
Which firms profit most from America’s health-care system (2018) - SQL2219
https://www.economist.com/business/2018/03/15/which-firms-profit-most-from-americas-health-care-system
======
mchusma
EconTalk has many great episodes digging into interesting aspects that are
touched on here: why the US healthcare so expensive for so little extra value.

This episode about the Oklahoma group that has had low cost & transparent
prices for surgeries for many years. [http://www.econtalk.org/keith-smith-on-
free-market-health-ca...](http://www.econtalk.org/keith-smith-on-free-market-
health-care/)

This one on why we get such expensive drugs with marginal benefit:
[http://www.econtalk.org/vinay-prasad-on-cancer-drugs-
medical...](http://www.econtalk.org/vinay-prasad-on-cancer-drugs-medical-
ethics-and-malignant/)

This one on benefit management companies terrifying behavior:
[http://www.econtalk.org/robin-feldman-on-drugs-money-and-
sec...](http://www.econtalk.org/robin-feldman-on-drugs-money-and-secret-
handshakes/)

(Also PS Russ Roberts on this show is a treasure. His way of thoughtfully
engaging with others is something I try to learn from.)

~~~
claudeganon
Roberts is well-read and diplomatic, but I wouldn’t exactly call what he does
with his show thoughtful engagement. The very few instances he has guests that
truly diverge from his ideological dispositions, he mostly dismisses their
arguments without the same rigor that he defends those within his biases. His
conversation with Elizabeth Anderson on workplaces as a form of private
government is a good example of this:

[https://www.econtalk.org/elizabeth-anderson-on-worker-
rights...](https://www.econtalk.org/elizabeth-anderson-on-worker-rights-and-
private-government/)

~~~
refurb
Russ isn’t 100% unbiased (is anyone), but what I like about his podcast (been
a while since I last listened) is he is willing to bring people on with _very_
different views and let’s them have the floor for a bit.

He also does a nice job of “O.K., this is where we have differing opinions”.
Unlike a lot of media that covers politics issues, it’s much more civilized to
me.

------
knubie
> Every year America spends about $5,000 more per person on health care than
> other rich countries do. Yet its people are not any healthier.

I think part of the reason Americans spend more on healthcare is precisely
_because_ they're unhealthy. According to the American CDC the obesity rate
has reached a staggering 42.4% of adults[0], which brings with it a slew of
health problems. This accounts for an additional $147 billion in healthcare
spending, or $1,429 per person (with obesity).

[0]
[https://www.cdc.gov/obesity/data/adult.html](https://www.cdc.gov/obesity/data/adult.html)

~~~
dan-robertson
A counter argument I see sometimes is that the reason Americans spend more on
healthcare compared to other rich countries is that American consumers spend
more on just about everything than most other rich countries (and also earn
more money). I don’t really know how much merit the argument has.

~~~
standardUser
And as a result we have bigger homes, bigger cars, bigger TVs.... but worse
healthcare outcomes? Seems like some of that excess spending yields us more
returns than others.

~~~
quadrifoliate
The things you mentioned are almost all inversely related to better healthcare
outcomes, to grossly oversimplify a contributing factor.

* Bigger homes means you feel more comfortable being lazy and spending all your time indoors

* Bigger cars means you are incentivized to drive 20 miles to a restaurant in comfort instead of walking over to a closer one

* Bigger TVs means you spend all day "watching the game" instead of going out and playing a sport.

Once again, these are grossly oversimplified, but should drive home the
central point that spending on some things can actually worsen outcomes of
others.

~~~
epistasis
> Bigger cars means you are incentivized to drive 20 miles to a restaurant in
> comfort instead of walking over to a closer one

For many (most?) people in the US, the idea of walking anywhere of consequence
from their home is simply ludicrous. Restaurant, convenience store, grocery
store, all are completely inaccessible except by car.

