Shaw Coneybeare, JD Anticipated May 2024, Law & Public Policy Scholar
Most Americans, whether they support universal healthcare or not, would agree that healthcare is too expensive. Healthcare policy is generally understood as a three-legged stool of access, benefits, and cost. Policymakers have been discussing and debating access and benefits for decades now; however, the cost of healthcare has inflated so much that it’s undercutting the other two legs of healthcare policy.
Today, the United States has the most expensive healthcare in the world. In 2021, the U.S. spent approximately $12,914 per person on healthcare, almost double the amount of the second most expensive country. It has not always been this way. In 1970, the U.S. spent approximately $1,951 (in 2021 dollars) per capita on healthcare. About half of the rise in costs can be directly attributed to hospitals and clinics. Despite these costs, American life expectancy is extremely low among countries in the Organization for Economic Co-Operation and Development (OECD). The average Australian can expect to live 6-8 years longer than the average American, despite their country spending less than half of the healthcare cost per person in the United States. Through the entire decade of the 2010s, most OECD States saw their avoidable mortality rate decline by between 10-25%. The U.S. Avoidable mortality declined by less than 2%. While health outcomes in the rest of the world are improving, the U.S. is stagnating. The U.S. pays more money for worse healthcare and the trend is going down.
This high cost is increasingly paid by those that can afford it the least. The data around medical debt highlights the impact of high medical costs. Medical debt is the number one cause of personal bankruptcy in the United States. Around a quarter of Americans owe $10,000 or more in medical debt, regardless of insurance coverage. Poor Americans and those living in rural areas are 4% more likely to have serious medical debt. Approximately 80% of medical debt is held by households with zero or negative net worth. Black Americans are twice as likely as white Americans to have medical debt. A survey estimated that 75% of medical debt is owed to hospitals.
Hospitals are the leading cause of inflation in US healthcare costs because of the chargemaster, essentially a fluid form of a menu that determines how much a hospital bill costs. However, because the chargemasters are effectively unregulated, hospital prices have almost no relationship with the cost to provide the care. Hospital mark ups can be anywhere from 100% to as high as 1000%. An acetaminophen tablet that costs 1.5 cents per tablet when ordered online can cost $1.5 at a hospital. Until 2019, there was no rule compelling hospitals to publish their rates, meaning the first time that patients would receive a price estimate was after receiving care when they received the hospital bill. Most of this cost is charged to insurance companies, whose prices are regulated by the government, meaning that the out-of-pocket maximum that an insured patient can be charged is $9,100, with the insurance company covering the remainder. However, uninsured patients or out-of-network insured patients still pay inflated prices. Because of the way the chargemaster works and the lack of choice patients lack any kind of bargaining power in the healthcare market.
Obamacare began the process of changing this market failure. Buried within the Affordable Care Act was section 2718(e), which required hospitals to list their standard charges and prices. While in theory this kind of price transparency would let patients shop between hospitals for services, this wasn’t enforced until President Trump issued the 2019 Transparency Rule. Trump’s Transparency Rule, which has been continued by the Biden Administration, requires hospitals to post their prices online in a machine-readable file and to display at least 300 shoppable services in a consumer-friendly display. The 2020 No Surprises act, passed with bipartisan support, also restricted hospitals ability to charge out-of-network prices for emergency services.
Enforcement of the transparency rule is lacking. To date, only about 1/3 of hospitals are complying with the Transparency Rule. The HHS agency that enforces the rule has only punished 4 noncompliant hospitals, and their maximum penalty for noncompliance is only $2 million. As a result, it’s more cost-effective for larger for-profit hospitals to pay the fine than to subject themselves to consumer market competition.
Price transparency in the United States is a matter of consumer protection. HHS needs to be willing to impose greater penalties on non-compliant hospitals. One enforcement method could be banning non-compliant hospitals from being able to collect patients’ medical debt. Colorado recently passed such a law to protect medical debtors from non-complaint hospitals and made noncompliance a violation of the states Deceptive Trade Practices Act.
A more effective solution is chargemaster regulation. Congress can authorize the government to start directly regulating hospital and healthcare pricing by creating profit margin caps on the cost of care. Direct regulation could be a penalty for Transparency noncompliance, but it may be necessary to apply this to all hospitals for the sake of reducing prices. The market for hospitals is extremely uncompetitive, with the top 10 private hospital health systems owning 1/6 of all hospitals in America and almost half of metropolitan areas being dominated by a healthcare monopoly. These market conditions mean that even the Transparency Rule wouldn’t bring down hospital prices. Market forces don’t increase consumer power if there’s no competitive market. The market approach also assumes that patients can shop around, a luxury which poor, emergency, or inpatients don’t have. In such a situation, the only way to ensure fair pricing may be direct regulation.
Regulating hospital prices has precedent, even in the free-market-loving United States. Maryland practices “all payer rate setting” which allows the state to set the prices hospitals can charge for care. Their global hospital budge system also creates incentives to reduce recidivism, which helps reduce costs over the long term. While this kind of policy, if applied to the federal government, would not be a silver bullet to solve the cost of US healthcare, it would help reverse the inflation trend in US healthcare. US hospital pricing is a market failure, and the government needs to be ready to step in to protect American patients.