Category Archives: Health Economics

In Whatcom County, Washington, as in other smaller more rural venues,  there is one dominant healthcare provider. 

PeaceHealth describes itself:

We carry on the healing mission of Jesus Christ by promoting personal and community health, relieving pain and suffering, and treating each person in a loving and caring way.

At PeaceHealth, the fulfillment of our Mission is our shared purpose. It drives all that we are and all that we do. To those who embrace the spirit of these words and our commitment to Exceptional Medicine and Compassionate Care, we offer the opportunity to learn and grow as a member of the PeaceHealth family.

Sounds great and I certainly don’t doubt the dedication of individuals in the PeaceHealth System, but, always a but, it has become a near monopoly. 

In the early 90’s Peacehealth bought out the only other hospital in the county and  has been the only show in town for hospitalized care.  It has had a strategy to dominate the health care in the county.  At present they account for over 60% of medical billings (probably higher).  They completely own the radiology, pathology, pediatrics,  oncology (both radiation therapy and medical oncology) and for the most part internal medicine services for our region.  They recently purchased the dominant cardiology practice in Northwest Washington as well.  

Shopping for care  in the county is impractical as the nearest alternative facility is between 45 minutes and two hours away (depending on where you live in the county).

PeaceHealth  maintains it is doing community service by owning these medical facilities and certainly one cannot complain about the quality of care offered.  It appears to be quite acceptable. 

Peacehealth though appears to be doing well, while doing “good,”   As monopolists will do, Peace Health has taken advantage of their control of services to keep costs high and raise them whenever they can.  For example, after purchasing the medical oncology service in town the hospital moved the outpatient infusion center into the hospital proper.  Patients reported a significant  increase in their billings.  Similarly with the completion of the purchase of the county’s dominant cardiology provider, many interventions that were previously done outside the hospital were moved into that facility resulting in a dramatic increase in costs. 

Medicynical Note:  PeaceHealth is a quality provider but a high cost one.  It’s  practices are not unique as noted in this recent article by Uwe Reinhardt.  (“To a man with a hammer, everything looks like a nail.”—even to a “non profit” hospital system)

In December of 2010, the American Health Insurance Plans (AHIP), the national association of private health insurers, published an eye-opening report on the actual prices private insurers paid to hospitals in California and Oregon (American Health Insurance Plans, 2010). Figures 7 and 8 are based on the data in that report. 

That hospitals in Oregon were able to raise their prices thus in a period when the US economy was sliding into the deepest recession since the Great Depression in the 1930s is astounding and raises the question why private insurers accepted these price hikes. (Reinhardt, 2011b). 

One theory is the one advanced in this paper and elsewhere (Reinhardt, 2011b), namely that in most market areas in the USA, private health insurers have relatively less bargaining power than do hospitals or the larger physician groups. The alternative theory, highly popular among insurers, hospitals, and employers, is that government is the culprit behind the high prices paid by private health insurers (Dobson, 2006). This ‘cost-shift theory’ holds that whenever government insurance programs reduce the ‘reimbursement’ rates (i.e. prices) they pay the providers of care, hospitals shift any shortfall of public ‘reimbursement’ from their cost of treating publicly insured patients (Medicare or Medicaid beneficiaries) to private payers who are made to cover the short fall by being charged higher  prices in effect,that the government is indirectly raising taxes on the private sector (Gelfand, 2010). It is assumed to be so even for physicians. Of course, the logical extension of the theory is that large private insurers with more bargaining power also shift costs to smaller insurers with less market clout and to middle-class uninsured Americans who, as noted, often are charged the highest prices.

The “private”market has it’s flaws.  Companies at every level compete to gain market dominance, and when they have achieved their goal they take advantage.  Guess who pays?

Nice review of an article in the Journal of General Internal Medicine at the Incidental Economist.  The article documents delays in care by people with chronic illness and high deductible coverage. 

It was pointed out:

  that people aren’t very good at discriminating between necessary and unnecessary care. This is fine if you’re healthy, when pretty much all care is unnecessary. If you’re sick, though, then across the board care cuts can be bad.

And they found:

More than a quarter of adults had delayed or went without care because of cost. Adults were specifically more likely to delay or forego acute care visits, chronic care visits, checkups, and tests.

There were similar findings for care in children whose families had this type coverage.  The delays were particularly noted in those below 400% of the poverty line. 

Medicynical Note:  I’ve previously expressed reservations regarding high deductible insurance  and Health Savings Accounts.    

For those at or below the median wage, high out of pocket expenses influence whether or not to seek care—a form of implicit financial rationing.  In this setting the least knowledgeable, most emotionally involved get to decide whether or not to go for expensive interventions  for which they will have to pay. 

This might work if our costs were affordable, but they’re not.

It’s reported that consumer spending has increased since the 1960’s  from 61% to  71% of the the gross domestic product.  However, most of the increment is health care costs. 

Medical payments now account for about 16 percent of total consumer spending, more than food and clothing combined, which make up about 11 percent, or housing, which accounts for about 15 percent. The rising cost of health care means it will consume an even bigger share of the world’s largest economy as the population ages, according to economists like Jay Feldman.

“At the consumer level, it may squeeze out other discretionary spending,” Feldman, an economist at Credit Suisse in New York, said in an e-mail. “At the government level, rising Medicare and Medicaid spending will inevitably put pressure on other government spending priorities. At the business level, it could curtail investment, or more likely, suppress wages.”

Medicynical Note:  Increased discretionary consumer spending as a proportion of GDP (over the last 50 years in the U.S.) is an oxymoron.

Uwe Reinhardt has some thoughts on the “moderation” of health spending.  He notes:

First, depending on the beginning and end points one chooses for calculation, the average percentage points by which the annual growth in health spending has exceeded the average annual growth in G.D.P. over the chosen period – a difference known among health policy analysts simply as “excess cost growth” – can vary quite a bit. One really needs charts like these to study the phenomenon, not point-to-point averages.

Second, the annual growth in real health spending per capita appears to have fluctuated around a long-run trend that has declined ever so gently over the longer period (see the blue line in Chart 3). That trend reflects in part that the annual growth in real G.D.P. per capita has also fluctuated around a gently declining trend line. As is shown in Chart 4, the trend line around which excess growth fluctuates is virtually flat.

The graphs show a huge yearly difference in the rate of increase in health care spending.  Read the article to view them.

Medicynical Note:  What’s missing from the article is a comparison of the increase in costs of health care with increases (or lack thereof) in income over the same period.  GDP increments miss entirely the huge disparities in wealth that have evolved in the past 30 years and the resulting poverty, decreases in real income, and decreases in the ability to pay for anything, including health care. 

The dilemma of U.S. health care is seems obvious.  Our costs have exceeded our individual and collective ability to pay.  How to resolve the disparity is the issue.

Mad Magazine famously pointed out the inflation in medical costs in the late 60’s with a parody on ads by Parke Davis (By Ken Freas). 

Parody sadly has become reality:  Outpatient shocked by $45 billion bill.