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Market principles, and the struggle between government, private insurers and two major segments of the health care industry over how money gets allocated is about to hit a critical phase, just as the U.S. population is aging and becoming increasingly ill.
Inflation is on the wane, yet hospitals and drug companies are raising prices. According to The Wall Street Journal: "Drug makers increased prices on drugs like Viagra and the leukemia pill Sprycel by more than 20% in the first quarter from a year earlier, according to data from Credit Suisse. Meanwhile, one of the largest hospital owners in the country, HCA Inc., said Tuesday it expects to report higher revenue for the first quarter even though it had fewer hospitals and its admissions declined. It also said its income before taxes had nearly doubled."
This is both troubling and interesting, given the current trend toward cost cutting in all aspects of health care, especially reimbursements, both from the government as well as private insurers. What makes it most interesting is many of the increases, especially in drug prices have been instituted in cancer treatments and other drugs such as those used in treating erectile disfunction. According to The Journal: "Viagra and the leukemia pill Sprycel by more than 20% in the first quarter from a year earlier, according to data from Credit Suisse," while "Express Scripts Inc., one of the country's largest pharmacy-benefits managers, said it saw prices rise more than 10% to 15% between the 2008 first quarter and this year's first quarter."
What the Journal is not reporting is what we have noticed in our daily practice of medicine, which is that even some low cost drugs are now starting to require approval from insurers and third party payers before patients can actually start using them. In fact, in some cases the time required to get a simple prescription approved is so taxing that some doctors aren't even bothering to prescribe them.
To be sure, this is a situation that is almost certain to lead to some sort of significant crisis at some point in the future, as the government wants to institute price controls and eventually ration health care, including prescription drugs.
What's most significant there, though, are the price increases by hospitals. The Journal notes that "the price increases may in part reflect contracts that were hammered out before the current downturn. Hospitals have also gained market power in recent years as a result of acquisitions. In addition, health plans have been reluctant to exclude hospitals from their networks because of price." But that doesn't really answer the question as to how effective the hospitals are at actually getting third party payors to actually pay higher prices for the same services.
Hospitals are clearly facing higher operating costs. Emergency rooms are full of non-insured patients. And the costs of dealing with chronic illnesses that reach a crisis point, such as congestive heart failure, diabetes, and COPD continue to rise. But the recent trends in Medicare reimbursement, which are the benchmark for all payments in health care, have been increasing the negative spread between charges and actual payments.
Yet, The Journal reports that privately held HCA, which owns 166 hospitals "said it expects to report income before income taxes of between $600 million and $650 million, up from $344 million a year earlier" adding that "HCA wouldn't say whether its strong revenue figures were the result of price increases. But across the industry, hospitals have been reporting no difficulty charging commercial insurance companies the 6%-to-9% price increases they've become accustomed to in recent years."
So where's the crisis? The general trend is to view health care costs as the major cog in the industrial cost chain. General Motors blames many of its troubles on employee health care costs, and they're not alone. In fact, a backlash is already starting to brew, as Matthew Borsch, a health-insurance analyst at Goldman, Sachs told the Journal that 'he has begun to hear "chatter" that some employers -- having already raised employee premiums, deductibles and copays -- are considering leaving hospitals out of networks in 2010 if they continue to demand big price increases.'
And he's not alone, as the Journal added: 'Others agree. "I'd be cautious about the ability of hospital companies to continue to receive those rates of increase, particularly in this kind of economy and as healthcare spending becomes a huge political issue," said David Peknay, director of corporate healthcare rating at Standard & Poor's."
Conclusion
Anyone who's been to a hospital or a physician's office recently knows three things. The bills for hospital services are astronomical, and copays and personal outlays are on the rise. The amounts spent for prescription drugs are also reaching the point of being ludicrous. And the hassle of getting anything done with regard to treatment seems to be increasing logarithmically.
The government wants to take over health care and is using the lure of universal coverage as a major political tool to get votes. If the government is going to maket its goal of "affordable care for everyone" happen, it will have to do so based on lowering costs.
But the reality is that as more people get older, and sicker, costs will naturally rise. Hospitals and drug companies are at the center of the health care hub.
And that means that any kind of universal health care is going to have to do something to control costs at the core of the system.
What it all boils down to is that over the next few months we are going to start seeing a more hostile tone in the debate over universal health care.
Last year a 15% cut to physicians that was scheduled to be phased in by January 2009 was pushed back, but not repealed. That means that as talks about next year's budget start to heat up, somewhere in the summer, the heat will start to rise.
Think about it. Drug companies are only going to push price increases higher as time goes by. Hospitals are going to continue to attempt higher reimbursements. And health insurers will be feeling the squeeze of Obama's Medicare HMO payments. Meanwhile, doctors will once again be feeling the pressure of yet another potential pay cut as the 15% that never got implemented, plus the next scheduled cut, somewhere around 5% starts to be bandied about.
We think that the inevitable talk, and the increased likelihood of reimbursement cuts to physicians, likely to start this summer are going to be the catalyst for another round of pain and suffering for the health care system as the already squeezed private practice of medicine adjusts to yet another potential payment squeeze.
By August or September when pay cut talk starts to register at the doctor's office, life in health care is going to get very interesting, especially as drug prices, and managed care hassles rise. As we've said many times here before, stay healthy.
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