Why is American healthcare so ridiculously expensive?
How healthcare institutions are becoming oligopolies and reasons to stay hopeful for healthcare reform.
While gathering questions on healthcare from my networks, friends and strangers alike honed in on the expense and inscrutability of the healthcare system.
There was a common fear that medical bills would be more expensive than expected, not knowing in advance the list of medical procedures that would be performed on you, and the pervasive feelings of frustration and resignation that patients are denied real choice or autonomy throughout their healthcare experience.
Some of the questions I received:
- why can’t I get the cost of anything upfront? Healthcare providers won’t even tell me the self-pay price. It makes me think they charge people different amounts — is that illegal?
- when i pay for a service, how much goes where? I.e insurance company, doctor, etc.
- is anyone regulating medical costs and why not?
- why can’t I get a list of medical expenses upfront before getting a procedure or surgery in a hospital or health center? Why are procedure prices transparent?
- breakdown of internal costs for a medical system, it might shed light on high cost of care.
- why is it so easy for billing to be so variable? like…I know of startups that will call insurance companies on your behalf to resubmit claims bc it’s likely that they owe you money and you just don’t know about it. Why is that even a thing!?!
- why can’t medical institutions just be up-front about how much each service costs? (Sort of rhetorical. I know it’s because they want to see how much they can get out of the insurance companies before committing to a price. But it’s still ridiculous. They have to know how much it costs to provide each service. Nowhere else in America do you have wait until after buying something to be told how much it costs.)
The bad stuff
The American healthcare system is the most expensive in the world with the worst health outcomes compared to peer countries. We pay the most and receive the least. The exact same medical procedures, drugs, and physician visits cost substantially more in America compared to other countries.
We should be jealous of healthcare in other countries
Here is a list of things that are cheaper anywhere else in the world except America (there are many, many more but these give a small sample):
- An MRI can be billed to your insurer for $3,470 in Arizona— in Japan the same scan is a flat fee of $160.
- Orthopedic hip/knee implants cost $350 to manufacture (half that for overseas) and are billed at about $36,000 — $40,000 for the procedure.
- Generic Zofran is $10 for a prescription — branded Zofran is $60. They are chemically the same product released by the same company. A single branded Zofran pill can cost about $23 — the same pill in New Zealand is 75 cents.
- Loestrin 24 Fe (birth control pill): $90 in the US, $20 for the rest of the world.
- Cataract eye surgery in 2013: $1038/eye in Argentina, $1610 per eye in the Netherlands, $2016/eye in Spain, $3762/eye in the US.
- Mesalamine (treats ulcerative colitis): $800/month for treatment in Florida vs. $55/month in Canada.
These are not meant to be cherrypicked financial comparisons — I found these prices from 15 minutes of searching online. Rather, they are meant to demonstrate that American healthcare is often multiple times more expensive than the same service in other countries across the industry. On average, Americans pay 56% more than other countries for the exact same drugs — a figure that understates the price hikes on some of the worst offenders. Medical device technology, drugs, surgical procedures — they are all charging an American premium due to a lack of government regulation.
This magnitude of price markup is certainly high when compared to non-healthcare industries, but perhaps a question we should also be asking ourselves is if it is even morally acceptable for the kind of profit-seeking in other industries to structure how people are healed and cared for in their most vulnerable times. Should we expect better from the places we hope will save our lives?
Healthcare institutions profit when patients are kept in the dark
Each excessively expensive healthcare bill is paid for by your overall insurance patient pool. Our individual decisions have a financial impact on the others around us for the next year’s premiums. This may sound like a case where individual bad actors are over-utilizing a pool of resources meant for a common good. But remember — no one wants to get sick. Getting surgery is not fun. Given any kind of choice to avoid going under the knife or to use up half a workday getting an MRI scan “just in case”, most people would prefer to stay out of the hospital if possible.
We didn’t get this healthcare system from individuals failing to make good health choices, but from the slow infiltration of healthcare by business executives that encourage doctors to view billable procedures as productivity, up-charges any medical item or action possible, builds monopolies in local geographies to be able to command and set prices, and pressures patients to choose more intensive healthcare services. The price of hospital services begins to skyrocket after Medicare becomes a massive federal payer in 1965, signing reimbursement checks without strong claims audits. Drug prices were relatively flat until the 1990s, when brand-name drugs hit their golden age and pharmaceutical companies poured money into TV advertisements for patients and courting doctors to refer their drugs — only turbocharged by the passage of Medicare Part D in 2006. Medical technology innovation has failed to lower healthcare prices — it has actually inflated them over time as expensive machines like proton therapy beam machines ($100 million each) are bought by hospitals despite inconclusive medical benefit.
Capitalist incentives shaped by the corporatization of healthcare and the CEOs pushing that transformation are what plunder the communal pool of medical resources. As things fall under insurance coverage, patients are more willing to ignore rising healthcare costs as long as they believe that insurance is paying that final bill. But there is no free lunch. And that lunch is growing steadily more expensive with a wide range of options. Nowadays, a growing number of previously unreimbursed sectors like physical therapy and mental health services are all experiencing the same ballooning costs as insurance plans improve their reimbursements for these sectors to bring them further into the healthcare umbrella.
In this way, industries that weren’t traditionally linked to healthcare in the past are becoming more costly. Patients may feel lucky that their therapist is now in-network or that their physical therapy is covered by insurance, but we ultimately end up collectively paying for it in our premiums next year.
