30% of US healthcare spend goes to hospitals, and 20% to physicians (many of whom are employed by hospitals even if they are outpatient clinics -- the % of physicians employed by hospitals in the US is at an all time high)
Hospital consolidation has been increasing the last few decades. Many hospitals are regional monopolies and have a ton of leverage in negotiations with insurers. Insurance companies put the squeeze on smaller providers, increasing pressure on them to sell to big hospitals. After buying a smaller hospital or clinic, the hospital system can bill insurance companies at the hospital systems' much higher negotiated rate -- for the exact same care (at least this is what i heard from several execs at big hospital systems).
My first job out of college was an investment banking analyst and our most profitable clients were hospital systems (HCA, Community Health, Tenet Healthcare, etc). They were so profitable that their profit margins were 20-30% even after writing off 30% of their revenues as uncollectible (this was before the Affordable Care Act).
These hospital systems were major targets of private equity buyouts. A buyout fund would buy a big hospital system, finance the deal with a ton of debt, then buy more hospitals and clinics and roll them up into the bigger system. They made so much cash that they could pay down huge amounts of debt quickly so the private equity groups made tons of money. Many non-profit hospital systems engage in similar aggressive behavior
I think tackling hospital / physician costs is even harder than drug pricing. Hospitals are major employers in almost every county. For a politician to break up hospital monopolies, they would be fighting against the one of the biggest employers in their constituency.
The American Hospital Association (the biggest hospital industry lobbying group) spends about as much as Phrma (the big pharma lobbying group) according to open secrets [0][1]. But the hospital industry has much more "soft power" because they are such a huge employer.
One solution is for payers to own more of their own providers, although that is challenging to implement and can lead to its own issues and bad incentives. I think one effective angle is to help more physicians stay independent -- there is probably a way to do this without legislation and i think some companies are working on this.
But i think one thing people can do is spread awareness of this issue -- you dont see it talked about in the media that much bc no group has an incentive to do so
Medicare for All. Help try to get Bernie elected, as he’s the only candidate who actually backs the policy. Warren has back-pedaled now that she’s secured the top position as the moderate alternative.
You can only bring down costs and combat things like hospital consolidations through a single payer system and dismantling private insurance (i.e. Bernie or Jayapal’s bills), so none of the “compromises” proposed by other candidates will do anything too meaningful. If you want a good breakdown on why, I recommend Tim Faust’s new book:
A single-payer system isn't the only way to bring down costs and fight hospital consolidations. Enforcement of antitrust laws on regional hospital monopolies is another potential way. Although tipping the scales more in favor of payers, with single payer being the extreme variant of this, could work as well
The issue with any political solution is that hospitals will fight any legislation like crazy. Hospitals probably have more political power than even the drug industry, and the drug industry has obviously been able to fight price controls pretty well.
The risk I see with any political solutions is that politicians create watered-down legislation that makes voters think they are tackling the issue, but don't really have much teeth. That's the win-win for politicians -- if you pass a toothless medicare for all bill, voters will applaud you, and you won't anger potential donors from industry.
> The issue with any political solution is that hospitals will fight any legislation like crazy.
> The risk I see with any political solutions is that politicians create watered-down legislation that makes voters think they are tackling the issue, but don't really have much teeth
I agree, which is why you have to start from the strongest possible negotiating stake with a corresponding infrastructure of mass organization and support (again, Bernie and his bill).
These industries are absolutely ruthless, profit from people at their most vulnerable, and will fight tooth and nail to continue this deeply predatory behavior. If you approach them with even the slightest indication that you will bend to their will, they will eat you for lunch.
If two million trained software engineers magically arrived in the US overnight, it would certainly help the bottom lines of AMFGOOG in the short-term, but would probably drive down the long-term cost of 'I want some software built'.
Merge all the regional monopolies into one big national hospital monopoly, with all the drug buying power that brings. Then get the Trump/Clinton Care bill passed that controls insurance prices and regulates this new 'National Health Service' as the hospital monopoly might be called.
> When most people speak of health care “prices,” they often have in mind point-of-service prices one pays when picking up a prescription, being hospitalized, having a baby, or seeing a doctor.
