The Untamed Rise of Hospital Monopolies
npr.org
npr.org
[1]: 85/15 rule is part of the ACA mandating that 85% of dollars taken in by an insurance provider must be paid to actual claims. The remaining 15% was the maximum gross profit an insurer could take in(before overhead and all expenses).
Care to cite that stat?
From wiki:
>>Historically self-funding has been most effective for large corporations and Fortune 500 companies with over 1,000 employees
Very cool, either way.
What we're seeing in healthcare costs is analogous to what you might see happen to airline ticket costs if we all got our air tickets through our employers: the vast majority of us would fly business class, while the unemployed would be simply unable to pay for business class fares out of pocket. Employers (especially medium-to-large businesses) have a much higher purchasing power (and hence, willingness to pay) than individuals.
If you take this behavior and combine it with the fact that health insurers' profit margins are capped by law, insurers pay more absolute dollars for treatments (which doctors happily accept), charge more to employers (who are generally less price conscious vs individuals), thus bring in more absolute revenue, and therefore more profit because a capped profit percentage of a higher revenue is higher than a capped percentage of lower revenue. It's somewhat counter-intuitive, but the policy combination of an employer mandate and insurance profit cap results in the mother of all local optima.
It's just awful incentive alignment and I see it time and time again in government policies that were developed with good intentions in mind.
Same for municipalities who have hospitals. The local government leaders like mayors or country boards are often connected with groups of doctors, developers and construction companies who make sure they make as much money as possible. Or intentionally mismanage a public hospital to then sell it to their friends for cheap who can then raise prices and rake in the money.
That's pretty absurd isn't it? Were the plebs really worried about too many hospitals being built? And that that would drive prices up?
Depending on the state, this also goes for surgery centers, and other types of procedure rooms for minor outpatient surgery.
As soon as you go to a hospital, the hospital tacks on a giant facility fee which may be the single largest expense. This, despite the hospital regularly owning half the practices involved in providing care too!
Those "nonprofit" executives with their multimillion dollar salaries, and the legion of nonclinical administrators have to come from somewhere. It is on the back of the clinical doctors.
This is highly detrimental to the high volume, low dollar value medical practices where we want to increase volume, and reduce costs, such as opthamologists & dermatologists. This, because our aging population has increased needs for ocular and skin care.
The free market is not a solution to the problem of healthcare spending. Consumers do not have enough information, they aren't in position to refuse treatment if it's too expensive, and hospitals aren't in a position to turn someone away if they can't pay. The rest of the developed world has figured this out but we're too stubborn to adopt what is undoubtedly a better system.
[0]https://www.healio.com/news/primary-care/20200106/a-third-of...
I may partially agree. Consumers do not have enough information because hospitals intentionally keep it from them.
Even in situations where I can call around or schedule a procedure, it's amazing how few places even know or will tell me. Or straight up lie without consequences.
Maybe they have some actuaries who could actually tell you what a close approximation would be but that info never really filters down to folks in the call centers or at a front desk.
I have worked on the supply side, the insurance side and currently the provider side and it is all messed up. Across the board it's just a travesty of inefficiencies and opaque rules.
There just isn't a real way to shop around with our current system even though proponents of the system love to say that's what we all should be doing.
1/3 of US healthcare spending is absolutely not from administration fees. Here is a more concrete breakdown of all of the cost components, compared with the same in peer countries: https://www.healthsystemtracker.org/brief/what-drives-health...
If you look at the breakdown, the vast majority of the cost difference comes from just the raw cost of inpatient and outpatient care. Even if you were to completely zero out the administrative costs per capita, you'd hardly make a dent in bridging the gap.
> The free market is not a solution to the problem of healthcare spending. Consumers do not have enough information, they aren't in position to refuse treatment if it's too expensive, and hospitals aren't in a position to turn someone away if they can't pay.
It depends on what you mean by "healthcare". "Healthcare" is way too broad to have useful conversations. What constitutes "healthcare"? Getting the flu? Vaccines? Annual physicals? Routine treatments? Brain surgery? Cancer? It's a spectrum. There are some parts of healthcare that are highly predictable and fungible, and some that aren't. Whether or not a market can provision predictable/plannable healthcare is quite debatable.
Also, what we have in the US is nowhere close to a free market in healthcare, so making this argument is a bit of a non sequitur.
> The rest of the developed world has figured this out but we're too stubborn to adopt what is undoubtedly a better system.
The rest of the developed world isn't a monolith. Singapore, Switzerland, the UK, Denmark, Germany, and the Netherlands all have wildly different healthcare systems, but all produce fairly good outcomes! All have dramatically different levels of privatization, market mechanisms, and welfare generosity.
