Beyond Obamacare: the Next US Health Care Monstrosity Takes Shape
David KERANS | 13.03.2013 | FEATURED STORY

Beyond Obamacare: the Next US Health Care Monstrosity Takes Shape

In broad terms, the spectacular diseconomies and immoralities of health-care in the US have long been known to observers the world over. Being in thrall to the monied interests that fund their election campaigns, including health insurance companies, US political elites have steadfastly resisted establishing government-delivered health insurance for many decades (except for the elderly, who receive insurance from a federal program known as Medicare). This has left the population prey to the private insurance companies, who plunder enormous profits off of healthy customers and avoid or cast aside as many of the sick as they can get away with. This dynamic — hugely inflated prices for insurance, and one sixth of the population left uninsured and undertreated--goes far to explaining how the US spends about twice as high a share of GDP on health-care as do other developed countries, yet only achieves equal or inferior health outcomes. Thus, while health-care currently accounts for 18 percent of US GDP, as compared to 6-12 percent in European countries, and an OECD average of 9.5 percent (1), the US now ranks 22nd out of 24 OECD countries in children's health (2); it has fallen from 12th in the world in preventing infant mortality in 1960 to 38th place now; and US longevity has dropped from 7th in the world in 1987 to a position outside the top 20 now. (3)

Enter Obamacare (the “Patient Protection and Affordable Care Act”) in 2010. With great difficulty, the Obama administration persuaded Congress to impose some restrictions on private sector health insurers. Most importantly, insurers can no longer cap benefits over patients' lifetimes, nor exclude customers from coverage on account of pre-existing conditions. As well, Obamacare secured government subsidies for people who cannot afford to purchase health insurance. And, significantly, it is setting up health insurance “exchanges” in each state, where consumers will be able to choose from a variety of insurers, thus breaking the near monopolies private insurance companies have carved out for themselves, region-by-region across the country.

Losing the Price War

“When we look across a broad range of hospital services (both medical and surgical), the average price in the United States is 85 percent higher than the average in other OECD countries.”

- Mark Pearson, head of Division on Health Policy, OECD (4)

Alas, as rapacious, immoral, and inefficient as private sector provision of health insurance has proven to be, recent research has clarified that the biggest drivers of waste in the US health-care ecosystem are not private insurers, but private hospitals and pharmaceutical companies — whose wings Obamacare does nothing to trim. These sub-sectors in the medical field have perfected levers to ratchet up prices and profits on a captive and virtually helpless public. As we shall see below, the conditions underlying their commercial triumphs continue to solidify. This implies that their prices and profits will rise still higher, absent reform, and the tribute the nation pays to the health-care sector will escalate even further.

The core of hospitals' economic power is their obfuscation of pricing. Hospitals intentionally and needlessly complicate billing, as cover for astonishing mark-ups to every item of service they provide. These mark-ups reach 100:1 in some cases (such as simple pain relief pills), and can exceed $10,000 per dose in the case of advanced drugs. Insurance companies do resist hospitals' price levels, and tend to secure discounts of 50 percent or more for patients who are their customers. But the hospitals' profits on services remain prodigious. Furthermore, in keeping with their non-profit corporate status, which prohibits them from distributing their profits to shareholders, hospitals deploy the profits towards expansion, and acquisition of other hospitals. Over just the last ten years, the percentage of “practice groups” (teams of doctors and support staff) owned directly by hospitals has spiked from 22 to 54. Likewise, hospitals have set up their own internal test processing centers, so as to keep those profits in-house (and sharply raise the prices for processing tests). In consequence, the balance of power regarding prices has been shifting away from insurance companies, in favor of hospitals.5 And the hospitals will accrue even more leverage over the foreseeable future, in part because the insurance exchanges Obamacare establishes will serve to dilute the bargaining power of the insurers vis-a-vis the hospitals (insurers will be fragmented), but primarily because the hospitals will continue to channel their outsized profits towards expansion and consolidation. Congress has the right to pass anti-trust laws targeted at the emerging monopoly power of hospitals, but does any observer of Congress anticipate that? As a whole, the health care sector's trackable expenditures on lobbying Washington are an awe-inspiring $5.4 billion since 1998, dwarfing the lobbying of even the military and energy sectors ($1.5 and 1.3 billion over the same time period, respectively). (6) Hospital lobbyists can buy off Congress.

