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'Groundhog Day' for Health Care--The Profit Nightmare

This year's report from the Commonwealth Fund on the cost of U.S. health care compared to the rest of the developed world whould be a shock if we hadn't seen it over and over. We pay far more, and aren't healthier overall because of it. The report issued this week finds that the U.S. manages to spend $8,000 a year per person on health care, even as a quarter of American adults lack insurance at some point in the year, most of them for the whole year or more.

The report is jammed with statistics about what seems to be driving this disaster--higher use of expensive technology like MRIs and scanners, much higher hospital costs and higher doctor and drug costs. The U.S. also has higher obesity rates than any of the other countries measured, from Japan to most of Europe to Canada. But the costs of obesity are canceled out because the U.S. is younger overall, which reduces health costs. 

So it comes down to technology and medical costs. Plus, though it's not part of the report, a unique U.S. health insurance system run by for-profit companies (like Anthem) and 'nonprofits' (like Blue Shield) that simply put their profits in the bank instead of distributing them to shareholders.

What do they all have in common? The drive for profit: 

  • Technology: In the U.S., MRI and CT scanners and other costly machines are largely owned by for-profit doctor groups and hospitals, which are also increasingly for-profit. The doctors and hospitals have every incentive to keep the machines in use, and little to think twice about whether the scan is actually needed.
  • Drugs: Pharmaceutical companies exist to make money, period. They spend more on marketing than research. Other countries control this appetite for profit by bargaining on price at a national level. Even Medicare is banned from doing in this U.S., due to the pharmaceutical lobby's power in Congress.
  • Doctors. In the U.S., doctors are largely paid by the piece, like seamstresses. The more pieces they sell--tests, procedures, surgeries--the more they earn. Time and diagnostic expertise are poorly paid. U.S. efforts to change this by paying for better health outcomes rather than more MRIs, are slow and partial, also for political and lobbying reasons.
  • Hospitals. See "Doctors" above. Why else would hospitals itemize a $5 aspirin? Hospitals profit at a much higher rate from their machines than from skilled nursing. For-profit hospitals also market themselves to attract patients with private insurance, which pays better than charity care or even Medicaid. Some have been caught doing costly, unnecessary and dangerous surgeriesunnecessarily hospitalizing insured  patients, to boost profits, and literally dumping the unprofitable on the sidewalk. These examples seem extreme, but they're the logical extension of medicine for profit.
  • Insurance companies. Medicare's overhead and administrative costs are no more than 5%. Private insurance overhead and administration ranges from about 12% to 20% (including multimillion-dollar executive salaries), even after all kinds of creative accounting and deductions. Insurance companies have little incentive to demand more efficiency from doctor groups and hospitals, because they just pass on the cost to policyholders. This is especially true in states like Alabama, Georgia and California, with no power to say "no" to even the most extreme double-digit premium increases before they go into effect. Insurance companies also hoard and profit from excessive billion-dollar surpluses without any regulatory oversight. Again, that's a result of corporate lobbying power.

 

Add all this up, and you'll understand why it's hard to keep a straight face when opponents of health reforms say that all the U.S. health system needs is more market competition and less regulation.

Hospitals and medical groups will always see mergers and acqusitions as the right way to make more money, along with keeping their scanning beds full and billing as much as possible for every line item. Insurance companies are also deeply into the merger bsuiness and intent on charging the largest premium that the market will bear, no matter who ends up with no health care at all. The Commonwealth Fund report gives us the numbers. To change them, we just need to understand how they got so big.