaining - If you accept that health care is a privilege not a right and not something a developed civilized democracy should have then stop complaining - You have no issue with us spending more then the next 14 countries  in the world on the military right = it is all about priorities. it is imoral that most heath care is for profit and many CEO's make millions and deny care to people again stop complaining and accept you live in a third world country on the other hand if we indeed are all equal then I want the same health care the congressman and senators get.

swagger
swagger

it comes down to simple greed no matter how you spin it.  we need medicare for all/single payer not for profit health care.

allenwoll
allenwoll

.

Suggested Muilti-Step Solution -- (it IS a bit complicated, but read on) --

!. Eliminate ALL For-Profit Health Insurance.

2. Substitute National Health Insurance Pool.

3. Done.

.

shellydanto
shellydanto

Our problems or challenges are not that we need lower rates, the rates are just the symptom of the problem.  You need to define the underlying problem and then attack that.  I suggest you need to look at what is within healthcare coverage. For example, Malpractice Insurance is ridiculously high and there needs to be more realistic limits of law suits and penalties. That would lower costs significantly. Also, many medical plan costs include items beyond regular maintenance.  Transplants experimental type treatments for everyone is also too expensive.  We need different types of policies and programs where the poor get basic coverages redefined as basic medical care and if you want to buy complex coverages thats separate and elective. Thats not to say poor people should not be able to get transplants, but not at the government expense.  Think of it like a house: not everyone gets a million dollar house with a pool. Some people just live in a rent controlled apartment.  If you follow these approaches / concepts, achieving lower cost medicine can easily be achieved. 

wonfish
wonfish

There is a major difference between defensive medicine and the complex health payment system.  In defensive medicine, there are some health benefits --- although perhaps not cost effective.  Someone somewhere found out that they had cancer when the doctor just thought it was the flu.  The health payment system only benefits the insurance companies -- it is just busy work.  But given that the Republicans and Tea Party had apoplexy about Obamacare, what would have done aboout a single payer plan.

BradleyCraigeByers
BradleyCraigeByers

If you are old enough, remember that President Nixon opened relations with China.He also instituted price controls. If a Democratic president had attempted either of those, right-wing Republicans would have vilified him as much as they vilify President Obama today. Likewise with the movement toward universal health care that right-wingers have dubbed Obamacare as a term of derision. If a Republican president had proposed it, it would have been welcomed. Instead, the Republican party overall, and the red states in particular, have fought it in every way possible. Without that opposition, it would be a much better law that would do a lot more to solve our health care problems. So, all of us will continue to pay more than necessary, purely because of partisan politics.

jbarb2011
jbarb2011

Why is this column so negative about getting this done?  If rate setting works to control costs and the industries involved stay robust, then we should pursue it.  Sad that we cannot overcome narrow monied interests for the greater good of the country.

FrancisMulhare
FrancisMulhare

" there are simply too many special interest groups profiting off our broken system"  Huge barrier to change.

vt802
vt802

None of the aforementioned countries have the litiginous society we have here in the USA. Where's that research paper? Setting healthcare rates would be acceptable to most (if not all) physicians if malpractice lawsuits were also made more difficult to pursue as malpractice insurance rates would fall. But this will never happen because politicians are in bed with big insurance and big lawyers and everyone else involved EXCEPT the American Medical Association. Hence, the targeting of doctors as being "greedy." Think about it...

horsley1953
horsley1953

Actually, there is no mystery about why costs are so high: We have a government owned by the plutocrats who profit from the existing total confusion and secrecy. That's why health care "reform" did nothing at all to address costs, but did guarantee a vast number of new "customers" to be overcharged.

JuliusCheng
JuliusCheng

I would be VERY careful in applying these "sound-bite" solutions to the problem of healthcare costs...

First, limiting provider incomes will only accelerate "corporate medicine", as the small private practitioner can't afford to care for Medicaid patients as it is. It's the same forces (high cost, low pay, no negotiating power) pushing the small farmer out of business, too.

And healthcare pricing must reflect local realities as well... you can't tell me the office rent in midtown Manhattan is the same as rural Alabama.