Tressie McMillan Cottom, a sociologist studying racial capitalism in technology, succinctly summarizes this strategy of obfuscation:
“Administrative opacity is a deliberate strategy to manage regulatory
environments. It shields organizations, both public and private, from democratic appeals for access and equity…the inaccessibility of these data is part of their value to state and capital interests. Private data worlds where
decision making can be veiled from democratic inquiry fuel economic and political commitment to more datafication.”
Why healthcare organizations are all consolidating
Healthcare has invented an arsenal of ways to wildly inflate prices, then use negotiation techniques or “discounts” to reduce the price to whatever level the patient can bear through their co-pays and premiums. Hospitals negotiate against insurers to set high prices and adjust downwards according to the negotiating muscle of the individual insurer. Pharmaceutical companies will charge high prices to your insurer, then use coupons and rebates to lower the co-pays and prices down to whatever level the insurer is willing to pay (fyi these rebates on the inflated prices set by drug companies are tax-deductible) (Rosenthal 115). Even these lower prices are still multiple times more expensive than the same procedures and drugs in other countries. And ultimately, insurance will factor these price increases into the premiums for next year’s insurance plan — making patients pay in the end anyway.
Remember — we didn’t arrive at the healthcare industry that we have today by having a few bad apples, the big healthcare institutions have learned how to profit by copying each other’s strategies.
Modern healthcare institutions have incentives to preserve the status quo
Around the time the Affordable Care Act was being drafted in 2010, the idea of a public option was considered and ultimately rejected after heavy lobbying from the insurance, pharmaceuticals, and hospital industries.
The largest players in a $3 trillion healthcare industry united to dismantle a federal government insurance single-payer system that would have the power to negotiate at-scale, without any responsibilities to enrich stockholders or pad expensive executive compensation packages.
The way that we should understand the American healthcare industry is that it is an ecosystem, within which each institution has built relationships with others and are mutually dependent to sustain themselves. What that implies is that each individual component of the healthcare system has grown and succeeded within today’s suboptimal ecosystem, and they all have skin in the game to maintain the status quo.
Things that give me hope — and the work remaining
- Price Transparency Rules for Hospitals
- Value-Based Insurance Payouts for Physician Pay
- Medicare for All | A Public Option
Big Med is able to sustain itself as a system as long as it is able to keep patients, doctors, nurses, and voters in the dark about the way they do business. When they can hide the prices on patient bills, deflect responsibility onto other healthcare institutions, and bury healthcare policy in complexity, they are able to make patients and voters feel like the system is unable to change and that they are forced into a choice between terrible options out of pragmatism. The American healthcare system is already changing every day, every year in small but profound ways — ways that should be intentional, guided, and for the benefit of patients.
Price Transparency Rules for Hospitals
In 2018, the Trump administration issued a mandate for hospitals to publish their price lists for medical procedures online. Starting in 2019, hospitals have been posting files containing the prices of each of their services on their websites. This was a strong start to encouraging price transparency and empowering patients, but there are two reasons why we’re still not at the point where patients are able to search the cost of an MRI at a hospital and compare costs.
- These price lists are not standardized and are often incomprehensible to anyone besides that hospital’s billing department — countless abbreviations, synonyms, and punctuation make it difficult to know if one hospital’s procedure is equivalent to another hospitals’ procedure. Until a follow-up federal directive establishes a common set of easy-to-understand services and mandates that hospitals translate their price lists to these standard formats, patients will not be able to actually use any of these online price lists.
- These price lists describe the top-level prices that hospitals bill to insurers — each of these prices ultimately gets negotiated down based on the amount of financial muscle the hospital has compared to the insurer. The price patients might pay for their healthcare will differ between each case because of the way our healthcare system pays for medicine has been fragmented and delegated between dozens of private and public insurers.
Value-Based Care for Insurers
In 2010, the Affordable Care Act kickstarted many different programs to change American healthcare, of which one of the largest programs was value-based care. The short version of this is that value-based care is a change in how we pay doctors, with the belief that the best way to spark change is to change how people get paid.
In the past, doctors and hospitals were paid based on the number of procedures and visits they did — the more, the higher the expense, the better. Value-based care instead works by paying doctors a set amount of money to care for a patient for a year, with the amount adjusted up or down based on a patient’s medical history. The incentive is then to find cheaper, innovative ways to keep patients healthy and out of the hospital. This shift in how we pay our healthcare providers has been underway for close to a decade, carried through both Democratic and Republican administrations.
Are any of these people getting regulated?
The insurance industry’s profits are regulated using something called Medical Loss Ratio (MLR). This is essentially measuring the ratio of money that insurers spend on medical costs vs. non-medical costs (administration, advertising, lobbying, employee salaries). The MLR was capped by the ACA in 2011 at 80% for small insurers (insuring <50 employee workplaces) and 85% for large insurers (insuring >50 employee workplaces) — as a guardrail against insurance companies generating excessive profits at the expense of patients.
Before the ACA capped MLRs, BlueCross BlueShield in Texas had an MLR of 64.4% in 2010. As a comparison, Medicare has an MLR of 98%. The lower the MLR, the less the insurer is spending relatively on things related to patient care.
Medicare is efficient, popular, and has enormous negotiating power as a result of its massive patient pool size. Medicare is able to negotiate healthcare costs effectively with hospitals as well as impact private insurance reimbursement rates through its own price-setting. There is a reason why pharmaceutical companies lobby so hard to prevent Medicare from being able to negotiate drug rates. There is a reason why private insurance companies have fought so hard to prevent Medicare-for-all or a public option from gaining steam.