Why would a health insurer pay one hospital in New York City $81,000 more for outpatient infusion treatment than another hospital one mile away–$100,000 and $19,000 respectively? And, how is it that a pharmaceutical company can get away with charging for Avonex today almost seven times its original cost 21 years ago? These are two questions Elisabeth Rosenthal’s op-ed on CNN.com leads us to ask. Rosenthal’s op-ed makes a strong case that there’s no controlling health care costs, so long as health insurers and Pharma are setting prices.
In Japan, an echocardiogram costs less than $100, at a Harvard training hospital it costs $1,714, and at a community hospital in New Jersey it costs $5,435. The health insurers do not appear to have the leverage to rationalize the prices for different procedures and pay a standard fair price for them. For that reason alone, the federal government should be negotiating prices, as it does with Medicare, for everyone in the U.S..
The health care market is broken, and incentives are misaligned. When insurers pay high prices, they not only drive up premiums, they increase insurer profits. And pharmaceutical companies, accountable to their shareholders first and foremost, have every reason to charge exorbitant prices for prescription drugs so long as Congress gives them the power to do so, and insurers are willing to pay those prices.
Tremendous price variations for the same health care services, along with sharply increasing prices for older treatments and technologies over time, should be enough to demonstrate that we cannot rely on competition in the health care marketplace to bring down prices. With insurers in the mix, doctors determining treatments regardless of cost, and patients essentially unable to know whether they are getting value, the market is broken. So, even prices for competitive treatments that have been around for decades just keep going up. Economists describe this phenomenon as “sticky pricing.”
Japan does not permit sticky pricing. Instead, doctors, economists and politicians come together to decide how the price of a piece of technology, such as an echocardiogram will drop over time. What will it take for the U.S. Congress to step in and regulate health care prices?
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