This is why I'm interested why so many people are obsessed with the idea that we need to completely burn down our system and start anew to improve it.
I'm not only not obsessed with the idea, but I'm not sure that would be a desirable way to go. That said, the healthcare system in the US is way beyond broken, and I don't see how it can possibly be fixed by half measures. Something really drastic is required. It's not hard to see why some people reach the "burn it all down" position.
Tactically speaking, it could conceivably be achieved by enacting a series of what some might consider "half measures":
- Simply getting rid of the Federal employer mandate as well as the payroll tax deductibility for group health insurance premiums could go a long way. A lot of employers really don't want to be in the business of hiring monster HR teams that spend the majority of their time becoming health insurance experts...
- Expanding ICHRAs (https://news.ycombinator.com/item?id=22527102) can also go a long way.
The only annoying part is after your first ER / doctor visits each year, you end up with a bunch of different random charges from people that you have to pay separately. It's an annoyance, but hardly one that requires us to 'burn it all down'.
This year I have an HDHP and an HSA, so I have more of those, but I also have an HSA.
As an example, my wife's first pregnancy probably cost about $200k nominally, but I paid... $2000-3000 at most.
The only real 'issue' I see is the tying of health insurance to employment, but there are straightforwards ways to get around that (federal incentives to purchase your own health insurance, and then employers can pass along savings so employees can purchase themselves). For me, I've never been unemployed longer than COBRA so it's not been an issue.
There are a lot of good things about America's system. My wife's pregnancies are extremely complicated. Many doctors said to give up. However, we searched and searched for a doctor to help, and we figured out what works. Basically, for unknown reasons (although many plausible ones that cannot be confirmed), she needs to take an expensive blood thinner during pregnancy or the baby dies. Since her tests don't come back for the 'standard' conditions this works for, it is difficult finding a doctor willing to prescribe. In fact, we didn't even know it was an option, until we went all over the country to various experts. Due to the free market, we were able to get to these experts in a matter of weeks. Similar experts in countries with socialized systems have long queues.
When it comes to the medication, due to the fact that we are the ones that pay (via insurance), not the government, as long as we can pay, we can continue to live our lives and have our children. Based on our conversations with other women in my wife's position in countires with socialized medicine, they have to really advocate for themselves in ways we do not in order to get their government to even provide the medication or pay for it. Many wait months before they are able to get someone. Every once in a while the government revokes access because some bureaucrat says it's not medically indicated. We've never had that. Should her doctor decide to do that and sentence our child to certain death, we have several backup doctors willing to prescribe the medication. Some moms in other countries we're in contact with have been cut off from the medication and subsequently had miscarriages in the second or third trimester. This is insane. I'm glad to live here.
We recently moved, and just scheduled a bunch of appointments and asked the doctors point blank whether they'd consider it based on her history. Some said no, others said yes. In a few weeks, we figured out what her friend over in Canada took many, many months to figure out. When it comes to pregnancy, months matter. 24 months of waiting can drastically change the spectra of outcomes in a women's pregnancy, especially given the age at which many women have children these days.
Same with things like surgeries and such. My relatives in countries with socialized care are waiting many months for things Americans get in a few days.
You're still being robbed of a ton of money (US healthcare procedure costs, i.e. pregnancy, have no actual bearing on what it costs to provide that service), but the system is so opaque and convoluted that there's no personal benefit for you to track down how much. You and I and many others live in more or less ignorant bliss about how much money is being redirected from our pockets to parasites in the insurance/provider system because we don't know any better.
We're still losing in this situation, it just doesn't feel as acutely painful to us as it does to those who are outside the upper middle class bubble.
Obviously, some healthy man or woman somewhere is making up for me, but that's the nature of insurance.
Anyway, you said the system doesn't work and is broken. If it works for 1/3 of people, the system works and the question is how to make it work for everyone.
Replaced? Not so sure.
But the status quo isn't acceptable.
That's because of inflated provider costs. We are drastically overpaying for each medical visit and it's coming out of all our of pockets, to the benefit of a small few.
I'll give a couple of ancedotes about insurance, though. I've had two family members suffer major medical problems, both fully insured with what was considered excellent insurance. The struggles they had with the insurance companies rivaled the struggles they had with their conditions, essentially doubling their misery and requiring them to make very difficult (and intentionally hard to understand) decisions at exactly the time when they're least able to.
In both cases, they ended up bankrupt because of medical bills -- exactly the sort of thing that, if nothing else, insurance should prevent. Both now express that in hindsight, the insurance companies did more harm than good.
