Medicine is big business in the United States and ordinary Americans pay an exorbitant price for questionable outcomes.
As a trend towards the privatisation of public hospitals emerges in Australia, The Lamp investigates the US health system to see what we can learn.
Conservative state governments are driving a growing trend to privatise many of the operations of new public hospitals in Australia.
The federal opposition has indicated that it also favours greater involvement of the private sector in the running of public hospitals.
Unions fear this signals a move towards a US health model, where private provision predominates and good health care is out the reach of many Americans.
According to one of a series of exhaustive studies done by the McKinsey & Co consulting firm, the United States spends more on health care than the next 10 biggest spenders combined: Japan, Germany, France, China, the UK, Italy, Canada, Brazil, Spain and Australia.
The United States spends $2.7 trillion, or nearly 18%, of its Gross Domestic Product on health care. This is nearly twice as much as other developed countries, including Australia, which spends around 9%.
To look at it another way: the clean up for Hurricane Sandy, which devastated a number of American cities, cost $60 billion. The US spends that each week on healthcare.
The US Congressional Budget Office says that if medical costs continue to grow unchecked “total spending on health care would eventually account for all of the country’s economic output”.
Health in the United States is very big business.
The US Bureau of Labor Statistics projects that 10 of the 20 occupations that will grow the fastest in the US by 2020 are related to health care. New York may be the world’s financial services capital, but of its 18 largest private employers, eight are hospitals and four are banks.
These health care companies are highly profitable, have deep pockets and political clout.
According to the Center for Responsive Politics, the pharmaceutical and healthcare product industries, combined with organisations representing doctors, hospitals, nursing homes, health services and Health Maintenance Organisations, have spent $5.36 billion since 1998, lobbying Washington.
That towers over the $1.53 billion spent by the defense and aerospace industries and the $1.3 billion spent by oil and gas interests over the same period. What has been dubbed the “healthcare-industrial complex” spends more than three times what the military-industrial complex spends in Washington.
Expensive care lags behind
While the United States is easily the world leader in medical spending, numerous studies conclude that Americans get care that lags behind that of comparable developed countries.
Of 17, high-income countries, studied by the National Institute of Health in 2013, the United States had the highest or near-highest prevalence of infant mortality, heart and lung disease, sexually transmitted infections, adolescent pregnancies, injuries, homicides, and disability.
Together, these issues placed the US at the bottom of the list for life expectancy.
The Commonwealth Fund, a respected private US foundation specialising in health care, ranked the United States last in the quality of health care among similar countries.
The US Census Bureau reported that 49.9 million American residents, 16.3% of the population, were not insured for health care in 2010.
A 2004 Institute of Medicine report said: “The United States is among the few industrialised nations in the world that does not guarantee access to health care for its population.”
A 2004 OECD report said: “With the exception of Mexico, Turkey, and the United States, all OECD countries had achieved universal or near-universal (at least 98.4% insured) coverage of their populations by 1990.”
A 2010 report by Physicians for A National Health Program, observed that lack of health insurance caused roughly 48,000 unnecessary deaths every year in the United States. In 2007, 62.1% of people filing for bankruptcies claimed high medical expenses as the cause of their insolvency.
A 2013 study cited in the Journal of Internal Medicine found that about 25% of all senior citizens declare bankruptcy due to medical expenses, and 43% are forced to mortgage or sell their primary residence.
In 2000, the World Health Organisation (WHO) ranked the US health care system 37th in overall performance and 72nd by overall level of health among 191 member nations included in the study.
It’s the prices, stupid
Every year, the International Federation of Health Plans - a global insurance trade association that includes more than 100 insurers in 25 countries – releases survey data showing the prices that insurers pay for different drugs, devices, and medical services in different countries.
When the costs are broken down into different categories the stand out in every graph is the amount paid by Americans compared to people living in comparable developed countries.
An MRI can cost $2871* in the United States compared to $363 in France. In the Netherlands it costs $731 to stay in hospital per day, in the United States $12,537*.
The reasons for this are complex and shocking.
An influential 2003 study of international healthcare costs by Gerard Anderson et al titled It’s the prices, stupid demonstrated that Americans don’t use more health care services than other like countries. In fact, the opposite: Americans spend less time in hospital and see the doctor less often than in other similar countries.