This reminds me of the infuriating pattern in some health care conversations when discussing consumer discounts and rebates for prescription drugs. The pharma company will say, "we give pricing relief to our customers, and ensure that no patient will pay more than $20 for a monthly supply!" That's all well and good, but it elides over the fact that the insurance company is still paying $1000+/month for their share of the prescription, and that money eventually comes out of the patient or the employers pocket, which means it eventually comes out of our pockets as their consumers.
> However, when economists refer to “health care prices,” they mean the overall payments for a service—not just what the patient pays to the provider in the form of a copay or deductible, but what the insurer pays to the provider on behalf of the patient...But the distinction between these two ways of thinking about prices leads me to the second problem with the emerging price consensus: the failure to consider what is baked into the payments that payers (whether public or private) make to providers.
Fundamentally, if we were able to reduce our spend as a percentage of GDP to that of the average OECD country, it would remove $1 Trillion in annual revenue from our health care system. The existing health care industry is going to fight that tooth and nail. That doesn't mean we shouldn't do it.
Prices are high because of inefficiencies in the markets caused by bad laws attempting to subsidize one class of people by another.
Hospitals aren't able to refuse treatment to those that can't afford to pay for their services, insurance companies are forced to insure unprofitable people and the net effect is to try and coerce people into a redistribution of money from people that require more care from those that require less care to cover these expenditures.
Because there is no mechanism to coerce people to do this willingly both industries to give the invoices to the government (who created the problem) thereby getting rid of the requirement to think about how they will fund their expenditures - making it the governments problem to figure out.
This thereby allows them to continue uncontrolled expenditure in an ever increasing downward spiral to catastrophe as in effect they are spending 'other peoples money' in the hopes that "eventually these invoices will be paid" through some sort of government sponsored coercion mechanism forcing socialized heath care or some other such method with the same result.
Its really quite simple and clever.
-5% of the population accounts for more than half of all health spending.
-50% of the population with the lowest spending accounts for only 3% of all total health spending.
Similar pattern is there for College education in US. A lot of discussion is around loans and financial aid but not why basic classroom based degrees cost so much.
There I think it's just supply and demand. Around the 1970s the job market shrunk and suddenly everyone wanted a college degree so they could get a decent job. The pressure's continued to increase to the point where you have 400+ students in an introductory classroom. http://www.nbcnews.com/id/21951104/ns/us_news-education/t/mo...
There are some new universities being founded to increase supply, but online education is taking off too.
First step towards transparent pricing would to hospital turn back patients who cannot pay. Without that they roughly need to collect payment from those who pay for those who don't.
AFAICT, every part of the health care system is abnormally expensive in the US. Basically every article that says "The healthcare system in the US is expensive because of X" is partially right. X is part of what's driving costs up.
It’s a common strategy when people point out that one area in US health care is too expensive/inefficient to immediately counter by saying “but area Y is even worse”. That way nothing ever gets done because there is not a single factor that’s messing up the system. In reality pretty much all sectors are f....ed and need reform. You can choose randomly any sector and start improving and get good results.
When you are designing a service, you can optimize for median latency or tail latency. Sometimes when you optimize for tail latency, median latency gets worse.
It is similar to the health care systems. The US system is awesome at doing really crazy life saving stuff. For example US is probably the best in keeping premature babies alive. In addition it has a ton of resources. If you want an MRI scan, you can get one in the US pretty quickly and easily. Also, the profits in the US subsidize worldwide drug development. This is why, if you look where all the really rich rulers decide to go for surgery or other complicated care, it is the US.
Canada and other countries optimize for the median case and rely on the US for their outliers. Look at the instances of Canadians coming to the US for surgery or MRI scans because they cannot get them in Canada in a timely manner.
I do not believe that this is accurate, in my opinion this assertion requires some documentation. I looked up the survival rate of premature babies and the neonatal mortality rate (28 days after birth) is higher in the US than in Canada.[0] I'm having trouble finding numbers on other procedures, in my opinion it may be because because the US is falling behind on them as well.
