Today THCB is happy to publish a piece reflecting the learnings from Charles Silver and David Hyman’s forthcoming book Overcharged: Why Americans Pay Too Much For Health Care, shortly to be published by the libertarian leaning Cato Institute. In subsequent weeks we’ll feature commentary from the right radical libertarian zone on the political game board (Michael Cannon) and from the left (Andy Slavitt) about the book and its proposals. For now please give your views in the comments–Matthew Holt
There are many reasons why the United States is “the most expensive place in the world to get sick.” In Part 1 of Overcharged: Why Americans Pay Too Much For Health Care, we show that the main reason is that we pay for medical treatments the wrong way. Instead of having consumers purchase these treatments directly, we route trillions of dollars through third-parties payers – both government and private insurers.
Relying on third party payers has many consequences — few of them good. To start with, this arrangement removes the budgetary constraint that would otherwise cap the amount consumers are willing to spend. By minimizing the direct cost of treatments at the point of sale, third party payment arrangements alter everyone’s incentives fundamentally. Consumers no longer need worry about balancing marginal costs against marginal benefits; instead, they have an incentive to use all treatments that have any potential to help, regardless of their prices. When millions of consumers act on these incentives, total spending skyrockets and consumers collectively wind up worse off, because their fixed costs spiral upward too. Heavy reliance on third party payers creates a classic failure of collective action.
It isn’t just consumers. Providers love third party payment as well. And why not? Once providers have access to the enormous bank accounts of third party payers, the sky is the limit, at least until third party payers start setting limits on the amounts they will pay and saying no to unproven and/or cost-ineffective treatments that doctors want to provide and patients want to receive.
Not surprisingly, it has turned out to be extraordinarily difficult and politically unpopular for third party payers to set such limits. Obamacare’s appeal derives largely from two requirements: health insurance plans must accept all comers, including applicants with preexisting conditions that require expensive medical treatments; and health plans must provide unlimited benefits (i.e., no annual or lifetime spending caps). From an individual consumer’s perspective, what could be better than having access to unlimited amounts of money to spend on medical needs? From society’s point of view, though, this combination is a recipe for disaster.Continue reading…
Perhaps because its size was so small—“only” $59 million—the press paid little attention to Kmart’s recent settlement of False Claims Act (FCA) litigation in which it was accused of overcharging Medicare, Medicaid, Tricare, and private insurers for generic drugs.
But it is worth discussing both the conduct that got Kmart in trouble and the way that conduct came to light. The former shows how dysfunctional the market for pharmaceuticals is and the latter nicely demonstrates the severe limits on the government’s ability to police fraud and abuse.
When it announced the settlement, the DOJ said, as it always does, that “[t]he government’s resolution of this matter illustrates the government’s emphasis on combating health care fraud.” In truth, both the success of Kmart’s scheme and the settlement show exactly the opposite: The government can neither prevent nor police even the most obvious forms of health care fraud. We make this point at length in our forthcoming book, Overcharged: Why Americans Pay Too Much For Health Care.
Consider a few facts. While public payers were happily paying Kmart’s inflated bills, they were also receiving bills from Walmart that accurately stated the far lower market price for the very same drugs. When James Garbe, the pharmacist who discovered what Kmart was doing, had a prescription for 90 days of blood pressure medication (Lisinopril/HCTZ) filled at Walmart, it billed the government $2—the difference between his copay ($10) and Walmart’s cash price ($12). When he had the exact same prescription filled at Kmart, it billed the government $50.84, even though the charge should only have been $5 because Kmart’s cash price was $15. No one in the government (or at the private carrier that administered the part D program for Medicare) wondered why Kmart’s charge was 25 times as much as Walmart’s, even though the two stores compete directly with one another.
Texas should call itself The Granny State. That’s because it’s a nanny state in which the public officials who run the place have the values of a tea-totaling, Bible-thumping biddy who knows how God wants everyone to live and can’t resist telling them. No buying liquor on Sundays when people are supposed to be at church. No gambling ever. No whacky-weed for medicinal uses or recreation, even in the privacy of one’s home. No gay marriage, preferably no gays, and no transgender folk deciding which restrooms to use. And, of course, no sex, sex education, birth control, or abortions. Women should have sex only in marriage and then only to reproduce, and those who get pregnant must carry their babies to term, regardless of the consequences for themselves or anyone else.
These religion-inspired policies have served Texans poorly. The state’s maternal mortality rate nearly doubled in just two years after Texas cut its budget for family planning by two-thirds and eliminated funding for Planned Parenthood clinics. It’s now the worst in the developed world, not just in the US. Texas ranks 8th from the bottom in the frequency of STDs and has the 5th highest teen pregnancy rate too. Its 35 births per 1,000 girls aged 15-19 are nearly double the national average. Meanwhile, Colorado and other states have achieved miraculous reductions in teen pregnancy rates and abortion rates by providing young women with long-acting contraceptives, like implants and IUDs. If Texas is following God’s plan, then God’s plan is a bust.
Now Granny is once again sticking her nose where it doesn’t belong. Currently before the Texas legislature is Senate Bill 25, which would eliminate the wrongful birth cause of action that the Texas Supreme Court recognized four decades ago in Jacobs v. Theimer. The facts were as follows. While traveling, Dortha Jacobs became ill. Upon returning home, she consulted a physician, Dr. Louis Theimer, who discovered that she was newly pregnant. Fearing that the illness was rubella—also known as the German measles—Jacobs asked Dr. Theimer if there was reason for concern. Rubella can injure a gestating fetus severely. Dr. Theimer told her not to worry, but he did so without performing an available diagnostic test. In fact, the disease was rubella and the child “was born with defects of brain, speech, sight, hearing, kidneys, and urinary tract,” among others. The medical expenses were extraordinary.