HCI3 Update From the Field: Healthcare Expenses Create Burden on US Economy

Submitted by francois.debrantes@hci3.org on Friday, January 31, 2014 - 03:31

Newtown, CT – January 31, 2014

A fascinating interactive graphic sums up the drag on the economy created by U.S. health care expenses – The NEJM published a chart devised from work by Meredith Rosenthal and Laura Smith that helps understand where the US ranks relative to all other OECD countries for different components of the total health care spend. It shows the evolution of that spend over time and gives a sense of the acceleration of the spending gap during the past decade. There are two pretty clear outlier categories that earn the US a #1 spot, inpatient costs and prescription drugs. Nothing new for most of us, but the size of the spending gap per capita compared to the next country is stunning and should cause all to pause and wonder why. Of course, we know the answer: price. The price per unit paid in the US is significantly higher than in other countries, sometimes ten times more. Why? Well partially because the game is fixed. Consumers only pay a fraction of the costs; the true prices are purposefully hidden; and third party payers have been incapable of reining in runaway inflation. Two papers and a judge's ruling make these points quite emphatically. First, Chapin White and colleagues expand in a Health Affairs paper an Issue Brief published in the fall. It shows quite conclusively that the prices negotiated by certain hospitals with payers are a function of their market clout and not much else. Strikingly, the study shows these excess prices being negotiated in markets in which there is also a dominant payer and where one might think that payer would exercise its market clout to keep prices reasonably even between facilities. And yet that's clearly not the case. Second, a paper published in the AJMC shows that there is little correlation between Medicare spending patterns and commercial insurer ones. That's because Medicare's problem is excess volume while the commercial sector's is excess prices. This is the reason why a Federal Judge in Idaho broke apart a pending deal between a hospital and a medical group. The investigations had revealed the hospital would use its increased market clout to negotiate higher prices.

What this means to you – Despite the overwhelming evidence that prices are too high in the US, there continues to be resistance on the part of many public policy makers to push strongly for widespread transparency. We understand why the industry players are against it (they massively benefit from it), but there's no excuse for state and federal governments to stand in the way of full and unfettered disclosure. Let's pause and note that both the hospital and the payer in Idaho asked the judge to withhold information on negotiated prices from his ruling, stating privacy and other concerns….Amazing, and kudos to the judge who chose to ignore the request and publish the information in his ruling. In a few months CMS should be releasing the full Medicare claims data file to those who file a request under the Freedom of Information Act. We applaud this move and deplore that the AMA and others feel compelled to object on the spurious reason that it violates physician privacy with respect to their incomes. I'll tell you what, I'll start accepting that argument when the industry stops violating my income by charging usurious prices for sub-par products and services. Do yourself a favor and look at the NEJM chart, and then look at yourself in the mirror and answer truthfully whether you're doing all you can to stop this nonsense.