By Elisabeth Rosenthal
SEPTEMBER 5, 2019
As
voters fume about the high cost of health care, politicians have been targeting
two well-deserved villains: pharmaceutical companies, whose prices have risen more than inflation,
and insurers, who pay their executives millions in salaries while
raising premiums and deductibles.
Although
the Democratic presidential candidates have devoted copious airtime to debating
health care, many of the country’s leading health policy experts have wondered
why they have given a total pass to arguably a primary culprit behind runaway
medical inflation: America’s hospitals.
Data
shows that hospitals are by far the biggest cost in our $3.5 trillion health
care system, where spending is growing faster than the gross domestic product,
inflation and wage growth. Spending on hospitals represents 44% of personal
expenses for the privately insured, according to the Rand Corp.
A report this year from
researchers at Yale and other universities found that hospital prices increased
a whopping 42% from 2007 to 2014 for inpatient care and 25% for outpatient
care, compared with 18% and 6% for physicians.
So why
have politicians on both the left and right let hospitals off scot-free?
Because a web of ties binds politicians to the health care system.
Every
senator, virtually every congressman and every mayor of every large city has a
powerful hospital system in his or her district. And those hospitals are as
politically untouchable as soybean growers in Iowa or oil producers
in Texas.
As
hospitals and hospital systems have consolidated, they have become the biggest
employers in numerous cities and states. They have replaced manufacturing as
the hometown industry in a number of Rust Belt cities, including Cleveland and
Pittsburgh.
Can
Kamala Harris ignore the requests of Sutter Health, Kaiser Permanente, UCLA or
any of the big health care systems in California? Can Elizabeth Warren ignore
the needs of Partners HealthCare, Boston’s behemoth? (Bernie Sanders may be
somewhat different on this front because Vermont doesn’t have any nationally ranked hospitals.)
Beyond
that, hospitals are often beloved by constituents. It’s easy to get voters
riled up about a drugmaker in Silicon Valley or an insurer in Hartford. It’s
much riskier to try to direct their venom at the place where their children
were born, that employed their parents as nurses, doctors and orderlies, that
sponsored local Little League teams, that was associated with their Catholic
Church.
And, of
course, there’s election money. Hospital trade groups, medical centers and
their employees are major political donors, contributing to whichever party
holds power — and often to the out-of-power party as well. In 2018, PACs
associated with the Greater New York Hospital Association, and
individuals linked to it, gave $4.5 million to the Democrats’ Senate Majority
PAC and $1 million to their House Majority PAC. Its chief lobbyist personally gave nearly a quarter of
a million dollars to dozens of campaigns last year.
Sen.
Sanders has called on his competitors for the Democratic nomination to follow
his lead and reject contributions from
pharma and insurance. Can any candidate do the same for hospitals? The campaign
committees of all 10 candidates participating in the upcoming Democratic debate
have plentiful donations linked to the hospital and health care industry,
according to Open Secrets.
But the
symbiosis between hospitals and politicians operates most insidiously in the
subtle fueling of each other’s interests. Zack Cooper, a health economist at
Yale, and his colleagues looked at this life cycle of influence by analyzing how
members of Congress voted for a Medicare provision that allowed hospitals to
apply to have their government payments increased. Hospitals in districts of
members who voted “yea” got more money than hospitals whose representatives
voted “nay,” to the collective tune of $100 million. They used that money to
hire more staff and increase payroll. They also spent millions lobbying to
extend the program.
Members
who voted yea, in turn, received a 25% increase in total campaign contributions
and a 65% increase in contributions from individuals working in the health care
industry in their home states. It was a win-win for both sides.
To
defend their high prices, medical centers assert that they couldn’t afford to
operate on Medicare payments, which are generally lower than what private
insurers pay. But the argument isn’t convincing.
The
cost of a hospital stay in the United States averaged $5,220 a
day in 2015 — and could be as high as over $17,000, compared with $765 in
Australia. In a Rand study published earlier this year,
researchers calculated that hospitals treating patients with private health
insurance were paid, overall, 2.4 times the Medicare rates in 2017,
and nearly three times the rate for outpatient care. If the plans had
paid according to Medicare’s formula, their spending would be reduced by over half.
Most
economists think hospitals could do just fine with far less than they get today
from private insurance.
While
on paper many hospitals operate on the thinnest of margins, that is in part a
choice, resulting from extravagance.
It
would be unseemly for these nonprofit medical centers to make barrels of
money. So when their operations generate huge surpluses — as many big medical centers do —
they plow the money back into the system. They build another cancer clinic,
increase CEO pay, buy the newest scanner (whether it is needed or not) or
install spas and Zen gardens.
Some
rural hospitals are genuinely struggling. But many American hospitals have been
spending capital “like water,” said Kevin Schulman a physician-economist at
Stanford. The high cost of hospitals today, he said, is often a function of the
cost of new infrastructure or poor management decisions. “Medicare is supposed
to pay the cost of an efficient hospital,” he said. “If they’ve made bad
decisions, why should we keep paying for that?”
If
hospitals were paid less via regulation or genuine competition, they would look
different, and they’d make different purchasing decisions about technology. But
would that matter to medical results? Compared with their European
counterparts, some American hospitals resemble
seven-star hotels. And yet, on average, the United States doesn’t
have better outcomes than other wealthy nations. By some measures — such as
life expectancy and infant mortality — it scores worse than
average.
As
attorney general in California, Kamala Harris in 2012 initiated an antitrust investigation into
hospitals’ high charges. But as a senator and presidential candidate, she has
been largely silent on the issue — as have all the other candidates.
As Uwe Reinhardt, the
revered Princeton health economist who died in 2017, told me, “If you want
to save money, you have to pay less.” That means taking on hospital pricing.
So
fine, go after drugmakers and insurers. And, for good measure, attack the
device makers who profit from huge markups, and the pharmacy benefit managers —
the middlemen who negotiate drug prices down for insurers, then keep the
difference for themselves.
But
with Congress returning to Washington in the coming days and a new Democratic
debate less than two weeks away, our elected officials need to address the
elephant in the room and tell us how they plan to rein in hospital excesses.
Elisabeth
Rosenthal: erosenthal@kff.org,
@rosenthalhealth
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