But there's also the problem of quality of care. If you have the money, the quality of care you get in the US is extremely good. If, however, you aren't wealthy, then the quality of care you get is, generally speaking, substantially lower than what you get in most other modern nations. This is not because doctors and nurses here suck, but it's because they're overworked. Which ties into another issue...
There's a shortage of doctors and nurses. Here, I can give my own personal story: I've been trying to find a primary care physician since before the pandemic (I did pause for most of the last year, but started again a couple of months ago) Apparently, there isn't a single one in my general area that is accepting new patients. Even though I have better-than-average health insurance, if I need to see a doctor, my only option is urgent care or the emergency room.
And the pricing is simply crazy. Another meaningless anecdote: A coworker had a dental emergency in Taiwan and had to have a crown replaced. The dentist there was very apologetic that he had to charge my coworker (because he's not a citizen and so isn't covered by their health care system). The thing is, he still paid substantially less for the new crown, and the quality of the work and the crown itself amazed him. He remarked that if you need two crowns done, you'll save money by flying to Taiwan and having them done there, and you'll end up with a better end result.
Now, I'm not saying that you can't have really excellent experiences in the US health care system. I am saying that they aren't the norm.
I don't see how the current system can be reformed realistically. There are way too many well funded groups who benefit from the current situation and will fight any kind of change tooth and nail.
In my view Medicare for All is the only realistic path. It works already and could be tweaked to accept more people. Unfortunately Biden doesn't want it so that opportunity is gone for the next decades probably.
> Unfortunately Biden doesn't want it so that opportunity is gone for the next decades probably.
These two sentences are at odds with one another.
There are clearly other more realistic paths, in that case.
Name another more realistic path besides leaving things the way they are and keeping f…ing over the country with outrageous costs.
And all the systems are there already to implement a Swiss-style system (universal private healthcare with an individual mandate, sliding cost subsidies, and protection for pre-existing conditions). The only difference between Switzerland and the US is that the health insurance is predominately purchased on the individual market and is decoupled from employment.
That’s the realistic path: decoupling health insurance from employment. In fact, all the systems are there already.
That’s one thing we can agree on. Employer based health insurance needs to go.
> Administrative costs include spending on running governmental health programs and overhead from insurers but exclude administrative expenditures from healthcare providers
There are a bajillion different reasons why raw costs are so high, but admin overhead isn't one of them.
https://www.commonwealthfund.org/publications/journal-articl...
In the study that you sent they would be included under the inpatient and outpatient costs rather than administrative.
I'll try to describe it in a different way. In the link that I provided, the US pays (on average) $8,021 per capita on non-admin costs, while peer countries pay $3,602 per capita on non-admin costs. Even accounting for the fact that 25% of a hospital's revenue is administrative, it 1) is not at all the case that admin costs are in the same ballpark as the difference between the two ($4,500 per person), 2) doesn't do much to bridge the non-admin gap, which forms the lion's share of the cost difference, since if you zero out the admin costs, even the costs that provider offices pay (25% of their total revenue), you're still left with the fact that the US pays over 2x peer countries.
Keep in mind that the "in-patient and outpatient costs" and prescription drug costs do NOT include provider office costs either.
>"Hospital administration costs ranged from 1.43 percent of gross domestic product (GDP) in the United States ($667 per capita) to 0.41 percent of GDP ($158 per capita) in Canada."
> Reducing U.S. spending on a per capita basis to Canada’s level would have saved $158 billion in 2011
They are a significant expense. They're certainly not the only expense in healthcare and there is no single area that is driving up costs. There is substantial waste throughout the system.
> Keep in mind that the "in-patient and outpatient costs" and prescription drug costs do NOT include provider office costs either.
How are you so sure of that? I see no indication in the study that provider administration wouldn't be lumped under the provider costs.
They are certainly a "significant" expense, but zeroing it out isn't going to bridge the gap.
> How are you so sure of that? I see no indication in the study that provider administration wouldn't be lumped under the provider costs.
Because they say so:
"inpatient and outpatient care, which includes payments to hospitals, clinics, and physicians for services and fees such as primary care or specialist visits, surgical care, and facility and professional fees (see Methods for more details)"
The fee-for-service model makes it easy to isolate this amount. For every CPT/CDT code, there's a charged amount, an allowed amount, and a paid amount, and they're specific to the medical procedure.
> I'll try to describe it in a different way. In the link that I provided, the US pays (on average) $8,021 per capita on non-admin costs, while peer countries pay $3,602 per capita on non-admin costs. Even accounting for the fact that 25% of a hospital's revenue is administrative, it 1) is not at all the case that admin costs are in the same ballpark as the difference between the two ($4,500 per person), 2) doesn't do much to bridge the non-admin gap, which forms the lion's share of the cost difference, since if you zero out the admin costs, even the costs that provider offices pay (25% of their total revenue), you're still left with the fact that the US pays over 2x peer countries.
