American health care is a true monstrosity
Among wealthy countries, America holds the dubious record as the country with highest health care spending, (18% of GDP), extraordinarily high costs of even standard procedures, and mediocre health outcomes. Alright, but how bad is bad? Whatever you may think, it is a lot worse.
The following excerpt from a WSJ front page story (What Does Knee Surgery Cost? Few Know, and That’s a Problem, August 22, 2018) tells us that health care providers establish extravagantly high prices of procedures that are completely disconnected from actual costs.
But how is it possible? In no other economic sector providers could get away with exorbitant over pricing, because competitors with lower prices would get their business. But in US health care elementary free market economic principles do not apply. The mix of private health care providers, a maze of insurance plans, and health care customers who lack even the most elementary means to assess costs and do any comparison shopping without getting lost have created a monster. And here is a vivid illustration:
“For nearly a decade, Gundersen Health System’s hospital in La Crosse, Wis., boosted the price of knee-replacement surgery an average of 3% a year. By 2016, the average list price was more than $50,000, including the surgeon and anesthesiologist.
Yet even as administrators raised the price, they had no real idea what it cost to perform the surgery—the most common for hospitals in the U.S. outside of those related to childbirth. They set a price using a combination of educated guesswork and a canny assessment of market opportunity.
Prompted by rumblings from Medicare and private insurers over potential changes to payments, Gundersen decided to nail down the numbers. During an 18-month review, an efficiency expert trailed doctors and nurses to record every minute of activity and note instruments, resources and medicines used. The hospital tallied the time nurses spent wheeling around VCR carts, a mismatch of available postsurgery beds, unnecessarily costly bone cement and delays dispatching physical therapists to get patients moving.
The actual cost? $10,550 at most, including the physicians. The list price was five times that amount. [bold added]
Competitive forces are out of whack in health care. Hospitals are often ignorant about their actual costs. Instead, they often increase prices to meet profit targets. Patients, especially those with insurance, often don’t know the price of a procedure and rarely shop around.”
— What Does Knee Surgery Cost? Few Know, and That’s a Problem- The Wall Street Journal, August 22, 2018