16 Leaders The EconomistNovember 23rd 2019
12 less than 15%. Add in doctors and related professional services,
and the share rises to over half. Hospital costs have been climb-
ing by roughly 5% a year of late, compared with 1% for drugs.
This reflects pricing strategies that make Mount Rushmore
look transparent. Patients and their insurance firms pay for ad-
vice and procedures provided by practitioners and hospitals.
Exactly how much is a lottery. A mammogram can cost $150 or
$550 in Philadelphia, depending on which provider you choose,
but your hospital and insurer will not tell you that price in ad-
vance. A scan of your lower back can cost just $150 in Louisiana
but more than $7,500 in California. Insurers receive big—but
secret—discounts on list prices from hospitals and doctors.
Patients who are fed up have little choice.
The hospital industry has consolidated in a
wave of more than 680 mergers since 2010 (see
Business section). Many cities and regions are
dominated by one or two big hospital operators.
A recent study found that, by a standard mea-
sure, over three-quarters of hospital markets
rank as “highly concentrated”. Hospital chains
have also been acquiring physicians’ practices
in order to create large, vertically integrated health-care outfits
that dominate their local market. Privately run hospital firms
thrive on opacity and consolidation, which boost earnings. The
motives of non-profit hospital organisations that are ostensibly
run in the public interest are harder to fathom, but presumably
some want to expand their empires and to boost revenues so that
they can pay their senior medical staff and managers more.
In order to create more transparency, Mr Trump’s new rules
mean that hospitals will say what they really charge insurance
companies by 2021 and will create a price list for 300 or so com-
mon procedures, to allow patients to shop around. Insurance
firms will have to make public the actual prices they are chargedfor services, after they have negotiated discounts. The rule
changes do not need approval from Congress, although they will
probably be challenged in the courts.
It is a good start, but reform needs to go further. Health care is
not a normal market. Consumers are often not price-sensitive—
you do not haggle during a heart attack. People with decent in-
surance plans are not directly on the hook for the vast majority of
their costs. And the industry’s cosy structure means that trans-
parency could backfire. For example, rather than expensive hos-
pitals cutting prices, cheap ones in a market without competi-
tion might raise theirs instead, once they realise just how much
insurers have been willing to pay.
Mr Trump should build on an innovative ex-
periment in California that uses reference pric-
ing to encourage patients to choose less expen-
sive providers or insist that hospitals
benchmark their prices to those in the most effi-
cient and competitive hospital markets. The
government also needs to stiffen the daily pen-
alties for hospitals that fail to comply with the
new rules beyond the current, paltry $300 fine.
At the same time a big drive is needed to inject more competi-
tion into local hospital markets. This means blocking more med-
ical mergers and may ultimately require unwinding deals that
have already happened, in order to ensure that patients have a
genuine choice. This in turn may demand new laws that reboot
America’s rickety antitrust regulators. As in other consolidating
industries, from airlines to telecoms, they have let the public
down with dire consequences.
Mr Trump deserves credit for taking on a demon that none of
his predecessors dared to touch. But transparency will not count
for much unless it is accompanied by strong and creative efforts
to weaken the grip of America’s medical oligopolies. 7Cost of caesarean delivery
UnitedStates,cityaverage,2016,$’
50 201510Knoxville (TN)Salt Lake City (UT)San Francisco (CA)N
ot longafter Israel routed the Arab armies that surrounded
it in 1967, Theodor Meron sent a “Top Secret” and “Extremely
Urgent” memo to his bosses at the Israeli foreign ministry. Mr
Meron, the ministry’s legal adviser, wrote that it would be illegal
for Israel to settle the territory that it captured in the fighting. For
decades that has also been the view of nearly all Israel’s allies. But
Israel built scores of settlements anyway, so that 428,000 Israelis
now live in the West Bank (not including East Jerusalem). Recog-
nising that “reality on the ground”, Mike Pompeo, the American
secretary of state, made a leap of legal logic on November 18th,
saying the settlements were “not, per se, inconsistent with inter-
national law” (see Middle East and Africa section).
This is merely the latest gift from President Donald Trump to
Binyamin Netanyahu, Israel’s prime minister. Others have in-
cluded recognising the disputed city of Jerusalem as Israel’s cap-
ital and accepting its sovereignty over the occupied Golan
Heights. These gestures seem intended to please Israel-loving
evangelicals in America, and to boost Mr Netanyahu, a right-
wing populist akin to Mr Trump. They also embolden Israeli an-
nexationists, who want to take parts of the West Bank unilateral-ly. That would doom the two-state solution, whereby a Palestin-
ian state would be created in the West Bank and Gaza. It would
thus force Israel to make a dreadful choice about its future.
Israel defends the settlements by noting that Jews have been
in the West Bank for thousands of years. Their presence was re-
cognised by the League of Nations in 1922. Moreover, Jordan’s
right to rule over the land until 1967 was not widely recognised,
and Palestinian sovereignty is disputed. So it is not clear whose
land Israel is meant to be illegally occupying. And anyway the le-
gal status of the settlements will be sorted out in a final agree-
ment with the Palestinians, which is likely to include land
swaps. Such arguments were enough to convince Ronald Rea-
gan, an American president, that there was nothing inherently
unlawful about the settlements, a position cited by Mr Pompeo.
Other American administrations took to calling the settlements
“illegitimate” rather than “illegal”.
But the more convincing argument, made by Mr Meron and
backed by the un, the International Court of Justice and most le-
gal scholars, is that the settlements violate the Fourth Geneva
Convention, which stipulates that “the occupying power shallUnsettling
America’s decision to recognise Israeli settlements makes peace less likelyIsrael and the Palestinians