Hospital Costs Should Be The Focus In The US Healthcare Debate
Over the past 20 years, the price of US hospital services has increased by more than 200%, compared with average inflation of 60%. Yet large hospital networks, which contribute three times more than drug prices to total US healthcare spending, have largely remained out of public and political scrutiny according to Nisarg Patel in the Financial Times. It is hospital costs, not insurance or “big pharma”, that should be the focus.
Unpaid medical bills, totalling an estimated $140bn last year, already make up America’s largest type of debt owed to collection agencies. Today, more than 80% of US hospital markets are “highly concentrated” and hospitals with established regional monopolies are able to increase the price of care year after year. Rising prices have trickled down to patients through higher insurance premiums. The pandemic hasn’t bucked this trend: hospital bills for Covid-19 ran into the hundreds of thousands per patient.
Why Hospital Costs Are So High
While pharmaceutical and insurance companies are easy political targets; ultimately, the perception that doctor income is not a big driver of healthcare costs (8%) perpetuates the current trend of increasing hospital costs. In fact, there is a prevailing belief, largely driven by the AMA, that doctors are underpaid.
Doctors and Hospital Costs
In fact, compensation of doctors and medical services is divorced from productivity. Harvard economists have shown that job growth in healthcare directly increases prices but does not improve health outcomes.
The mean annual salary of a doctor in the United States is $313,000 according to a Medscape Report, up 4.6% from $299,000 in 2018. The highest average salaries are earned in the following specialties:
- Orthopedics: $511,000
- Plastic surgery: $479,000
- Otolaryngology: $455,000
- Cardioloy: $438,000
- Radiology: $472,000
- Gastroenterology: $419,000
- Urology: $417,000
- Dermatology: $411,000
- Anesthesiology: $398,000
- Ophthamology: $378,000
- Oncology: $378,000
- General surgery: $364,000
I get it. Doctors are responsible for the life and health of their patients often working all night making life and death decisions. I’m sure they have sleepless nights worrying about decisions that could have result in death or terrible injury. They do four years of undergrad, four years of medical school, 4-8 years of medical training finishing in their mid-30’s with a salary in residency of 40,000 per year, and an incredible amount of student debt.
However, in many other countries, a doctor has to work hard to set up a practice. In the U.S., they can be salaried in big hospital chains and still earn $500,000 annually or more without any headache of managing a practice.
Chiefs of surgery at major hospitals earn millions of dollars annually when routine surgeries cost tens of thousands. That’s an hourly rate that would make even many corporate lawyers blush. Yet, when patients interact with doctors, they often refuse to discuss pricing, acting as if they have no control over it and directing you to a staff member who will “explain” things in such a convoluted fashion that eventually you give up and hope that your health insurance is as good as you’ve been told it is. And if you have non-big-employer insurance or God forbid no insurance, good luck.
In reality, consumers are divorced from pricing for if it were transparent, most people would avoid unnecessary treatments. Also given a choice many would choose a one time cash payout as opposed to getting prolonged medical care paid for. The problem of over treatment for profit and a system of cynical lawsuits drive up doctor salaries.
American medical students generally don’t have coursework on the economics of their industry. Were they to, they may actually fight for systemic change. They are taught only to perpetuate the system which they will enter, before being dumped out at graduation with hundreds of thousands of dollars of debt. At that point, they are scrambling and subservient to their corporate (but non-profit) masters.
The USA spends about 8% of its GDP on government funded healthcare – Medicare, Medicaid, the Veteran system for former military personnel and a host of smaller systems. This is 28% total US healthcare spending. The rest comes from insurance companies.
It is also actually about the same percentage of GDP that the UK spends on its NHS to deliver healthcare to its entire population. The UK system delivers better population health, longer life expectancy and easy access to healthcare for everybody.
The US system spends a lot of time on praising itself for top quality care but advantages of the US system in outcomes are quite small and fall into specific areas of high tech medicine which most people never need during their whole life. The overall population outcomes are much better in Europe or Japan.
The bottom line is that people with very expensive insurance living in some large cities in the U.S. will have small advantages in certain areas of healthcare. The rest of the country doesn’t have those hospitals or those doctors. Even in those top hospitals with top doctors, what people get is access to some very good acute, oncology, and cardiac care. The rest of it is not better and the high tech wizardry makes surprisingly little difference to outcomes.
Patel identifies how health economists have proposed three approaches that could make healthcare services markets more competitive, improving patient care. The first is federal: reform Medicare payment policies that currently encourage consolidation; reduce the documentation burden for independent physicians; and make quality and cost data publicly available and easy to interpret
The second is market-driven: encourage investment in independent primary care and specialist practices; in clinics located in stores; and in urgent care facilities, with outpatient surgical centres for specialised procedures.
The final approach is judicial: limit anti-competitive behavior by blocking dangerous mergers. An example is the seven-year price cap and third-party oversight set on the Beth Israel Deaconess Medical Center and Lahey Health merger in 2018, which created the second largest hospital network in Massachusetts. On July 10, the Biden administration called for revision of federal merger guidelines to increase scrutiny of hospital consolidation.
Without some changes, it can safely be said the American medical workforce is overpaid, the American medical admin system wastes half the money spent on “healthcare”, and many US doctors cheerfully overtreat insured patients. The high tech bells and whistles is essentially a marketing gimmick to make the population forget about those obvious facts.