Healthcare Matters

According to a new study made by the Health Care Cost Institute, a non partisan research group funded by insurers, the reason why health care costs have continued to increase at double the rate of inflation, despite the fact that patients are consuming less medical care, is that hospitals, outpatient centers and other types of providers keep raising their prices. The other major sector of our economy where such price increases have kept pace –or exceeded healthcare—is in higher education. These data bring new meaning to the old expression, “stay fat, dumb and happy.”

The study revealed some interesting bookends: the only category where prices dropped was nursing home care, while the fastest growing category was children’s medical care. “Is the rapid increase in spending on children an anomaly, or a long-term trend with major implications for future costs? If you don’t know what the cause is, you don’t know what the right policy lever is (for a solution),” said Martin Gaynor, chair of the Institute’s governing board and an economist at Carnegie Mellon University.

3 billion claims paid by Aetna, Humana and United Healthcare on behalf of 33 million people were reviewed. That’s 20 percent of the people who have coverage through their employers. The data represent about 20 percent of the people with insurance nationally, but does not include people who are on Medicare, Medicaid or those who buy their own policies.  Furthermore, the price increases being suffered by this group are spread rather evenly across the country, which makes sense, as the three insurers whose data were studied have national footprints.

Amidst all of the attention paid to what drives health care costs, the fact that we’re only recently starting to see evidence that the providers themselves are largely responsible indicates what?

Other studies by the Center for Healthcare System Change indicate that dominant nonprofit hospital systems and large physician groups are successfully exerting their market power to secure higher reimbursement rates from the major insurers. The insurers don’t have to be aggressive in these negotiations, because they can pass along the costs. A familiar tune to say the least.

With all of the good work in supply chain being done to reduce costs, eliminate waste, keep the machine oiled for better operational performance and superior patient outcomes, asking why prices continue to increase at rates that blow inflation out of the water is absolutely fair game. Thus far, the best answers scream for the very kinds of intervention (e.g. rate setting and anti-trust regulation) that the free marketeers loathe. So, there will be continued debate. Sigh.

—Tom Finn