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Analysis: How your beloved hospital helps to drive up health care costs

Elisabeth Rosenthal, Kaiser Health News on

Published in Health & Fitness

Sen. Sanders has called on his competitors for the Democratic nomination to follow his lead and reject contributions from pharma and insurance. Can any candidate do the same for hospitals? The campaign committees of all 10 candidates participating in the upcoming Democratic debate have plentiful donations linked to the hospital and health care industry, according to Open Secrets.

But the symbiosis between hospitals and politicians operates most insidiously in the subtle fueling of each other's interests. Zack Cooper, a health economist at Yale, and his colleagues looked at this life cycle of influence by analyzing how members of Congress voted for a Medicare provision that allowed hospitals to apply to have their government payments increased. Hospitals in districts of members who voted "yea" got more money than hospitals whose representatives voted "nay," to the collective tune of $100 million. They used that money to hire more staff and increase payroll. They also spent millions lobbying to extend the program.

Members who voted yea, in turn, received a 25% increase in total campaign contributions and a 65% increase in contributions from individuals working in the health care industry in their home states. It was a win-win for both sides.

To defend their high prices, medical centers assert that they couldn't afford to operate on Medicare payments, which are generally lower than what private insurers pay. But the argument isn't convincing.

The cost of a hospital stay in the United States averaged $5,220 a day in 2015 -- and could be as high as over $17,000, compared with $765 in Australia. In a Rand study published earlier this year, researchers calculated that hospitals treating patients with private health insurance were paid, overall, 2.4 times the Medicare rates in 2017, and nearly three times the rate for outpatient care. If the plans had paid according to Medicare's formula, their spending would be reduced by over half.

Most economists think hospitals could do just fine with far less than they get today from private insurance.

 

While on paper many hospitals operate on the thinnest of margins, that is in part a choice, resulting from extravagance.

It would be unseemly for these nonprofit medical centers to make barrels of money. So when their operations generate huge surpluses -- as many big medical centers do -- they plow the money back into the system. They build another cancer clinic, increase CEO pay, buy the newest scanner (whether it is needed or not) or install spas and Zen gardens.

Some rural hospitals are genuinely struggling. But many American hospitals have been spending capital "like water," said Kevin Schulman a physician-economist at Stanford. The high cost of hospitals today, he said, is often a function of the cost of new infrastructure or poor management decisions. "Medicare is supposed to pay the cost of an efficient hospital," he said. "If they've made bad decisions, why should we keep paying for that?"

If hospitals were paid less via regulation or genuine competition, they would look different, and they'd make different purchasing decisions about technology. But would that matter to medical results? Compared with their European counterparts, some American hospitals resemble seven-star hotels. And yet, on average, the United States doesn't have better outcomes than other wealthy nations. By some measures -- such as life expectancy and infant mortality -- it scores worse than average.

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