Health Care is Overpriced Due to Politics and Regulation
Devon Herrick | Posted: Aug 31, 2020 12:01 AMI flew on an airline for the first time in the 1970s. Back then airline ticket prices were high due to federal regulations. The government believed ticket prices had to be expensive to ensure enough profit for airlines to invest in quality. According to analysis by The Atlantic, the lowest price an airline could charge for a flight from New York to Los Angeles in 1974 was $1,441, adjusted for inflation. Forty years later – after deregulation – prices had fallen as much as 80 percent for some flights on that route. As The Atlantic put it, “Deregulation worked.”
This brings me to health care, which is heavily regulated at both the state and local level. There is a persistent belief by many health care industry stakeholders that medical care necessarily must be expensive. This is evident when regulators and industry stakeholders turn a blind eye to price gouging, excessive markups and unnecessary care. Not only do lawmakers do nothing about practices that are fraudulent in other industries, but stakeholders also refuse to even condemn the practices. Our government is seemingly doing all it can to ensure we pay far more for medical care than if competition were allowed to flourish.
About 98 percent of medical spending must be authorized by physicians, and doctors order nearly $3 trillion worth of medical services for patients annually. About one-third of health care spending is on hospital care. In recent years, hospitals have been buying up physician practices. The goal is to force employed doctors to order more tests, hospitalize more patients and boost fees higher than independent physicians receive. The Obama Administration tried to discourage future physician practice acquisitions by hospitals by making it less lucrative. Yet, hospital-owned practices already in place would continue to receive higher fees. The Trump administration went much farther and enacted site-neutral payments even for formerly grandfathered facilities, meaning all hospital-employed physician services would be reimbursed by the government the same as the independent physicians. Get this: a federal judge ruled against site-neutral payments because it would save Medicare nearly $1 billion a year, even though it would do so without benefit cuts. The judge has since been overruled by an appeals court.
Surprise medical bills are another example of politicians and insiders protecting non-competitive behavior. Surprise medical bills are a form of market failure when consumers cannot punish price gougers or denying them their patronage. Legislation limiting surprise medical bills is stalled in Congress because those who profit from them are big donors. In other words, Congress allows the industry to screw patients in return for money.
There are two opposing bills in Congress to end surprise medical bills. One would pay out-of-network providers as though they were in-network. Physicians groups who profit from surprise medical bills oppose this bill because it cuts off their gravy train. Another bill would create a government-run bureaucracy to arbitrate billing disputes between health plans and out-of-network doctors who want to charge more. This bill is more popular among those whose business model is ambushing patients with bills they did not expect. The reason presumably is because arbitrators can be influenced by lobbying or interference that locks in fees far higher than market prices. This is what happened in New York State where official guidance tells arbitrators to pay the 80th percentile of list prices. The 80th percentile of list prices is double, maybe triple the 50th percentile of in-network collected fees.
Surprise medical bills are perpetuated by a few bad apples from a handful of physician specialties. What they all have in common is their patients do not choose them. Nor can patients refuse their services when they are out of network and charge much higher fees.
Back in May, an appeals court in Colorado overturned a jury decision that found a patient did not owe a $228,345 surprise medical bill based on inflated chargemaster (list) prices. The patient thought she had done due diligence when she had initially been told her cost-sharing would only be $1,337. The surgery was supposedly more complex than anticipated, which lead to a $228,345 surprise medical bill. The appellate judges ruled the hospital should not have to litigate to collect its outrageous fees, because (in a nutshell), outrageous fees, opaque pricing and one-sides contacts are the status quo in health care.
Several years ago, a Texas woman was ambushed with a $17,850 surprise medical bill for an unnecessary post-surgical drug test. Her urine sample was purposely sent to an out-of-network lab known for price gouging. A simple drug test is readily available for $100 online. An in-office, “pee on a stick” test is about $1 when purchased in quantity by a doctor. Despite being reported to the Attorney General and to the Texas Medical Board, the physician lab owner did not lose his license. Presumably, everyone turned a blind eye because that’s just how health care is.
Another place where abuse is tolerated is when rural hospitals are allowed to bill for lab work they did not perform. This is quite common because rural hospitals have higher reimbursement rates than big-city hospitals because they have few patients and are critical to their small communities. Consider this: your Dallas-based physician orders lab work that is processed locally, but the tests are billed through a much more expensive hospital hundreds of miles away. Your cost-sharing could be much higher than necessary. Your premiums rise as a result. State and federal officials are beginning to see this needs to stop.
Americans spend nearly one-fifth of our national income on health care. High prices and services more costly than necessary are tolerated in health care because lawmakers, regulators and stakeholders all want the industry to be awash in other people's money. It doesn’t need to be this way. In every other industry, consumers and suppliers route out waste, fraud and abuse whenever they encounter it.