The one study I could find from 2000 that compares them showed
>Relative risks for infant death from all causes among singletons born at 32 through 33 gestational weeks were 6.6 (95% confidence interval [CI], 6.1-7.0) in the United States in 1995 and 15.2 (95% CI, 13.2-17.5) in Canada in 1992-1994;
I'm not entirely sure that this paper supports your theory. While they do establish that the risks for this subset of premature babies is higher in Canada than in the US, they do not attribute this to a better level of care from US hospitals or the US healthcare system. Reading through their conclusions, it sounds like they didn't even think that was an issue worth investigating. Instead they looked for population differences and end up theorizing that the difference might be due to age estimation errors.
The fact that the births of premature children in this category is lower in Canada could, perhaps, point to the opposite conclusion: because health care in Canada is less driven by profit, we are seeing better care before birth which could be lowering this number.
"Our results were fairly consistent between the United States and Canada. The RRs of mortality associated with mild and moderate preterm birth were generally higher in Canada. A small part of these differences in gestational age–specific mortality was explained by the lower absolute and relative mortality risks among US black vs white preterm infants, but the RRs for Canada remained substantially higher than those for the United States even after restricting the US analysis to non-Hispanic whites (ie, 8.1 vs 15.2 at 32-33 gestational weeks and 3.3 vs 4.5 at 34-36 gestational weeks for total infant mortality among all singleton live births). An even smaller part of the difference was the result of the slightly lower absolute risks for term (birth at ≥37 gestational weeks) births in Canada (ie, total infant mortality of 3.0 vs 3.1 per 1000 live births for Canada in 1992-1994 vs the United States in 1995). We are currently investigating other potential explanations and particularly whether the differences might be artifacts caused by errors in estimation of gestational age. Regardless of the explanation, however, the prevalence of births in these gestational age categories was much lower in Canada than in the United States, and the EFs were therefore similar in the 2 countries."
This was one case where the best hospital in the world for THAT particular procedure was in Canada - and is primarily a PRIVATE hospital.
(Though the hospital also gets some $ from the government, so I'm not quite sure what it means to be "private"...)
I think you can have both claims to be true: the vast majority of complicated procedures are best-in-class in the US, but there are some centers of excellence elsewhere as well.
That's not really true, though. Prices are set by the intersection of supply and demand. Oil demand is relatively inelastic, for instance, but the price is quite reasonable because there is tremendous competition in supply.
Prices are high in healthcare in part due to inelastic demand, but much moreso due to supply constriction. For just one, particularly egregious example of this:
If you want to open a new hospital in many states in the US, you need to acquire this "Certificate of Need". Who approves this certificate? Other hospitals in the area. It's as though Google required the permission of Yahoo to form a new search engine.
If I didn't know how much I had to pay for gas until two months after I left the pump, my gas would cost $25/gallon, and I would count myself lucky that I'm buying it from a station that has a reputation for not swindling me.
That is, of course, after my 'gas insurer' comped the station anywhere between $0 and $25, that number being determined by the astrological position, and retrograde state of the planets.
While this is true and it's difficult to open a new hospital in the US, it strikes me as unlikely that this could be blamed for the high cost of care. In fact, US hospitals have been merging and this seems to be a trend that is continuing to this day.[0]
I entirely agree that hospitals are part of the problem, but I think that casting this as a supply and demand issue is oversimplifying the issue. People who need health care very often cannot choose to "shop around" for their provider, the increase in mergers make it less likely there are any competitors in their area. Agreements between hospitals and insurance companies often place other health care providers "outside network", thus artificially increasing their costs. In the same way consumers do not choose their hospital, they also frequently cannot choose their insurance provider; often the health insurance comes along with their employment.
In my opinion, the tangled co-dependency between hospitals, insurance companies, pharmaceutical companies and all of the lesser industries that depend on them are all factors in the rising costs. Every step of the way along the chain, profit is maximized at the expense of the patient. We will need large scale change in order to address the issue and I don't think it will be easy.
I hope that some kind of "medicare for all" system will start moving things in the right direction. In my opinion, this system is failing everyone except the very wealthy.
> While this is true and it's difficult to open a new hospital in the US, it strikes me as unlikely that this could be blamed for the high cost of care. In fact, US hospitals have been merging and this seems to be a trend that is continuing to this day.[0]
You're citing this as a case against supply restriction...but I think it makes the opposite point. Hospitals are consolidating because it increases their pricing power. However, that only works because it's so hard to create new hospitals. If it were easier for new entrants to enter the market, consolidation amongst existing providers wouldn't have the power that it seems to.
