The price problem that health-care reform failed to cure

By Alec MacGillis
Sunday, October 24, 2010

The health-care law of 2010 is, as Vice President Biden put it, a "big [expletive] deal." It sets us on the road to universal health insurance. It is a favorite target for Republicans gunning to take over Congress. Lawmakers who supported it could lose their jobs. And it will remain a central focus after the midterms, as Democrats defend it against legal and political challenges through 2014, when it takes full effect.

But the Democrats' effort to sell the law to the public may be undermined by what even some ardent supporters consider its biggest shortfall. The overhaul left virtually untouched one big element of our health-care dilemma: the price problem. Simply put, Americans pay much more for each bit of care -- tests, procedures, hospital stays, drugs, devices -- than people in other rich nations.

Health-care providers in the United States have tremendous power to set prices. There is no government "single payer" on the other side of the table, and consolidation by hospitals and doctors has left insurers and employers in weak negotiating positions.

"We spend fewer per capita days in the hospital compared with other advanced countries, we see the doctor less frequently, and we swallow fewer pills," said Jon Kingsdale, who oversaw the implementation of Massachusetts's 2006 health-care law. "We just pay a lot more for each of those units than other countries."

The 2010 law does little to address this. Its many cost-control provisions are geared toward reducing the amount of care we consume, not the price we pay. The law encourages doctors and hospitals to join "accountable care organizations" that have financial incentives to limit unnecessary care; it beefs up "comparative effectiveness research" to weed out inefficient treatments; and it will eventually tax the most expensive insurance plans to restrain consumers' superfluous use of health care.

Such measures could reduce redundant tests, emergency room visits and hospital readmissions, which would help control the costs of Medicare, where the government sets rates. But they are less likely to lower prices outside Medicare and stem the growth of private insurance rates.

The main reason for this is politics. Remember how drawn-out the health-care battle was? It started in the spring of 2009 and was waged for a full year. The bill's proponents in the White House and in Congress had some inkling of how tough the fight with the insurance companies would be. Taking on hospitals, doctors, and drug and device manufacturers as well -- the people you'd face in a showdown over prices -- might have been fatal.

So there was no price fight. The law will go on to face a likely post-midterm Republican onslaught -- and dismantling it may be easier if Americans think it does little to restrain costs. It is one of those fine political ironies: The law derided as socialism may have had an easier time winning favor from a skeptical public if it was, well, a little more socialist.

It's pretty far from socialist as it stands. The administration decided not to seek lower drug rates for Medicare, and it didn't press for a "public option," a government-run insurance plan that people under 65 could buy into. While supporters of the public option sold it as a way to compete with insurers, the real target was hospitals and doctors. A public option would have created a nationwide purchaser of health care that could have exerted leverage on providers to cut prices. This would have lowered the law's costs by reducing the subsidies needed to make insurance affordable.

To avoid the wrath of hospitals and doctors, proponents of the bill rarely emphasized this cost-control argument. Nonetheless, when conservative "Blue Dog" Democrats weakened the public option in committee, they cited opposition from providers. And when the bill's supporters floated a close alternative to the public option -- letting people over 55 buy into Medicare -- the reaction from Sen. Olympia Snowe, the moderate Maine Republican, said it all: "I am talking to a lot of my providers . . . and I know they are mighty unhappy." Snowe exposed where the lobbying strength lay: No senator ever spoke of listening to "my insurers."

"The public hates the insurance industry and trusts doctors and hospitals," said Richard Kirsch, head of the liberal coalition Health Care for America Now. "But what killed the public option was the hospitals, not the insurance industry."

Politicians wanted to avoid a confrontation over providers' prices. So a different policy argument took hold: The real reason everything cost so much was the overuse of health care, not the actual prices of treatment.

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