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How to lower U.S. medical bills

Steven Brill's cover story in Time on hospital pricing is quite brilliant but also extremely long. If you want to seem well-informed this weekend without reading more than 20,000 words, here's what you need to know.

He says we spend too much time debating who should pay for U.S. health care and not enough time debating why the prices are so high.

The analytic core of the article shows that when it comes to hospital prices, who pays determines how high the price is. When an individual patient comes through the door of a hospital for treatment, he or she is subjected to wild price gouging. Insane markups are posted on everything from acetaminophen to advanced cancer drugs to blankets to routine procedures.

Because these treatments are so profitable, internal systems within the hospital are geared toward prescribing lots of them. And even though most hospitals are organized as nonprofits, most of them in fact turn large operating profits and their executives are well-paid.

In addition to providing insurance services, a key service that a proper health insurance company provides is bargaining with hospitals so you get hosed less. No insurer worth anything would actually pay the crazy-high rates hospitals charge to individuals.

But in most markets, the hospitals have more bargaining leverage than the insurance companies so there's still ample gouging. The best bargainer of all is Medicare which is huge and can force hospitals to accept something much closer to marginal cost pricing although even this is undermined in key areas (prescription drugs, for example) by interest group lobbying.

I can see two reasonable policy conclusions to draw from this, neither of which Brill embraces. One is that Medicare should cover everyone, just as Canadian Medicare does. Taxes would be higher, but overall health care spending would be much lower since Universal Medicare could push the unit cost of services way down.

The other would be to adopt all-payer rate setting rules — price controls — keeping the insurance market largely private, but simply pushing the prices down. Most European countries aren't single payer, but do use price controls. Even Singapore, which is often touted by conservatives as a market-oriented forced-savings alternative to a universal health insurance system, relies heavily on price controls to keep costs down.

Brill's article could not be more clear — health care prices are high in America because, by law, we typically allow them to be high. When foreigners force prices to be lower, they get lower prices. When Americans force prices to be lower (via Medicare), we get lower prices. If we want lower prices through new legislation, the way to get them is to write laws mandating that the prices be lowered.

Matthew Yglesias is the author of two books, "Heads in the Sand" and "The Rent Is Too Damn High."

© 2013 Slate

Excerpt | Why Medical Bills Are Killing Us

Here is an excerpt from Steven Brill's Time

opus "Bitter Pill." Read it in full at tinyurl.com/tbtimes-bitter.

When we debate health care policy, we seem to jump right to the issue of who should pay the bills, blowing past what should be the first question: Why exactly are the bills so high? 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?

How to lower U.S. medical bills 02/23/13 [Last modified: Friday, February 22, 2013 3:16pm]
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