Isn't a useful analysis.
The admin costs in the US are roughly $937 + ($8,021 * 0.25) = $2942.25—and possibly worse, depending on how much of the stuff from other categories might fall under "hospital budget", though that may be evened out by the difference between budget and revenue (which is the biggest unknown factor here, trying to combine the info from the two links).
Hospital admin costs in comparable states seems to be 20% in the worst case plus that $201 of non-hospital admin costs. Worst case, $201 + ($3,602 * 0.20) = $921.40
How is that not a very large part of the difference in costs? It looks like ~40% of the difference in total per capita spending, in fact. I'm sure that's a little off, but where am I going wrong that allows it to become negligible in your analysis?
This is incorrect, the inpatient and outpatient costs do not include the hospital admin fees. That figure only includes the fee-schedule payments per procedure. The fee-for-service model makes it rather easy to isolate that amount.
That's why your statement here:
> How is that not a very large part of the difference in costs? It looks like ~40% of the difference in total per capita spending, in fact. I'm sure that's a little off, but where am I going wrong that allows it to become negligible in your analysis?
doesn't quite make sense. You can't take that 25% and apply t against the in-patient and out-patient costs, because it's not at all clear that it fits into that bucket.
Well, if it's not accounted for in that figure then where is it? There's another amount somewhere around $3k just not accounted for, then? I don't see anywhere anything like that much could be hiding in the rest of the data.
I mean, these are from the link:
> inpatient and outpatient care, which includes payments to hospitals, clinics, and physicians for services and fees such as primary care or specialist visits, surgical care, and facility and professional fees (see Methods for more details)
and
> Administrative costs include spending on running governmental health programs and overhead from insurers but exclude administrative expenditures from healthcare providers.
So... where is it if not in the "inpatient and outpatient care" bucket? Sure, maybe minus whatever portion of that represents profit, OK, but that can't be so much as to render it anywhere near being negligible.
Or is the 25% figure from the other link off by, oh, 5x or more?
> Or is the 25% figure from the other link off by, oh, 5x or more?
No, the 25% figure from your link isn't off at all, it's that you're mixing up denominators. You can't take the 25% figure from hospital costs, the $10,637 from the per capita figure, and then conclude that hospital admin s 25% of $10,637. If you want to insert your number into my number in an apples-to-apples way, you have to actually look what hospitals pay per capita. There's a huge normalization step that you just skipped.
Fortunately, your own link does this work:
"Hospital administration costs ranged from 1.43 percent of gross domestic product (GDP) in the United States ($667 per capita) to 0.41 percent of GDP ($158 per capita) in Canada."
$667 per capita is a drop in the bucket. If I were to guess, the reason why the analysis I linked didn't factor it in was because it doesn't change its conclusion:
"The U.S. also spends more on administrative costs, but perhaps not as much as people think, and spends significantly less on long-term care."
This is in line with my observation on the ground as well, especially the observation that admin costs typically involve extremely high upfront costs (setting up EHR systems, EDI integrations, book-keeping systems), but lower variable costs from an operating standpoint especially relative to the sheer cost of care itself (doctors, equipment, maintenance, etc etc etc).
I didn't—I multiplied 0.25 times the inpatient and outpatient costs, which is why it wasn't even higher (though, when added back with the $937 other-admin costs, it did come very close to 25% of the total, true)
> "Hospital administration costs ranged from 1.43 percent of gross domestic product (GDP) in the United States ($667 per capita) to 0.41 percent of GDP ($158 per capita) in Canada."
Ah, I see—hospital admin costs, only, plus government and insurance admin costs, being $667 + 937 = $1604, which comes very close to 10%[edit: wow, I swollowed a number when I glanced at these: it's 15%] of total ($10,637) per-capital healthcare expenditure in the US, not ~25%. Left unaccounted for are all non-hospital, non-insurance, and non-government-program admin costs (non-hospital healthcare office & facility admin costs, that kind of thing), and who knows what those are. But with just what's in front of us, ~10%[edit:15%] of the total per-capita cost. So we could save perhaps 6%[edit:10-11%] of total per-capita healthcare spending by bringing those in-line with other developed states.
