The Economist - UK (2019-06-29)

36 United States The EconomistJune 29th 2019

1

P

resident donald trumphas been pro-

mising to bring down health-care costs

ever since he announced his campaign for

the White House. So far his policies have

had the opposite effect. As contenders to

stand against him in 2020 have begun to re-

fine their pitches on health, he has at last

done something to keep his promise. On

June 24th Mr Trump signed an executive

order requiring hospitals to disclose the

(hitherto secret) prices they have negotiat-

ed with insurance companies. The idea is

that transparent pricing will spur competi-

tion and force high-price hospitals to cut

margins, or become more efficient.

The political urgency is glaring. In a sur-

vey earlier this year 61% of Americans said

they would prefer a five-year freeze in their

health-care costs to a 10% increase in in-

come. One in eight had borrowed money to

pay for health care in the past year. Even

among households making $180,000 a year

or more, a third fear that a health crisis

could push them into bankruptcy.

The presence of fat for competition to

trim is evident from the wide variation in

negotiated prices (where those have been

made available for research). Analysis of

payments data from three big insurance

companies found up to a 39-fold difference

in the prices they paid for a given service in

the same metropolitan area—even after

outlier prices were excluded. Whether

making this kind of information public

will push prices down is doubtful.

One way it could do so is if people use it

to price-shop. An estimated 30-40% of

America’s health-care spending goes on

things considered “shoppable”, meaning

that the situation is not urgent (like a bro-

ken leg or a heart attack) and there is a

choice of medical providers. But almost all

this expenditure is paid by insurers, mean-

ing patients have no incentive to shift to

lower-price providers. Some patients may

see high prices as a sign of quality, says

Lynn Quincy of Altarum, a health-care con-

sultancy—even though research in Ameri-

ca shows that the two are not linked.

Pressure from insurance companies is a

more likely way to reduce prices. Knowing

what hospitals are charging their competi-

tors may spur some insurers to bargain for

better deals. Big employers who buy

health-insurance plans in bulk will press

them on that. The problem is that a recent

boom of consolidation in America’s hospi-

tal industry has left buyers of health care

with fewer choices.

According to a study in 2017 by the Com-

monwealth Fund, a think-tank, 90% of

metropolitan areas in America have hospi-

tal markets that federal competition au-

thorities would call “highly concentrated”,

meaning that there is very little competi-

tion. Although the insurance market is also

highly consolidated at local level, that rare-

ly gives insurers the upper hand in bargain-

ing with medical providers. The market

concentration of insurers is higher than

that of providers in only 6% of metropoli-

tan areas, according to researchers at the

Commonwealth Fund.

Nonetheless, experience with price

transparency suggests that hospitals

charging particularly high prices may blink

first when there is a dispute over bargain-

ing, says Ms Quincy. Until 2010 New Hamp-

shire’s most expensive hospital charged

nearly 50% more than its competitors. That

year, the state’s biggest insurer used data

made available by a price-transparency law

to shame the hospital as a pricing outlier—

getting public support which forced the

hospital to lower its prices. After Califor-

nia’s public-employee fund set a “reference

price” for joint replacements, covering

costs only up to that amount, its payments

per patient fell considerably—mostly be-

cause hospitals lowered prices to the refer-

ence amount, rather than because patients

shifted to lower-priced hospitals.

Hospital and health-insurance lobby

groups claim that Mr Trump’s price-tran-

sparency plan will backfire and prices will

rise. What happens eventually may vary

from place to place. But shedding light on

what everyone pays might just infuse some

reason into the seemingly random pricing

of America’s health care. 7

Will transparent pricing make

American health care cheaper?

Hospital bills

Never a bargain

Mammoscams

Source:HealthCare

CostInstitute

*For three large

insurance companies

United States, prices for a mammogram*

Bymetroarea,2016,$

0 200 400 600 800

Denver, CO

Baltimore, MD

Boston, MA

New York, NY

Philadelphia, PA

Seattle, WA

Atlanta, GA

Chicago, IL

Dallas, TX

Los Angeles, CA

Houston, TX

10th percentile Median 90th percentile

O

n june 7thLayleen Polanco, a 27-year-

old transgender woman, was found

dead in her cell at Rikers Island Jail. She

was being held on $500 bail for a mis-

demeanour prostitution offence and the

lowest-level drug charge, and she was be-

ing kept in solitary confinement for fight-

ing. The death was not unusual in a jail re-

nowned for corruption and cruelty, where

mostly poor defendants can languish for

years while awaiting trial. Bill de Blasio,

New York’s mayor, plans to shut Rikers by

2026 and replace it with four smaller jails

near courthouses in Brooklyn, the Bronx,

Manhattan and Queens. Among other

things, this fresh start offers a chance to re-

think prison architecture in the city.

America’s prison-builders have mostly

wrestled with basic questions such as

whether to house prisoners separately or

together, and how to manage them with as

few staff as possible. In the second half of

the 20th century tough-on-crime laws

sparked a boom in low-cost jail-building.

By 2007 one in every 100 adults was typical-

ly housed in an isolated cinder-block com-

pound surrounded by barbed wire. More

recently there has been a fashion for high-

rise prisons in the middle of struggling cit-

ies. Milwaukee has a 12-storey jail.

In New York, awareness of the high

costs of incarceration has spurred demand

for more humane spaces. “This is a water-

shed moment,” says David Ziskind, a crimi-

nal-justice expert at stv, an architecture

firm. The new jails are expected to empha-

sise rehabilitation over retribution and be

used more sparingly. The goal is to house

under 1,500 inmates at each facility, which

means reducing the total prisoner popula-

NEW YORK

A jail in Denver offers some lessons for

criminal-justice reformers

Prison architecture

Boutique

slammers