Suburb planning has explicitly disallowed that sort of living for most people.
It has also made it nearly impossible to serve neighborhoods with any sort of
reasonable public transit.

~~~
vishnugupta
> Restaurant, convenience store, grocery store, all are completely
> inaccessible except by car.

This particular aspect of USA struck me as quite bizarre whenever I visited on
business trips. More so as I’m from India where it’s almost a given that
things that you need on a day to day basis (grocery, bakery, pharmacy,
convenience store etc.,) are available within walking distance. Apart from an
opportunity to get some fresh air it’s also a good way to interact with my
neighborhood community.

I assumed this is how it’d be in any developed country until I moved to
Netherlands. It’s not too different from India at all in that respect here.

So now I wonder, what factors lead to that kind of city planning in US. It was
a real ordeal for me to get a meal outside in US, had to either walk for an
hour or order taxi service (those were pre-Uber days).

~~~
rgblambda
Initially U.S cities were built according to a grid plan (grids being the most
efficient means of urban planning at the time). This also made public
transport easier. Grids however do not work well for cars. In response to
increasing car ownership, T junctions were introduced to improve flow of
traffic. The car also made it possible for people to live far from their place
of work, thus the popularisation of suburbs. Other countries followed suit.

~~~
adjkant
> Other countries followed suit.

What other countries? The US is very much an outlier. The only one I can think
of is maybe Australia?

~~~
rgblambda
The UK and Republic of Ireland.

------
vgchh
I recently got a shock when I went for a tooth extraction. A nurse and a
surgeon spent an hour to complete the procedure. It came out to ~$6000. I had
to pay for $700 for calcium grafting right then and there and they were going
to get back to me for the remaining after consulting with insurance plan. I am
still waiting for the call, albeit terrified of the possibilities.

I understand there are many parties in the food-chain. Still $6K for two
people for an hour, feels like ripped to the gills - almost dirty.

~~~
mschuster91
reminds me of an old joke: 15$ for positioning a screw, 10.000$ to know where
to put that screw.

If the US wants to tackle its healthcare costs, it not only has to get rid of
the pointless middlemen everywhere and the notion of uninsured people whose
bills have to be picked up by the rest, but also enlarge its supply of new
doctors, and reduce the student debt they have to pay off.

------
SQL2219
from Wikipedia: The classic example of rent-seeking, according to Robert
Shiller, is that of a feudal lord who installs a chain across a river that
flows through his land and then hires a collector to charge passing boats a
fee to lower the chain. There is nothing productive about the chain or the
collector. The lord has made no improvements to the river and is not adding
value in any way, directly or indirectly, except for himself. All he is doing
is finding a way to make money from something that used to be free.

~~~
chewz
This feudal lord probably have invested in an upkeep of few knights who
enforce that chains stays in place. And then lobbied at the court against
complaints from merchants and peasants. He might have also have to bribe few
judges.

Also historically feudal lords had been constantly in debt spending more on
representation then they have earned. Some moneylenders might have taken all
this rent from river chain. Or the feudal lord have spent that income on
luxury items stimulating demand for art or trade with far away corners of the
globe.

This is an example of how economist have no idea how making money works..

~~~
sweeneyrod
If I offer you the opportunity of not having your kneecaps broken in exchange
for only $100/month, is this potentially completely fine because I could spend
the money on "stimulating demand"?

~~~
chewz
Many great American companies started exactly from that. Time Warner comes to
mind.. :-)

[https://en.m.wikipedia.org/wiki/Kinney_Parking_Company](https://en.m.wikipedia.org/wiki/Kinney_Parking_Company)

------
francisofascii
Just got the bill yesterday for my "free" Covid test. $250, insurance pays
$105, you owe $145. (The test was free, the office visit was not.)

~~~
sushshshsh
Who is to blame?

The government for not collecting taxes from you and using that money to pay
the doctor?

The doctor for billing too high for the visit?

The insurance company for not covering more of the price?

Personally I would seek to understand why the doctor is billing so much and
how that can become more fair for everyone involved.

~~~
Taek
A big element here is that the free market is being choked out. Consumers walk
into healthcare facilities without any idea what they will be paying when they
walk out, and therefore have no ability to choose one facility over another
based on price.

Because that ability doesn't exist, there is no downwards price pressure
anywhere at the consumer level for medical services.