(I did verify with your link's OECD source that all provider administration is included in the prices paid to them—$6,624 does include hospital, doctor's office, outpatient support, et c., admin costs, somewhere in it, so this article's conclusions about the role of admin costs are... not particularly thorough, according to its own source—the above of 10%[edit:15%] is surely closer to correct, though still lower than the actual % of total spending that's admin costs)
You seem to be in aggressive agreement with it, though. From your own calculation here, the per capita savings amounts to about ~10%, which isn't a whole lot given that peer nations pay ~50% less all-things-considered (and nowhere close to the 1/3 figure from the original reply). And that's if you were to zero out admin costs, which even among peer nations is impossible to do — it's a real part of COGS no matter what
The thesis and conclusion remains: Solving the admin cost problem hardly makes a dent (and don’t get me wrong, it’s certainly worth solving!). The lion's share of the variance in healthcare costs between the US and peer nations is in the price of healthcare, not administrative costs. There are a lot of reasons for this, and it's a whole debate in and of itself.
Taking the per-capita admin costs from ~$1600 to a closer-to-normal ~$600 is a major win. It is not negligible. Further, all the data have shown so far is that admin costs aren't under 15% of the total. More categories of admin costs (any from health care providers that aren't hospitals, notably) still lurk somewhere in that inpatient/outpatient care block.
If you spend much time in this industry, you’re bound to hear the phrase “bending the cost curve”, because that’s where the primary focus is right now.
Last year, Blue Cross threatened to remove it from its network, because its pricing is so high compared to other areas that have actual competition. But since they are the only game in town, they set the price.
Not sure what came out of that, but their list prices sure didn't go down. Must have cut them a special deal to keep them.
> the exact same level of care
Medical care and medical standards are not the same per country.
> doctors are charging for routine, unremarkable services.
Most doctors are floating 10 - 20% uninsured/charity cases, and a number of patients that skip out on bills. They also have their own facilities, staff/payroll, and their own personal salary, as well as malpractice 40k a year (depending on specialty).
I do not know a doctor (and I know many) that makes near what the MBA "nonprofit" executive types at the local "nonprofit" hospital cartel make.
> It's not just hospitals charging ridiculous amounts
If you wanted to make your text more accurate specific to doctors you'd examine the differences between in-network rates, and out-of-network rates, malpractice expenses, and capping out-of-network rates to a multiple of medicare.
I guess they must have better lobbyists than "Big Tech"!
The poor have nothing to worry about, Medicare is fantastic and keeps a large percentage of the population complacent in the feeding of the physician, hospital, and pharmacy cartels.
Anyone can get a license to open hospitals/clinics of any size.
Entrepreneul people will pair up with top doctors to form great businesses running healthcare.
Need a license. Need to hire cartel workers.
How do you not see the problem?
This matters A LOT. This is a big, big deal in terms of making prices higher.
For all of the sh?t pharma companies get about high drug prices (some of it quite well deserved), we spend _vastly_ more on hospitals - about four times as much. For a good source on specific numbers, see the Kaiser Family Foundation [1].
We spend a lot on healthcare in large part because hospital prices are high. Hospital prices are quite high in the US even though our utilization is lower than many other OECD countries. And let's not get started on our outcomes which (certain cancers excluded) are frequently a lot worse than countries which spend a small fraction of what we spend.
If some of these markets can be made more competitive (no easy feat - this executive order is step 0 at best), that has the potential to make prices meaningfully lower, though note that that would be achieved by an insurer excluding from its network one high-priced hospital in favor of a lower price hospital (or threatening to do so).
For a specific example in a large market, consider the case of the Jefferson health system in Philadelphia, which is now a nearly-20-hospital behemoth - the Philadelphia Inquirer did a nice article covering the release of documents as a result of an FTC lawsuit concerning their acquisition of the Einstein system [2].
It is clear from the unearthed documents that the CEO of the system understands perfectly well what he is trying to do with his acquisitions: "We [Jefferson] have to continue strategically on the path to essentiality and Einstein is the key".
What this means is that he wants his system to be so large and systematically important that every insurer in the market MUST deal with him (and pay his prices).
AFAIK the Biden administration dropped its objection to the acquisition of Einstein by Jefferson. Here their concern was one of the other problems in applied anti-trust law: it might be the case that a firm either gets acquired or exits the market (goes bankrupt). That is (apparently) a concern with Einstein.
Whatever the truth is about the future of Einstein absent a merger, I would expect that hospital prices in Philadelphia will increase at an even higher rate than before in the next few years.
[1] https://www.kff.org/interactive/health-spending-explorer/
[2] https://www.inquirer.com/business/health/jefferson-einstein-...
HCA has what, 186 hospitals?
I clicked what seemed to be the most important link and got to (removed cruft) https://onepercentsteps.com/policy-briefs/addressing-hospita...
It's good to see there is at least some attention on the issue.
I salute this. Fuck it, consolidate everything so it would be easier for the government to nationalize it.