Medicare, the government-run healthcare system for retirees and many disabled people, has been the primary laboratory for the government in figuring out all sorts of healthcare things, like how much we spend on it and how to make that spending more effective. But a new study reveals that Medicare really isn't predictive for what gets spent in the private system. At all.
GRAND JUNCTION, Colo. — As part of his push for the Affordable Care Act in 2009, President Obama came to Central High School to laud this community as a model of better, cheaper health care. "You're getting better results while wasting less money," he told the crowd. His visit had come amid similar praise from television broadcasts, a documentary film and a much-read New Yorker article.
All of the attention stemmed from academic work showing that Grand Junction spent far less money on Medicare treatments—with no apparent detriment to people’s health. The lesson seemed obvious: If the rest of the country became more like Grand Junction, this nation’s notoriously high medical costs would fall.
But a new study casts doubt on that simple message.
The research looked not only at Medicare but also at a huge, new database drawn from private-insurance plans—the sorts used by most Americans for health care. And it shows that places that spend less on Medicare do not necessarily spend less on health care over all. Grand Junction, as it happens, is one of the most expensive health care markets in the country for the privately insured—despite its unusually low spending on Medicare.
What happens in Grand Junction happens in a lot of places dominated by large hospital system that can integrate to provide cheaper, more effective Medicare service. That makes sense because of the incentives created by the government, and particularly Obamacare, with the Medicare program. Private care is different, and these same systems can charge a lot for it because they don't have to worry about local competition.
The article uses the example of a knee replacement. Medicare sets a reimbursement rate and that's pretty much that. But hospitals can charge private insurance pretty much what the market will bear—they found a range from about $3,400 to about $55,800 being charged around the country. But it's not just vast regional differences. They looked at six hospitals in the Salt Lake City area and found a range from $21,600 to $29,500 for the surgery, depending on the hospital.
All of this boils down to an idea that isn't at all new: in order to really rein in healthcare costs, providers have to be reined in. Existing anti-trust laws need to be enforced when it comes to hospitals and provider groups with near monopolies, and price regulations could be called for where there are already monopolies.
In other words, we need further healthcare reform. That's not a new idea either, and it's going to be even harder to bring along healthcare providers in the next round than it was insurers for Obamacare. But it has to happen if this country is ever going to get a handle on healthcare spending.