I think we'd see a lot more results if we asked 'why aren't these facilities
putting more efforts into reducing costs' rather than asking 'what makes this
so expensive?'

~~~
dragonwriter
> A big element here is that the free market is being choked out.

Given that every developed country has much lower per capita and per GDP
costs, and pretty much none have more of a free market in health than the US,
I'm pretty sure that's not the problem driving US prices high. I get that free
market fundamentalism is one of the most influential religions in the US, but
it's popularity doesn't make it contentions true any more than the popularity
of Christian fundamentalism does for young earth creationism.

~~~
mrfredward
Most developed nations have highly regulated healthcare systems, and part of
the government involvement is in setting prices.

The U.S., through everything from safety regulations to IP laws to insurance
regulation has destroyed competition, but outside of medicare isn't involved
in determining prices. The result is predictable.

Markets work great when the incentives are right. It's hard to get incentives
right in healthcare and most nations want medicine to be part of a government
safety net, so they go the direction of socializing healthcare. Almost
anything would be better than the system the U.S. has now.

------
sytelus
_In the case of health care, consolidation has probably made things worse by
muting competition. There are now five big insurance companies, three big
wholesalers, three large pharmacy chains and three big benefit managers. In
the case of health care, consolidation has probably made things worse by
muting competition. There are now five big insurance companies, three big
wholesalers, three large pharmacy chains and three big benefit managers._

~~~
boublepop
As I see it consolidation isn’t the root cause. The central problem is that
pharmacy benefits manager have been allowed to invert the normal market.
Normally for someone arranging the “resale” of a product from a producer to
costumers would make more money if the price got negotiated down. But since
PBMs have forced rebates of 70%+ that means that they are making most of the
money on a drug sale. So even thought they are representing the buyers at the
negotiation table, they want the prices as high as they can be. Producers are
sitting down at the table and outbitting each other not on how low the price
could be, but how high they are willing to make it, it’s absurd. And you’d
think the insurance companies or pharmacies would object, but often they are
owned by the same group so they all just share the proceeds from ripping of
the people.

~~~
nazgulsenpai
Pharmacies, PBMs and insurance companies being owned by the same group is all
an effect of consolidation.

Source: worked for an independent specialty pharmacy that was purchased by a
PBM that in turn merged with a major national insurer

~~~
boublepop
I mean sure it’s an effect in the sense that when it happens we call it
consolidation. My point is that none of the groups owning the insurance
companies are buying up the pharmaceutical companies. And why should they?
They are pulling home 2/3 of the profits of the price hiking campaigns they
are driving and go about blaming it all on the companies who’s day-to-day is
focused all about how we can make these drug cheaper, yet that never reaches
the consumer.

------
ntsplnkv2
> Everyone hates pharmaceutical firms, but their share of health-care rent-
> seeking is relatively trivial, especially once you include the many midsized
> and small firms that are investing heavily.

This article misses the point.

People hate pharmaceuticals because of ridiculously high drug costs, and
that's about it. If they can't produce drugs at profit without gouging
potential end users then it should be nationalized or subsidized.

~~~
enaaem
Developing new drugs takes over a decade and costs billions. European
countries are free loading of US drug research.

[https://www.wsj.com/amp/articles/how-other-countries-
freeloa...](https://www.wsj.com/amp/articles/how-other-countries-freeload-on-
u-s-drug-research-1487722580)

~~~
phaemon
(I'm using 2015 figures because they were the latest available the last time I
challenged this bullshit)

Nope, drugs sales in the EU alone are enough to cover pharmaceutical R&D costs
worldwide. What they aren't enough to cover is Marketing costs, but that's OK
since most EU countries don't allow direct marketing of drugs.

That's what the US covers. Not quite so noble sounding that you're covering
the cost of advertising though, is it?

Pharmaceutical R&D spending in 2015: USA $47B, Europe: $33B.

Total drug sales Europe 2015: $190B

~~~
phobar
Good points but you should differentiate between generics and novel therapies
that make up for the 190B USD in EU sales.

