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Medicare-for-All Won’t Fix the Broken Hospital System

Instead of further driving prices through the roof, let's unleash entrepreneurs to take on the health care cartel.

Americans don’t realize it, but they’ve entrusted their lives to a fundamentally broken hospital system that consumes a level of capital equal to South Korea’s GDP, runs on deeply dysfunctional software, is responsible for tens of thousands of accidental deaths a year, and whose employees commit suicide at a rate twice that of the general public. This system, rooted in a bygone era, has failed to keep pace with changing times. As a result, hospitals across the country are closing, leaving rural and impoverished communities behind. A focus on government solutions such as Medicare-for-All misses the point. The health care system desperately needs innovation — not mere subsidies that delay the inevitable.

The American hospital model came about slowly. In the 18th and 19th centuries, doctors were localized, traveling on horseback to individual homes to provide what little comfort they could. Hospitals, where they existed, served mainly to warehouse the indigent and homeless. Yet as society urbanized and medical science advanced, they became more sophisticated. Patients began coming and doctors began locating their practices nearby.

The centralized hospital model worked more or less successfully for decades. Insurance costs were primarily shouldered by employers and medical debt was manageable. Importantly, most illness and injury was acute. In other words, a patient with a gash in his leg from a farming accident could be treated with stitches and antibiotics and quickly sent on his way. Patients with chronic diseases like diabetes had no recourse and usually died young. Put morbidly, the early deaths of most patients with chronic illnesses meant that lifelong treatment costs were kept low.

Then over the last few decades, a series of factors destabilized that business model. Rural communities lost their manufacturing centers and began depopulating. Blue-collar workers and the middle class saw their buying power weaken. Perhaps most importantly, the burden of illness shifted from acute to chronic. Scientists developed treatments for many chronic diseases, and heroic medical interventions increasingly brought patients back from the brink of death. As people began living longer, they became more susceptible to chronic disease: diabetes, obesity, heart disease, and cancer, all requiring years of care (and expense). Hospitals and insurance agencies saw their profits slipping and began to consolidate. The price of medical treatment rose faster than wages could keep up.

The result today is a broken model, and the cracks are showing. Despite the amount that the U.S. spends on hospitals, there is a limited return. If the system continues as is, we will have little recourse to redirect our life expectancy curve upward.

Physicians and nurses wash their hands only 25 to 50 percent as often as is recommended. Hospital error and infection claim between 100,000 and 440,000 lives every year; the higher end of that range would mean that hospitals are the third most common cause of death in America. Doctors and nurses, meanwhile, are struggling. A survey found that nearly half of doctors report experiencing burn-out, while nearly a third of those attribute their frustration to electronic health record software. Physician despair is now so acute that doctors have the highest suicide rate of any profession. And electronic health record software is so poorly designed that it has been linked to multiple patient fatalities.

Rather than innovating a fix, the hospital industry has responded by circling the wagons. Wealthy hospital systems are buying up competing hospitals and physician practices, subsuming them under a head corporation, and removing the independence that doctors once prized. Impoverished community hospitals, left outside the circle, are dying. Physicians, buffeted by these trends and at the whims of hospital administrators focused on system revenue, have begun calling for unionization, or at least professional cooperation.

What is to be done? The most common suggestion is Medicare-for-All, espoused by a majority of Democratic candidates currently in the race. Although their plans vary, the general idea is to provide every American with a health insurance plan administered by the federal government. This isn’t, on its face, a terrible idea. As Axios reported recently, health care for a family of four now costs more than a brand new car, purchased every year. And hospital and insurer monopolies continue to drive costs even higher. Ultimately, this is untenable.

But before we simply shift those costs from families to the government, it’s worth considering whether we need to pay such high amounts in the first place. Hospital finances are closely held, and the actual amount that it costs a hospital to provide treatment for, say, a knee replacement, is unknown to all except the administrators. Prices for hospital care, as a result, are set falsely high. Elizabeth Rosenthal, author and editor-in-chief of Kaiser Health News, compares such pricing to airline flight times: arbitrarily long, so the airline can market its on-time arrivals and the hospital can pretend it’s giving patients a good deal while grabbing every dollar.

Dropped into such dysfunction, Medicare-for-All would only worsen the status quo. Hospitals could continue to set absurdly high prices—except now with the vastly higher ceiling of the federal budget. Medicare-for-All, as Democratic candidates have consistently failed to understand, is a subsidy for a dying business model.

But, one might argue, Medicare-for-All could exert leverage on hospitals by demanding that they accept lower prices. Indeed, this government price-setting (ignoring the sticky political situation of legislatively regulating the prices of private hospitals) could help contain hospital costs. However, an illustration of what would probably happen is Washington State. This year, Washington passed legislation that created a form of expanded Medicare, with price caps for hospitals. The hospital lobby had such a strong influence on the bill that the caps are pretty much what the hospitals were already charging.

Medicare-for-All, implemented nationally, would probably keep more hospitals open at first, as those in the red were kept afloat by the national spending account. We would probably ride a sudden construction wave, as hospitals rushed to build (previously unnecessary) infrastructure to attract more patients. But prices, paid by the federal government and unseen by the patient, would soar through the roof. Basically, Medicare-for-All would function like the current U.S. defense contracting system: outlandishly expensive contracts with opaque pricing and no real technological progress or innovation.

A better solution is more politically difficult. Rather than propping up a failed system, we should carefully open it to the marketplace of ideas. Health care is an extremely lucrative industry, and there’s obviously room for improvement. We no longer need the same web of hospital facilities based on an earlier era. Rather, we need an updated model, one that specifically targets care for the chronically ill, the disabled, the rapidly growing elderly population, and those suffering from drug addiction, while also providing acute-care services for less frequent accidents and unplanned births. This updated model should support America’s presently mobile and atomized population.

Health records should be private, accessible, and transferable. Doctors, nurses, and other medical professionals should be released from servitude to electronic health records and permitted to practice the kind of patient-focused care they crave. Certainly, innovation can’t solve everything, and we must be rigorous in supporting patients’ health and access to care no matter what the system looks like. But if we experiment cautiously, we might find that we need far fewer hospitals and far more independent physician practices that charge less and know their patients deeply.

The time is ripe for a change. Rather than settling for a government subsidy to a failing business, we should be carefully untying the hands of patient-centered and knowledgeable entrepreneurs to provide high-quality and low-cost health care that meets the needs of the historical present.

Olivia Webb works on issues of health care policy and monopoly. This article was supported by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the authors.



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