As for government funding research, I'd be careful in having the government do it all... submitting to the whims of a change-every-2-years government makes it difficult to plan proper research... plus, would anyone think that some things like the "morning after pill" would be around if it was the government responsible for research?

And finally, limiting profits for drug makers sounds great... until you realize that the thin margins on generic drugs is part if the problem.... why invest in no-profit drugs when most of your money comes from brand-name ones? Anyone doubt this? Just look up the record number of generic drug shortages we've been seeing lately.

glassymtn
glassymtn

If you look on the internet for the number of doctors produced each year you will find that it has been approximately the same since 1980.  I haven't been able to find out information on the periods before that.   And why, you ask, is the number the same?  Well, the American Medical Association and the government have held it constant to assure doctors of high incomes.  Sweet deal, huh?  While the population has been growing, the number of physicians has stayed constant, giving the doctors monopoly pricing power, which has caused a significant part of our current problem.  

AlistairCookie
AlistairCookie

@mahadragonYes, but if we had universal health care, we would NOT be paying monthly insurance premiums, we would be paying a marginally higher tax instead.  All but the very wealthiest would save money.  Canada has the same general tax structure we do, with the addition of a national goods and services tax (like a national sales tax) on most goods (with exceptions like kids clothes and food, and a rebate system for the lower income levels to combat the regressive nature.)  The lower 50% pay the same or less than they do here, and the upper 50% pay up to 10% more.  And everyone gets universal healthcare that isn't tied to their job (or lack thereof) for that increase in taxes.  Compared to a $600/month family premium with a $8000/year deductible and the Canadian system saves us money.


Also, because of the wonders of the free market here, we pay much more for the exact same services than they do.  So, not only do we get to foot the bill via private insurance, the bill we foot is much higher.  Via Wiki:

"Comparison of the health care systems in Canada and the United States are often made by government, public health and public policy analysts.[1][2][3][4] The two countries had similar health care systems before Canada reformed its system in the 1960s and 1970s. The United States spends much more money on health care than Canada, on both a per-capita basis and as a percentage of GDP.[5] In 2006, per-capita spending for health care in Canada was US$3,678; in the U.S., US$6,714. The U.S. spent 15.3% of GDP on health care in that year; Canada spent 10.0%"

C_Ryback
C_Ryback

Yes, that would allow the Chicago thugs to grab more worker earnings (a.k.a., Taxes).

OweBama (D) like taxes, you did good. Continue not working at a real job.

mahadragon
mahadragon

@swagger Our system is basically the wild wild west. It's a money grab and the ones in power are taking advantage which is why the health care costs go up and nobody knows why.  Insurance companies and health care providers are free to do as they please. If they want to charge an outrageous fee for a simple exam, they'll do so. They'll find some insurance company to pay for it and the patient won't care cause nothing his coming out his pocket.

C_Ryback
C_Ryback

Utterly ridiculous and laughable.

IRS-gate

AP-Gate

Benghazi-gate

Fast & Furious-gate

Only fools would allow bumbling amateurs to "help" them. More like, "we're grabbing every thing we can."

C_Ryback
C_Ryback

"For-profit?" OweBama (D) is multi-millionaire. Why don't you go after him first?

"Medicare-for-all?" That's a plan for IMMEDIATE bankruptcy. Only an idiot would do that.

mahadragon
mahadragon

@allenwoll It's a slippery slope you're going down. You can't eliminate all for-profit health insurance without government intervention and the way things are going a lot of people would be against this idea simply because of the fact that they want less government in their lives. A lot of people are very distrustful of our government and they don't want to see more of it.

allenwoll
allenwoll

@shellydanto 

The numbers which I have seen show that the plausible concept -- that malpractice insurance costs are a significant contributor to out-of-control heath care costs -- is a fable. . Plausible, but fable.  

More important is to keep people out of the ER.

tommyudo
tommyudo

@shellydanto 

If you believe that access to similar quality healthcare for all is a right, then your proposal makes no sense. However, if you believe that the quality of healthcare should re rationed more to those who "contribute" then you make eminent sense. Frankly, I don't want to live in a society that takes marching orders from you survival of the fittest types. I may be a lapsed Catholic of many decades removed, but I venture to say, I'm more of a Christain in deeds than you and your ilk are.

