by Joshua Freeman, M.D.

After a year of reporting in a series of articles in the New York Times on the crisis in health care, Elisabeth Rosenthal summarized her conclusions in a Times piece on December 22, 2013. As the title, “Health Care’s Road to Ruin”, makes clear, those conclusions are not positive. She summarizes highlights from her investigations that look at the extremely high cost of health care in the U.S. compared to other countries, the extreme variability in pricing depending upon where you are in the U.S., the opaque and incomprehensible methods of coming up with pricing, and the regulatory incentives that are continually gamed by providers. She also summarizes both the poor population-level health outcomes in the U.S. compared to other countries, and the more personal, poignant and dispiriting stories of individuals who die, are bankrupted, or both by our health “system”. 

The stories, she admits, could be “Extreme anecdotes, perhaps. But the series has prompted more than 10,000 comments of outrage and frustration — from patients, doctors, politicians, even hospital and insurance executives.”  She goes on to discuss the potential solutions that those commenters, and others, have suggested, including regulating prices, making medical schools cheaper or free, not paying fee-for-service that rewards volume rather than quality. But, she says, “the nation is fundamentally handicapped in its quest for cheaper health care: All other developed countries rely on a large degree of direct government intervention, negotiation or rate-setting to achieve lower-priced medical treatment for all citizens. That is not politically acceptable here.”

In reality, however, the idea that the health industry is somehow, before or after the ACA, an exemplar of the free market and the success of private enterprise, is entirely a myth, a facile construct that is used by those making lots of money on the current system to block change. Medicare sets the rates that they will pay for Medicare patients, and private insurers pay multiples of Medicare rates. Most payments are fee-for-service, except in HMOs, and integrated health systems (such as Kaiser), and for Medicare inpatient admissions which are paid at set fees based on the diagnosis (DRGs). This undergirds the entire health system by determining what is profitable for a health care provider; it is profitable to provide cancer care because Medicare (and thus other health insurers) pay an enormous amount to administer chemotherapy drugs. Cardiac care, orthopedics and neurosurgical interventions are also very profitable. In addition, as documented in a series in the Kansas City Star on December 30, 2013, when these services are provided in hospitals a large “facility fee” is tacked on. The high cost is not because what is being done is so hard; it is in fact a regulatory policy glitch. 

Another important way in which the “government” is already involved is that, already, a majority of the money spent on “health care” is public, not private; this includes Medicare, Medicaid, federal, state and local government employees and retirees, and the tax break for employer contributions to health insurance (i.e., taxes forgone because this employee reimbursement is not counted as regular income). So the majority of the money being spent on health care is public money, and the system is already highly government influenced with government policies setting reimbursement rates. The only thing “private” about it is the ownership and profit, both by providers and insurance companies. 

It is in some real sense a parallel to our financial services industry: private enterprise is given a license to make money from everyone, and the government finances it. The only difference is that for financial services the government steps in to bail them out only after they have already stolen all our money, while in health services the profit margin is built in from the start. Rosenthal quotes Dr. Steven Schroeder of the University of California at San Francisco: “People in fee-for-service are very clever — they stay one step ahead of the formulas to maximize revenue.” But, of course, we the people, through our elected representatives and regulators, allow them to do so. And, therefore, the arcane network of incentives and disincentives built into the ACA to try to get reasonable results at reasonable cost – and still ensure insurance companies make lots of profit. The political need is for the wealthy and powerful. This is why ACA ensured that insurance companies would get their cut.

The solution is very simple; emulating one or the other systems in place in every other Western democracy. The simplest is closest to us is Canada, and a single-payer system, essentially putting everyone into Medicare. Voilá! We are all covered by the same system, providers can provide care to people based upon their disease, not their insurance status, and rates can be set at the level that we as a people are able to tolerate, or willing to pay, for the health care we want and need. The clout of the empowered will bring along benefit for everyone. There will be no more gaming the system, trying to attract certain patients with certain insurance rather than another. Or, in a more complex fashion, we could follow the example of other countries; Switzerland, for example, has multiple private insurance companies rather than a single payer, but they are highly regulated and non-profit; they are told by the government what they can charge and what they must cover.

A universal health care program, Medicare for all, in which everyone was automatically enrolled just as current Medicare recipients are now, would be just fine.


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One-liner: The idea that health care is an exemplar of the free market is a myth perpetuated by corporate stakeholders wanting to retain their profits at the expense of patients and families. 

Abstract: This blog describes some of the many ways forces that  drive high prices and costs of U.S. health care, leading to barriers to access, compromised quality, and worse outcomes of care compared to most other Western countries. Political obstacles to significant government intervention are discussed, as well as an approach to health care reform. 

Tag lines: Cost of health care, access to care, surgery centers, Medicare reimbursement, free markets, public money, Affordable Care Act