“The United States spends more on health care than any of the other OECD countries spend, without providing more services than the other countries do. This suggests that the difference in spending is mostly attributable to higher prices of goods and services,” they concluded.
And why are these prices higher?
“Other countries negotiate very aggressively with the providers and set rates that are much lower than we do,” Anderson says. “They do this in one of two ways. In countries such as Canada and Britain prices are set by the government. In others, such as Germany and Japan, they’re set by providers and insurers sitting in a room and coming to an agreement, with the government stepping in to set prices if they fail.”
In the United States, pricing that covers the great majority of people is virtually a privatised free-for-all. Providers largely charge what they can get away with, often offering different prices to different insurers, and an even higher price to the uninsured.
In most other developed countries prices are set centrally and everyone pays close to the same amount.
Failure of the free market
According to Dr David Blumenthal, president of the Commonwealth Fund and a former adviser to President Obama, the profit-centric US health market is full of distortions.
“In the US we like to consider health care a free market. But it is a very weird market, riddled with market failures.”
In February this year Time magazine featured a 28-page cover story – Bitter Pill: why medical bills are killing us – which scratched below the normal political debate about American health and provided a devastating critique of the rampant profiteering that plagues the American system.
Most American debate about health care centres on “who should pay?” but Time journalist Steven Brill asked a different sort of question – “why does it cost so much?”. In other words he followed the money and started by analysing line-item by line-item a number of medical bills. What he found again and again, in hospitals across the country, were breathtaking mark ups on every line item.
One example Brill looked at was that of Sean Recchi who was diagnosed with non-Hodgkin’s lymphoma. When his wife Stephanie tried to book him into the MD Anderson Cancer Centre in Houston – officially a non-profit unit of the University of Texas – she was told the cost of Sean’s first visit, to be examined so a treatment plan could be devised, would be $US48,900 to be paid in advance. When Sean and his wife arrived for his first treatment he was held in reception for 90-minutes, because the hospital could not confirm that their cheque had cleared. He was only allowed to see his doctor after he advanced the hospital $US7500 from his credit card. The total cost for Sean to get his treatment plan and initial doses of chemotherapy was $US83,900.
When Brill analysed Sean’s bill there were 344 separate line items with what he described as “aggressive mark ups” ranging from $US283 for a chest x-ray (for which hospitals are paid $US20.44 for patients eligible for Medicare) to $36 each time a nurse drew blood. All up, the charges for blood and other lab tests cost Recchi more than $US15,000. Had he been eligible for Medicare he would have paid several hundred dollars.
Recchi was charged $US13,702 for one injection of 660mg of the cancer drug Rituxan. Brill calculated that the hospital would have paid $US3000-$3500 for the dose – a mark up of 400%.
Not-for-profits making plenty of profit
Although MD Anderson is officially a non-profit hospital its operating profit for 2010 was $US531 million – a profit margin of 26% on revenue of $US2.05 billion. The president of the hospital Ronald DePinho’s annual compensation was $US1,845,000.
The role of not-for-profit health providers in the United States is interesting for Australian observers as this is a model favoured by conservative governments in this country.
Time magazine reported that when McKinsey, aided by a Bank of America survey, pulled together all hospital financial reports, it found that “the 2900 non-profit hospitals across the country, which are exempt from income taxes, actually end up averaging higher operating profit margins than the 1000 for-profit hospitals, after the for-profits’ income tax obligations are deducted. In health care, being non-profit produces more profit.”
Cautionary tale for Australia
NSWNMA General Secretary Brett Holmes says the United States health system – largely privatised and fragmented – offers a cautionary tale for Australia.
“Governments always look to privatisation as an easy fix when they have budgetary problems but the American experience just cries out ‘don’t go down this path’.
“The cost of American health care puts enormous financial stress on the country and on individual patients.
“It is highly reliant on the private sector and it teaches us a valuable lesson – health does not operate like a rational market. It is inefficient and prone to profiteering.
“When people are sick they are not in a position to seek the best market choice. And paradoxically, in the United States those who are least able to afford it pay the highest rates.
“For all its faults, our universal health care system is a model of efficiency in comparison and we should not allow our governments, who are either lazy or ideologically driven, to move towards a system that is patently not working for the majority of the population.”
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