Putting a Price on Life

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This life-saving little pill of Daraprim costs $750. It costs less than $13.50 to make. (Source: rxwiki.com)

The cost of medical treatment in the United States may be more of a headache than the health problem itself. Insurance prices are extremely high, but if one doesn’t buy insurance, s/he can be hit with even higher out-of-pocket expenses in case of a medical emergency. The need for the United States to reform its health care system isn’t really controversial, as the U.S. health care system consistently ranks among the least effective among other developed nations. However, what is controversial is how the health care system should be reformed. President Obama’s Affordable Care Act has been met with hesitancy at best and a deluge of calls clamoring for its repeal at worst. Having an insurance marketplace has increased coverage for many lower- and middle-class Americans, but the continuation of extremely high and often unfair health care prices is still an unsolved and unregulated problem. Therefore, government regulation and caps on health care and drug costs would alleviate this problem.

It is no surprise that medical costs are expensive. After all, equipment is expensive, only the best and highly developed medical supplies are used, and doctors and nurses are highly trained professional workers who demand high pay. However, what is truly puzzling is why there is such a large variation in surgical costs of the same procedure from hospital to hospital. Sure, some markets are simply pricier (New York City or San Francisco, for example, cities notorious for their high cost of living in general), and some doctors demand more pay due to their experience or the school where they received their degree, but these factors should not affect surgery costs to this extreme degree. For example, in Dallas, Texas, knee replacement surgery ranges from $16,772 to $61,584.

The United States, by far, spends more on health care than any other country. In data from 2012, the U.S. spent 17.6% of its GDP on health care. The next closest country, the Netherlands, spent only 12.0% of its GDP. However, these other countries are able to have more effective health care systems while spending less money. France and Japan do this by using a “common fee schedule.” This ensures that all hospitals and doctors get paid similar amounts for similar types of patients they see.

In the United States, this large variation of health care procedure prices does not affect insurance companies much; they do not pay the listed costs in full, instead negotiating a reasonable price with individual hospitals. However, those individuals paying out of pocket are often scalped at one hospital when a nearby hospital charges much less for the same procedure. The prevalence of these incidences, where surgical costs can vary more than 300% between neighboring hospitals, is unethical. The government can easily prevent this practice through capping the prices of medical procedures.

Some people who oppose regulation of health care costs by the government believe it infringes upon free market capitalism and will cause repercussions in the economy and stock market. However, it is important to note that many pharmaceutical companies have near monopolies on drugs and it is certainly within the government’s duty to regulate that. For example, in August 2015, the price of the drug Daraprim skyrocketed to $750 per tablet from $13.50 (nearly 5500%) after it was acquired by a new company. This was clearly a cash grab, and there are currently no laws to prevent things like this from happening. This is not an isolated incident, as drugs used to treat tuberculosis and uncommon antibiotics often go for hundreds or thousands of dollars even though they take nowhere near as much to manufacture. Pharmaceutical companies know that ordinary citizens, especially those stricken with illness, are vulnerable. Without government intervention, they simply do not have the means or the capacity to battle large companies, especially when their unscrupulous practices are still technically legal.

In addition, the fact that surgical costs can vary so much demonstrates that the so-called “free market” is not working, or else prices for a service or good should fluctuate around a certain level. Free market capitalism only works inasmuch as government regulates it. That is why there are laws that prevent monopolies, encourage competition, and bar insider trading. The one area where there are no specific laws to ensure a fair market is health care.

The US spends more money on healthcare than anyone else in the world (and among 34 OCED nations)…

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          Source: OCED 2012

…yet is ranked dead last among 11 developed nations.
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      Source: commonwealthfund.org

The first step toward increased government regulation of health care is increasing transparency of health care prices. Currently, the public does not know the actual prices of many procedures, which
are kept secret by insurance companies and hospitals. Massachusetts, one of the more progressive states in the Union, 
passed a bill last October making health care prices public to insurance holders. This is a step in the right direction, as this bill made large price variations for the same procedure transparent. Furthermore, Hillary Clinton is proposing a plan that includes capping prescription drug costs to $250 per month for people paying out of pocket. Actions like these give hope that medical costs will soon go down to a reasonable level for the average American.

Now, it is up to the government to pass laws that actually cap prices for health care procedures. Of course, it would be necessary to update price caps constantly based on market fluctuations, but Japan and France are exemplary models and provide real-life evidence regarding the efficacy of such price regulations. The United States would do well to follow in the footsteps of such countries. In terms of health care, and in the wake of Obama’s controversial and mostly ineffective reforms, this is the only way to ensure the American health care system is no longer the laughingstock of developed nations.