C_Ryback
C_Ryback

Only lazy government bums win under ObamaDontCare.

maguro_01
maguro_01

@BradleyCraigeByers  You are correct.  Much of Obamacare is from Romneycare and Heritage Foundation proposals written up in the Clinton era medical care wars and championed by Gingrich et al.  That's how Obamacare got passed.  Now in their bitter total war on Obama the Republicans are arguing against their own earlier proposals.  AFAIK, Obama himself favors the French or Canadian Single Payer / mixed delivery systems.   For a while the Republicans were trying to run the country from the House and were working overtime trying to delay economic recovery.   Now the Republicans are so divided between their Confederate and Tea Party factions they are fighting one another - making war on President Obama is all that keeps them together at present.

Because it's so eclectic, not everything in Obamacare was expected to work in practice and be dropped in a survival of the fittest.  Now the Republicans will fight to keep everything to keep it all as expensive as possible.  Remember, Ryan's Medicare replacement plan sent billions to insurance companies in vouchers and saved money by cutting US life expectancy, already the lowest in the Western developed world.  Libertarian Ryan thinks that people should die in net worth order anyway.  

Between medical costs overall and the financial sector, the US is spending around 1/4 GDP.  We even pay 2X the world prices for drugs from US companies.  No market allocation gave us that unsustainable expense, it was bought in Washington and the state capitols by our Pay-To-Play political system.  That system distorts our economy away from capitalism/markets more each year to our peril.

When companies drop a large medical insurance contribution without putting their contribution into salaries they are dropping compensation seriously.   Benefits are not charity, they are compensation.  It's convenient to blame the cuts on politics as a distraction.  Compensation for middle class people and below has been dropping in real dollars for years, especially curving downwards since 2000. 

 Of course for medical care or anything else, Congress in general never eats what they cook for us.

C_Ryback
C_Ryback

Gee, then why have all the big unions asked to be exempted?

Oh. They're racists?

Dang.

curt3rd
curt3rd

Obamacare was passed based on partisan politics and it is a train wreck.  This writer is only making excuses for why Obamacare does not and will continue to not work.

bryanfred1
bryanfred1

A big part of the problem also is the rate setting in other countries limits the profits the providers, pharmaceutical companies, etc. can earn in those markets, meaning they have to make up for it selling products in the U.S. We basically subsidize other nations.  So why not do the same?  Because with no profits, there's no money for R&D and innovation stagnates.  Unfortunately I expect that's what will happen since there's no way another country signs up to pay more for care. 

Also, this article briefly mentions but skips quickly over the "volume control" aspect of keeping costs down - i.e. rationing access.  But then anyone who thinks that the government can design a system that provides a better quality of care to more people for less total cost is kind of setting himself up for disappointment.

tommyudo
tommyudo

@jbarb2011 

It's the narrow minded (i.e. parochial) monied interests that run everything, even controlling the votes in Congress. The only way to change it is with a radical overturning in how we do "business."

tommyudo
tommyudo

@vt802 


Malpractice expenses are a slight sliver of the healthcare costa. For those that believe that medmal awards should be capped, I have one question -  how much would you cap if you had a loved one come out of surgery in a vegetative state? 

Wouldn't you want all you could get? I know I would, as well as about 10 minutes in private with the physician  or technician responsible.

JuliusCheng
JuliusCheng

Just a point... the number of medical school slots has increased over the past few years, but these schools are having trouble finding good applicants. Simply put, why go into Medicine when you can go into something else, work just as hard, and potentially make 10 times as much?

Beyond that, the number of training slots has been fixed by the amount the Federal government pays... resident training is funded via Medicare part B. So in order to increase the number of slots, you

C_Ryback
C_Ryback

BULL DUNG

Any Canadian with resources has serious medicine done in the USA.

To avoid DYING while waiting.

allenwoll
allenwoll

@mahadragon @allenwoll -- NOPE  ! ! . NO slippery slope at all  ! ! ! 

