End Price Gouging: Time’s Steven Brill Article And The Next Chapter In Health Reform

-In his extraordinarily well-documented expose on the medical-industrial complex for Time magazine, “Bitter Pill: Why Medical Bills Are Killing Us,” Steven Brill explains thoroughly and repeatedly what serious pundits, policy experts and policymakers have failed to see or have feared to say: There is no free market in health care.

Though Brill doesn’t say it, the logical implication is that only Congress can rein in the cost of health care. No private entity, be it insurers or employers, let alone consumers, has the countervailing power to bring down prices.

In fact, Congress has permitted the pharmaceutical industry, lab companies, device and equipment manufacturers, hospitals, nursing homes and others to hide behind a veil of secrecy about the prices they charge, effectively sanctioning massive gouging of patients, businesses, states and taxpayers.

Brill brilliantly puts to rest the notion that “competition” can fix the unsustainable rise in health care prices. There simply is no meaningful competition. Few people understand what virtually any medical product or service actually costs, let alone its value. Hospitals do not have the leverage to secure better prices with suppliers. But, as Brill shows, hospitals have increasing power to set prices well in excess of their costs. Consumers are clueless as to what’s a fair price. The market is broken, and the growth in health care costs is unsustainable.

This explains why every other developed country in which the government limits health care prices has per capita health care costs that are so much lower. What many people do not realize, however, is that administered pricing has not stifled supply. Nursing homes and hospitals in America are hungry for Medicare patients. And outside the United States, these same health care corporations are still making sizable profits. Brill reveals that profit margins in other countries that secure far lower prices for drugs are significant enough that drug companies sell a substantial portion of their drugs outside the U.S.

Brill underscores the value of Medicare, to the extent Congress allows it to administer doctor and hospital rates and protect older and disabled Americans from out-of-control prices. And he highlights Medicare’s efficiencies, including its low administrative costs, illustrating why it is more cost-effective than private insurance and how seamlessly it works. Those of us fortunate enough to have Medicare can stop worrying about whether we could afford a heart transplant or a knee replacement. It’s enough that we must bear the emotional and physical toll of the operation itself.

Medicare’s weakness is that Congress has forbidden it from using its leverage to achieve fair rates for drugs, devices and durable medical equipment. Congress has also prevented Medicare from determining which health care goods deliver value and encouraging enrollees to use those products.

Deficit hawks within and outside Congress, who control the debate, support regulations that protect the medical industrial complex, help Wall Street and squeeze consumers. Perhaps the best examples are rules that give drug companies long-term patents and the power to set prices and the law that forbids Medicare from negotiating drug prices. Their concerns about the deficit and Medicare’s rising costs, coupled with their opposition to government regulation and misplaced faith in the free market to bring down health care costs, conceal their true agenda—protecting and increasing corporate profits.

Squeezing Medicare enrollees further by shifting additional health care costs to them, as the deficit hawks propose, does nothing to control spiraling costs. Neither does continuing to countenance the pharmaceutical industry’s practice of setting prices that have no relationship to their actual costs or to what they charge other countries for the same products. The market is broken, and it’s under the control of monopolistic players protecting their economic turf.

“Lopsided pricing,” as Brill describes the problem, really can only be addressed in one way: balanced regulation. Rather than preserving the health care industry’s power to set prices that bear no relation to the actual cost of production, Congress could sanction government-administered pricing to ensure health care companies a reasonable profit in a regime of balanced regulation. This would transform the marketplace for drugs, devices and equipment and bring the U.S. in line with all other governments in the wealthiest nations.

Likely fearing reproach from Wall Street and marginalization of his reporting by conservatives, Brill fails to call for administered pricing. Instead, without the advantage of rigorous research on the solution side of the high-medical bills equation, he throws out ideas like breaking up provider monopolies and reforming medical malpractice laws that may help a little at the margins but have no chance of solving the bigger problem. But Brill deserves credit for exposing the next great challenge in the evolution of the U.S. health care system. In closing, quoting Johns Hopkins health economist Gerard Anderson, he leaves no doubt that “all the prices are too damn high.”

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