> I entirely agree that hospitals are part of the problem, but I think that casting this as a supply and demand issue is oversimplifying the issue. People who need health care very often cannot choose to "shop around" for their provider, the increase in mergers make it less likely there are any competitors in their area. Agreements between hospitals and insurance companies often place other health care providers "outside network", thus artificially increasing their costs. In the same way consumers do not choose their hospital, they also frequently cannot choose their insurance provider; often the health insurance comes along with their employment.
Ya, this is certainly a problem as well. I suppose I would consider it to be within the umbrella of "supply and demand" though.
a) This article purports to answer the question of why medical care costs so much, collectively. Its answer: 'prices'. But it does basically nothing to interrogate why prices are high, despite claiming to at several points.
b) One extraordinarily simple thing we could do to deflate medical costs in this country that would have essentially zero negative effects would be to create a market in kidneys. Medicare currently spends 90k per patient per year on dialysis. Allowing people to sell a spare kidney would completely and totally solve this problem, essentially overnight. Everyone currently on dialysis would get a transplant, and the costs would go to zero. 7% of Medicare's budget would evaporate instantly, and the numbers would probably be similar for private insurers.
Consider a poor or indebted person that owns a car, and needs some benefits from social security. Many republicans would argue (as they do now) that they should "lift themselves by the bootstraps" and sell their car, use public transit instead as a first step to increasing their income right ? Now what do you think will happen when that poor person suddenly has the option to sell their kidney for $50k? The same thing. Their KIDNEY will be considered a "luxury" that they should part with rather than something a little more important than that. Think about the same narrative around "millenials should just stop eating avocado toast" vs. the real problems of wage stagnation or college debt.
What if debt collectors could one day consider a kidney a monetary asset like a house, and force them to give it up? How would you feel, if you sold a kidney at 30, and now you're 70 and your remaining kidney fails?
What if the social security basket shrinks proportionally because 10% of people now opt to sell their kidneys and take less social security- is that REALLY better than letting them keep their damn kidney and paying a bit more taxes on social security? A purely economic perspective would say yes...
Broadly speaking, you are reducing a much bigger problem into a small "economics 101" lens.
No, it doesn't seem like you read anything that i've said thus far. You have not articulated any problems. You have gestured at them. Someone's kidney being removed is not, in and of itself, a problem. Play the scenario all the way through. Where do the problems start? You seem to want to imply that there will be latent health consequences to the people doing this. But even the slightest amount of research would quickly dispel that myth.
So, i'll ask again: What if any, specific, negative consequences will accrue to individuals or society at large as a result of a market in kidneys?
Yeah no you didn't read shit. One "latent health problem" I specifically called out is what if your other freaking kidney fails later? Any shred of common sense would tell you that yes, having one of your organs removed IS a problem. And you ignored everything about perverse incentives that it creates. As if you. in your infinite wisdom, can predict every single "specific, negative consequence" caused by those.
> I specifically called out is what if your other freaking kidney fails later?
Yes, that's a problem. However, it does not impact life expectancy for kidney donors. Kidney donors do not have significant health complications.
> Any shred of common sense would tell you that yes, having one of your organs removed IS a problem.
Yes, it does seem that way. Until you read about it, and realize that it isn't.
> And you ignored everything about perverse incentives that it creates. As if you. in your infinite wisdom, can predict every single "specific, negative consequence" caused by those.
"Perverse" incentives are not, in and of themselves, negative consequences. Perverse incentives may cause negative consequences. I am asking you what those consequences are. You enumerated one: kidney failure. A great start. However, it's not something medical practitioners in the area worry particularly much about.
It's also condemned by the World Health Organization unless totally altruistic because organ trafficking and human trafficking are intertwined with the politics of organ transplantation.
Living donor programs already exist in many states and hospitals - If you want to help reduce medicare spending by donating your organs, go for it! But don't expect to get paid for it any time soon.
It has negative externalities as well. The poor cannot afford to donate kidneys - the time out of work, the lifetime extra health maintenance and checkups. So it becomes a rich person's prerogative.
And it remove a source of cash from an entire population, with all that entails.
I'm not surprised - you probably didn't even look into the living donor programs available in the US.