The government NEED NOT be involved in such a pool in ANY way except as an auditor  ! ! ! . The GOV would contribute for indigents.

swagger
swagger

@curt3rd you are just repeating stale right wing extremist propaganda you heard from rush or fox or glenn or got in your mailbox because you subscribe to right wing websites or organizations.

gumshoo
gumshoo

@curt3rd Why is it a train wreck?  I don't even know how it works or what I pay into it.  You are fearful of the unknown.

mahadragon
mahadragon

@tommyudo @vt802 "Malpractice expenses are a slight sliver of the healthcare costa. For those that believe that medmal awards should be capped, I have one question -  how much would you cap if you had a loved one come out of surgery in a vegetative state? 

Wouldn't you want all you could get? I know I would, as well as about 10 minutes in private with the physician  or technician responsible." .....and vt802 rests his case.

bryanfred1
bryanfred1

It's not the direct insurance costs that are the main problem, it's the overly defensive medicine. Every doctor has visions of sitting on the witness stand answering the question "why did you not order test X?  Might that not have identified the problem?" no matter how remote the likelihood might be the patient had the condition that would have been detected by X.  So they order the full battery every time.

EbBruner
EbBruner

@JuliusCheng The main reason people are reluctant to enter medical school is the exorbitant cost.  And who/what makes 10x more than a physician?

JuliusCheng
JuliusCheng

...will have to increase the expanse of Medicare, as well as increase the number if teaching hospitals in the country as well.

AlistairCookie
AlistairCookie

Care to back that popular internet meme with a fact, or citation?

curt3rd
curt3rd

Im just repeating facts.  If would like to include some in your post,  feel free to do so.

curt3rd
curt3rd

I forgot.  We have to pass it to find out whats in it.

mantisdragon91
mantisdragon91

@curt3rd You know this based on what evidence? Until it is fully implemented and running for a couple of years, any claims are just that whether coming from the left or the right.

curt3rd
curt3rd

I know that Obama claimed it would lower the cost of premiums for the average family by $2,500.00 and we now know that is a lie and premiums are rising.  We know that it will cost at least 3 times the amount that Obama claimed.  He also said you would be able to keep your existing plans and doctors which in many cases people will not be able to.  I also know that their will be 30 million Americans that still will not be covered.  I also know that employers are cutting people hours in order to keep from paying for Obamacare. The list goes on and on.  I am fearful of what I dont know because what I do know is really scary.

EbBruner
EbBruner

@JuliusCheng I don't know what doctors you know.  None I've ever met made as little as you suggest except maybe 30 years ago.  Using movie stars and professional athletes as examples against physician's income is comparing apples to armadillos.  I just paid $20,000 for my son's doctor for a 2 hour surgery on a wrist bone the size of a small peanut.  That did not include the hospital ($13,000), the anesthesiologist ($2000), "prosthetics" ($600), office visits ($300), x-rays ($300), and various indecipherable expenses ($2000+).  My insurance covered about 80%.  I can't imagine what it might have cost if he'd been more seriously injured (ever price emergency room x-rays and CT scan for a wrist?  Try $2000!)  You can defend these insane costs all you want but I know for a fact that as good or even better health care is available in any number of other countries for 10-30% of the costs here.  The cost of education, malpractice insurance, and price-fixing and exorbitant pharma costs contribute a lot to this sad state of affairs.


JuliusCheng
JuliusCheng

It's simple... the average family doctor takes home $125-150k per year, with a flat earning potential after entering practice. Congress keeps patching the SGR formula which currently would institute a 25% pay cut if not fixed, so it's very easy to see how many folks can make multiples on what a doctor can... and it's not unheard-of for middle-manager levels in banking and finance to clear millions by the time a doctor's practice hits its stride.

So perhaps America's priorities are out if whack when a benchwarmer for the 0-16 Detroit Lions made more in 6 months of unproductive work (league vet minimum is over $450k) than 90% of all doctors... talk about pay-for-performance!

And I'd point out that Medicine is hugely labor-intensive... meaning more than just doctors factor into the costs. So don't be surprised to be treated like "just a cog" if the person taking care of you is being paid less than unskilled labor: it's not uncommon for a toll collector on any of NYC's bridges to clear over $100k a year with overtime.