------
HPsquared
What's missing is the Bender solution: "I'll make my own system! With
blackjack! And hookers!" Barriers to entry are too high for a really free
market to emerge.

~~~
standardUser
Are the barriers too high? I've seen a lot of "modern" medical offices pop up
in recent years, like One Medical and Carbon Health. Not to mention the scores
of startups that specialize on more narrow parts of healthcare.

------
singingwolfboy
[https://web.archive.org/web/20200426011358/https://www.econo...](https://web.archive.org/web/20200426011358/https://www.economist.com/business/2018/03/15/which-
firms-profit-most-from-americas-health-care-system)

------
sriku
> The excess profits of the health-care firms are equivalent to $200 per
> American per year, compared with $69 for the telecoms and cable TV industry
> and $25 captured by the airline oligopoly. Only the five big tech “platform”
> firms, with a figure of $250, are more brazen gougers.

wow!

------
specialist
This paper says 4% of cost goes towards "excess profits". I accept this
without reservation.

But it remains unsatisfying.

What about the other overheads? Marketing, customer acquisition and retention?
Health plan negotiators? Payment processing? Executive compensation? Etc, etc.

Many others have guesstimated USA healthcare costs 50% more per capita than
Canada. So eliminating administrative overhead would whack 1/3rd of the costs,
right?

Advocates for single payer could better emphasize all the unnecessary
inefficiencies of our Freedom Markets™ health care system. All those "bullshit
jobs" David Graeber has been telling us about.

------
tkeAmarktinClss
I didn't see anyone mention physicians.

The base rate of the profession is around 250k per year. Specialities are not
included in that calculation.

Specialities are closer to 400k to 500k per year.

This is not natural. This is 130+ years of regulatory capture. Other countries
pay their physicians half as much.

Not to mention outcomes are basically the same.

~~~
bawana
Actually, you are wrong. PCPs start at 90-100k salary. If you are quoting
gross income before expenses then its about 200k. The overhead of running a
physicians office is high. In terms of specialists, it's come down quite a
bit. Just check the ads in the back of professional journals. 400k is more
like the 70s.

Also you can look at the training of all the recent physicians, - many are
from abroad. Same thing that the Silicon valley industry has been doing ,
hiring foreigners at lower pay. Education for physicians abroad is FREE.
Whereas here you have to go to college (>50k a year tuition x 4) AND medical
school (60k a year x 4) and then training 3-7 years at low income (40k a year)
and crap life style.

~~~
tkeAmarktinClss
Please post a citation

~~~
boublepop
Perhaps you could post a citation yourself before asking it if others.

------
motohagiography
The U.S. health system is what happens when corruption goes on so long you
just call it the culture. "All professions are a conspiracy against the
layman." was said by either G.B. Shaw or Ambrose Bierce, depending on your
reference point.

It's a form of business that is orthogonal to producing things people want,
where instead it's mainly in the business of depriving people of what they
need. Rent seeking is what professions and institutions are designed to do, to
create scarcity in exchange for a promise of quality, but somehow that latter
part gets lost.

Some years ago when "disruption" was the popular idea, I put together a list
of vulnerable industries. The sharing economy was an attack on businesses
whose profits depended on a regulatory bar to entry (Uber/AirBnB etc.) The
list was based on the presence of labour unions and professional associations,
using the hypothesis that their existence creates a price premium that tips
the economics of their industry in favour of automation, or at least in favour
of economic substitution away by customers to a new tech that meets %80 of
their need. Maybe we have the technology now to create an economic rentier map
that lays out parts of the economy that have artificially propped up rent-
seeking groups, as a means to develop new tools to avoid them.

Regarding the rentierism of the health business, I've noticed an anecdotal
trend among some aging boomers who are rejecting that system altogether, and
choosing palliative care and to die at home instead of in the hallway of a
hospital, or worse, spending years in a long term care home. The best thing
that could happen to healthcare is that instead of seeing it as broken, we
should recognize that it looks like that because works for someone where we
can't see who or how, and the goal is not to problematize and fix it, but to
make it work for everyone else.

~~~
yesenadam
> either G.B. Shaw or Ambrose Bierce, depending on your reference point.

I googled it, it's from Shaw's _Doctor 's Dilemma_. (I'm a big fan of both
those guys.) Only 3 hits on the internet saying it was Bierce - all 3 are your
comments on HN! hehe.

~~~
motohagiography
That's hilarious. I'd swear I read it in the Devil's Dictionary it in a
fortune file somewhere.

------
tomrod
I can't read due to pay wall, but have a guess. Data systems, such as Epic,
seem unnecessarily close walled. Is Epic the big winner, pharma, or something
else?

