…has got to be the market for the delivery of medical goods and services in the United States. As much as I try to wrap my brain around it, I can’t. The profits are enormous; the outcomes, rather ordinary, at least relative to developed-world peers in Europe. Why? I don’t know. And I don’t think anyone else knows, either. My guess, and it’s only a notch above mere speculation, is that government participation in the market through Medicare and Medicaid has very nearly completely robbed the pricing mechanism of its underlying rationale.
A piece of long-form journalism in Time magazine by Steven Brill, Bitter Pill: Why Medical Bills are Killing Us, attempted, but failed, to explain what its headline claimed it would reveal. The article was chock full of outrageous instances of over-billed patients—usually people so unfortunate as to not be old enough for Medicare or poor enough for Medicaid, and with jobs that didn’t offer anything remotely approaching the gold-plated, full-coverage policies of the fortunate 500. Though not answering its headline question, the article is still worth a read.
It’s sort of easy to see that in a world where either Medicare or Medicaid or ginormous insurance companies pay most of the bills, and only then after using their market heft to slice and dice the hospital’s absurdities in pricing ($132 for a single CBC—something so routine labs can do them by the dozen for next to nothing), people who don’t fit in those categories, i.e., lower middle class folks, get stuck with outrageous bills drawn from the hospital pricing fantasies they refer to as “chargemasters”. Medicare and Medicaid and giant insurance companies never pay the hospital’s chargemaster rates. Only the poor souls slipping through the cracks face charges like $2 a pill for acetaminophen, 500 of which can be purchased retail for not much more than a fin.
But even disregarding the folks slipping through the cracks, why are hospitals and drug companies so enormously profitable, and doctors and administrators so outlandishly compensated?
Brill never really gets there. He offers anecdote after powerful anecdote of how ridiculous are hospital and drug company’s billing practices, but never gets to the nub of the problem. Perhaps the problem is that the industry is so enormous and so complex that there is no way to get a handle on it. I certainly don’t understand what is causing the US to spend about $750 billion per year more than its peers for health care (according to Brill’s calculations), except that I suspect it has a great deal to do, not unlike the inanities in the mortgage marketplace, with government participation, but not control, over the market. Hybrid creatures like Medicare, that attempt to act like private health insurance companies but aren’t, just as Fannie and Freddie attempted to act like private mortgage bankers but weren’t, have the capacity to completely foul the pricing mechanisms of the market. When a purchaser has essentially unlimited funds with which to purchase goods and services on the open market and no prospect for failure, such as is the method by which Fannie and Freddie and Medicare operate, market prices can’t help but excessively grow. And prices inflated to accommodate the potentially infinite demand of government purchasers ripple through the market, fouling the rationing mechanism of pricing at every turn.
Brill’s answer is to essentially nationalize health care through expanding Medicare. I tend to agree. Not because I believe the government is so good at provisioning medical goods and services that it should be rewarded with complete monopoly power to do so. But because market hybrids simply don’t work. With a government player as big a Medicare always lurking, there is not even the remotest chance that a rationally functioning market might arise. And Medicare is not going away. A single-payer system could not be less rational than what obtains now.
It’s always befuddled me how willingly people outsource the care and feeding of their bodies. But that train has already left the station. It’s high time the entity to whom they’ve delegated the responsibility to pay for their health care gets a bigger voice in managing the cost of that care. Quit pretending there is anything approaching a free market for health care, and nationalize the whole bloody lot of it. Turn doctors and administrators into government employees. Care would suffer, but the headline of the article is correct—the bills will kill us sooner if nothing is done.