Why the Obamacare Law Can't Stop Soaring Healthcare Costs

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One of the many promises of the Obamacare law was that it would help reduce out-of-control healthcare costs.

But as we get closer to the full implementation of the Affordable Care Act in January 2014, it's becoming increasingly clear that the law will do little to lower what healthcare providers charge.

Basically, the Obamacare law focuses mostly on who will pay and how they pay - the insurance side of the equation - rather than why costs are so high and rise much faster than the overall inflation rate.

Journalist Steven Brill, who wrote an exhaustive piece on this topic for the March issue of Time magazine, was blunt as he broke the bad news personally last week to the Senate Finance Committee at a hearing to determine if adding transparency to the pricing of healthcare services could help control costs.

"[Transparency] starts the conversation about prices that we didn't have in the debate over Obamacare. It's only a start," Brill said. "Obamacare does nothing about these prices. Nothing to solve the problem - Zero."

Obamacare Law Neglects What Drives Healthcare Costs

After months of research and detailed study of what hospitals charge, Brill determined that the real problem of accelerating healthcare costs lies in the providers, and specifically with the hospitals - an area the Obamacare law mostly ignores.

What Brill found was shocking. Comparing the line items on the bills of numerous individuals to what each actually cost the hospital revealed huge markups - often 100%, 400% and even 1,000% and higher -- on everything from gauze pads to lab tests.

In one case a patient was charged $199.50 for a test that Medicare had determined should cost just $13.94.

Another patient was charged $49,237 for a specialized neurostimulator that cost the hospital about $19,000 and probably cost the company that sold it about $4,500 to produce.

Hospitals essentially invent inflated arbitrary charges for everything because they can.

Patients usually don't ask much about cost when they have a medical problem, and assume that their insurance will cover most of it anyway. Competitive market forces that drive prices lower are virtually non-existent in healthcare.

Another problem is the "fee-for-service" nature of the system. The more a hospital does for you, the more it can charge you.

That leads to such games as duplicated testing (at those highly inflated prices), and visits from doctors only barely connected to a case so they, too, can bill the hapless patient.

Of course the insurers negotiate fees about 50% to 60% lower than the hospital's "official" list prices ("the chargemaster"), but even those reduced payments are far higher than the cost to the hospital.

Hospitals historically have tried to justify their crazy-high charges by pointing to the rock-bottom reimbursements they get from Medicare and the fact that they don't get paid for treating some impoverished patients. They claim they need to charge everyone else more accordingly.

But Brill found that charity cases made up less than half of 1% of U.S. hospitals' annual revenue. And while Medicare only pays a bit more than what it determines the service or item costs the hospital, most hospitals make concerted efforts to attract more Medicare patients. It doesn't make sense that they'd advertise for patients that cost them money.

Unfortunately, the Obamacare law addresses none of these issues.

How the Obamacare Law Could Make Things Worse

That the Obamacare law fails to address the critical issue of arresting spiraling healthcare costs is bad enough, but an obscure part of the law could actually make the problem worse.

Obamacare provides for something called Accountable Care Organizations (ACOs), which are supposed to improve care and reduce costs by allowing different types of healthcare providers to affiliate with each other.

While ACOs could well make the quality of care better, some worry that further consolidation of the healthcare providers will give them more power to cut the discounts they give to the insurance companies.

"Hospitals want to maintain their revenue streams and enhance their bargaining leverage," Professor Martin S. Gaynor of Carnegie Mellon University told The New York Times. "This is a way to do so."

In addition, another goal of Obamacare - ensuring that the 30 million or so American who don't have health insurance will be able to get it - could also help push costs higher.

Brill points out that the insurance exchanges set up for these folks could bring additional insurers into a market, lowering the market share of each and skewing the balance of pricing power even further in favor of the quickly consolidating healthcare providers.

And other feel-good provisions in the Obamacare law, such as the fact that insurers cannot deny coverage because of pre-existing conditions and cannot impose maximum dollar limits on how much they will pay out in a year or a lifetime, will inevitably push insurance premiums higher for everyone.

What Can Be Done About Healthcare Costs?

Because the entities that profit most from the current system - the hospitals, medical device makers and the big pharmaceutical companies - carry a lot of clout in Washington, healthcare costs are almost certain to keep soaring.

It was that lobbying power that helped keep any provisions that might have addressed rising healthcare costs out of the Obamacare law in the first place.

Brill, in his Time magazine piece, suggested that since true competition will never happen among health care providers, government should be able to set a tight range for healthcare prices, much as it does with Medicare reimbursements.

While Republicans no doubt would balk at even more government control over the U.S. healthcare system, the unsustainable price increases could eventually force such a change, like it or not.

"This is not about interfering in a free market," Brill wrote in Time. "It's about facing the reality that our largest consumer product by far - one-fifth of our economy - does not operate in a free market."

Feel like the government isn't telling you the whole story on Obamacare? Check this out: The 7 Biggest Obamacare Lies

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