Many hospitals will cover most if not all of these costs, including your wages, health maintenance, checkups, etc. If the hospital near you won't cover these things, the National Living Donor Assistance Program will help.
> And it remove a source of cash from an entire population, with all that entails
There's something like 100,000 people on the kidney donor list right now (UNOS). Maybe 20,000 of these get a kidney donation per year. It's not really that much of lost productivity, and as we have already explained these costs are usually covered by programs for living donors.
You're acting like this isn't a solved problem, when it is except that people are attached to their own body parts. I for one don't really want to give my kidney away unless I'm already dead. Maybe we should argue for opt-out deceased organ donation programs nationally, instead of this asinine idea that we should allow poor people to sell their kidneys.
That 'asinine' comment seemed out of place. 80,000 people die, and the problems with 'poor people having a source of cash' is the bigger issue? I honestly don't understand the emotion surrounding this.
I can sell my life (ok, 8 hours of every day) and no problem.
a) You must not have read the piece: "the bills are high because of who is paying them"; "insurance companies spend some eighteen cents for every dollar they collect in premiums on administration costs: 'marketing, determining eligibility, utilization controls (e.g., prior authorization of particular procedures), claims processing, and negotiating fees with each and every physician, hospital, and other health care workers and facilities.'"
18% is surely not the whole issue with inflated medical bills. If medicine in the US were only 18% higher than elsewhere, we'd all call the problem 'solved'.
The author doesn't say that's the whole issue. He also says the private system drives hospital consolidation, which in turn gives them higher bargaining power to demand higher prices. My point was, OP is wrong that the author "does basically nothing to interrogate why prices are high."
That is not an argument, it is an assertion that offers no real explanation whatsoever. An argument would connect who is paying to the high prices, this article fails to do that.
The 18% overhead of insurance companies, just like the overuse of care argument rebutted in the article, does not explain the high relative cost of care in the US.
Of course it is part of the explanation. That administrative overhead — the bureaucratic army it pays for and marshals as a lobbying and negotiating tool — encourages hospital monopolization, which gives providers greater bargaining power, driving up prices.
Yes, but per the article itself it only explains 18% of cost. And overhead is never going to be zero, so you can maybe, what cut that in half? At best? That's not even close to explaining the discrepancy between US per capita spending and other countries.
Ok. So a person is forced to sell a kidney because they're down on their luck. That person then becomes less down on their luck because they have received money for their kidney. Where do the problems start?
What sort of money are we assuming these individuals will get? In your plan is this $100? $1,000? $10,000? With the ratio of the desperate to people who require kidneys, suddenly organs become a buyers market.
Ok, again. Let's play this all the way through. Let's say they get $1. If I choose to sell you my kidney for $1, because i'm desperate and I think that that $1 is worth more to me than my kidney, where do the problems start?
On the off chance you're not trolling (assume best intent and all that). The answer is trivial:
The problems start because 99% people aren't educated on the true value of their kidney.
They are not in an adequate position to judge the value of an essential organ and the ramifications for missing it for the rest of their life. Because they are not doctors and not experts.
It's immoral, because in this exchange exists information asymmetry, where the kidney seller is not informed enough.
> The problems start because 99% people aren't educated on the true value of their kidney.
And which problems are those? There are no significant issues that arise from having one fewer kidney.
> They are not in an adequate position to judge the value of an essential organ and the ramifications for missing it for the rest of their life. Because they are not doctors and not experts.
Sure, but that problem exists in tons of market interactions that we solve in various ways. Information disclosure and education, certification programs, etc..This is a very, very easy solve.
Why draw the line at kidneys? Why not create a whole system of voluntary for-profit organ harvest? Anything you got two of, might as well sell one. No one needs two lungs, or two eyes.
A major surgery like that isn't low risk - the chance of major complications is quite high. You're asking people to put their lives at risk in a very real way to make a quick buck, which probably isn't actually solving any long term problems as it's a single cash infusion and not any sort of actual revenue stream they can rely on.
And, as I asked elsewhere - how much money are you expecting these organs to be sold for? There are far, far, far more desperate individuals than those who need kidneys - it'd be a buyers market for human organs.
> A major surgery like that isn't low risk - the chance of major complications is quite high. You're asking people to put their lives at risk in a very real way to make a quick buck, which probably isn't actually solving any long term problems as it's a single cash infusion and not any sort of actual revenue stream they can rely on.