The Great Pharma Gouge

Aware of the leverage that drug companies — especially those with unique life-saving products — have on the market, most developed countries regulate what drugmakers can charge, limiting them to certain profit margins. In fact, the drugmakers' securities filings repeatedly warn investors of tighter price controls that could threaten their high margins — though not in the U.S.

- Steven Brill, “Bitter Pill” (7)

While hospitals have been building their market positions under the radar, pharmaceutical and medical device companies have gouged the American people quite openly. These companies are paying thousands of doctors (at least 6,500, where drugs are concerned) to prescribe their wares as much as possible. They have suborned Congress to forgo imposing the profitability caps described in the quotation above, and they have lobbied state-level legislatures to prevent Medicare from requiring prescription of less expensive drugs that studies have found to be just as effective as costly ones. Most scandalously, in the Part D of the Medicare Modernization Act of 2003 the pharmaceutical industry persuaded Congress to prohibit Medicare from negotiating on the prices it pays for drugs prescribed to its patients. Medicare must simply pay 6 percent above a reported average selling price (itself routinely inflated) to non-Medicare patients. This is a giveaway of at least $50 billion per year, and it helps pharmaceutical companies generate operating margins above 90 percent on many drugs (by way of comparison, Apple Inc. achieves an operating margin of only 33 percent these days). Fully one third of the $280 billion America will spend this year on prescription drugs is attributable to prices in excess of those obtaining in other developed countries, and the trend is getting worse. The cost of a typical cancer drug jumped from $4,500 per month in 2002 to more than $10,000 already by 2010, and is still higher now. (8)

From the foregoing, it is no stretch to conclude that the burden of health-care on the US economy will continue to rise. Insurance premiums will ascend, and provisioning of care will be ever more unequal as between the well-off and the lower classes. Furthermore, the stress will affect the federal budget, as Obamacare subsidizes ever more costly premium payments for the low-grade policies the growing layer of poorer Americans will be selecting.

Salvation via SmartPhone?

Inevitably, over the last couple of decades analysts of the American health-care morass have composed a broad menu of intelligent suggestions for reform. Just as inevitably, the prospects for intelligent reform have receded in the shadow of billions of lobbying dollars. The gloom of this realization accounts to some degree for the enthusiasm now surrounding technological breakthroughs which might revolutionize the delivery of health-care. Sensors, monitoring devices, internet connectivity, individual DNA mapping, and artificial intelligence for medical diagnoses could make care more scientifically accurate, immediate, and personalized, all while minimizing hospital visits and reducing our reliance on high-paid physicians. The technologies involved are astonishing, and, it must be said, the federal government is helping to facilitate the transition to this form of medicine (the 2009 Recovery Act commenced standardization of electronic medical records, e.g.). This revolution will not arise overnight, however, nor is it clear that it will deliver monumental cost savings. Estimates of the savings do not reach $100 billion per year, while the US is overpaying for medical care by $750 billion or more now. (9) So there is no salvation in sight on the health-care front, only a deeper discrediting of the whole American system.

(1) Jason Kane, “Health Costs: How the U.S. Compares With Other Countries”,, October 22nd, 2012; “health-care statistics”,
(2) “The Children Left Behind”, UNICEF Innocenti Research Centre, 2010.
(3) Arthur Goldwag, “'The Measure of a Nation' Challenges Illusions of American Superiority”,, October 7th, (2012.
(4) Interview with PBS NewsHour, October 22nd, 2012.
(5) On all this, see Steven Brill, “Bitter Pill: Why Medical Bills are Killing Us”, Time, February 20th, 2013.
(6) Brill, op. cit.
(7) Brill, op. cit.
(8) Data from Brill, op. cit.
(9) An informative overview of the subject is Jonathan Cohn, “The Robot Will See You Now”, The Atlantic, March 2013.

Tags: US  Obama