So, you think people are incapable of making this decision for themselves? Or perhaps that, in general, the government should step in to prevent people from taking undue risks in exchange for money? Should we therefore criminalize dangerous jobs like alaskan crab fishing too?
> And, as I asked elsewhere - how much money are you expecting these organs to be sold for? There are far, far, far more desperate individuals than those who need kidneys - it'd be a buyers market for human organs.
a) It doesn't really matter what the equilibrium price ends up being.
> Or perhaps that, in general, the government should step in to prevent people from taking undue risks in exchange for money?
Yes, literally why OHS exists and should continue to exist.
> $4,000 seems like a perfectly reasonable and fair price for someone to undertake the risks associated with kidney donation.
Who is going to need that sum, but also afford all the post-op medical care and time off? In case of complication, who is responsible? Something tells me if you're needing that sum, you're not going to have the medical coverage required to take care of yourself. Iran seems to have a higher level of general healthcare coverage than America [1].
> Yes, literally why OHS exists and should continue to exist.
I'm not familiar with any agency by the name of OHS. Do you mean OSHA? Because they don't regulate employees, they regulate employers.
> Who is going to need that sum, but also afford all the post-op medical care and time off? In case of complication, who is responsible? Something tells me if you're needing that sum, you're not going to have the medical coverage required to take care of yourself. Iran seems to have a higher level of general healthcare coverage than America [1].
First of all, 'time off' isn't a thing for many people. Many people are unemployed, so time off costs them nothing. Secondly, obviously the person purchasing the kidney would cover all aspects of care related to the operation.
> I'm not familiar with any agency by the name of OHS.
Sorry, I'm not American, assumed you'd figure it out from context. And you can frame it how you would - either way it's rules about what's safe and not.
> First of all, 'time off' isn't a thing for many people. Many people are unemployed, so time off costs them nothing.
Sweet, so now we're giving unemployed desperate people a couple grand.
> Secondly, obviously the person purchasing the kidney would cover all aspects of care related to the operation.
How is this guaranteed? If this becomes a buyers market, what's stopping the buyer from saying they won't cover it? Are you suggesting government regulations as such, or hoping that the free-market capitalism of organ trading will do it just because they are decent people?
> Sweet, so now we're giving unemployed desperate people a couple grand.
Well, two couples. But that's a lot of money to a lot of people. It would allow someone to get a car so they could drive to job interviews, pay several months of rent in many places, etc..
There is a very, very large number of people in the world who's lives would be substantially improved by obtaining $4,000 right now. There is also a very substantial number of people in the world who have $4,000 that they do not need, but who's lives would be substantially improved by having a new kidney. It is currently illegal for those pairs of people to help each other out.
> How is this guaranteed? If this becomes a buyers market, what's stopping the buyer from saying they won't cover it? Are you suggesting government regulations as such, or hoping that the free-market capitalism of organ trading will do it just because they are decent people?
For one, i've never suggested that the market should be completely unregulated. So solving this by regulating the process is fine with me. However, it stands to reason that nobody is going to sell their kidney for less than the process costs them in medical costs. That'd just be a money losing trade that wouldn't make sense.
Hospital consolidation has been increasing the last few decades. Many hospitals are regional monopolies and have a ton of leverage in negotiations with insurers. Insurance companies put the squeeze on smaller providers, increasing pressure on them to sell to big hospitals. After buying a smaller hospital or clinic, the hospital system can bill insurance companies at the hospital systems' much higher negotiated rate -- for the exact same care (at least this is what i heard from several execs at big hospital systems).
My first job out of college was an investment banking analyst and our most profitable clients were hospital systems (HCA, Community Health, Tenet Healthcare, etc). They were so profitable that their profit margins were 20-30% even after writing off 30% of their revenues as uncollectible (this was before the Affordable Care Act).
These hospital systems were major targets of private equity buyouts. A buyout fund would buy a big hospital system, finance the deal with a ton of debt, then buy more hospitals and clinics and roll them up into the bigger system. They made so much cash that they could pay down huge amounts of debt quickly so the private equity groups made tons of money. Many non-profit hospital systems engage in similar aggressive behavior