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Thoroughly American healthcare.

YOU WOULD HAVE THOUGHT that, at 17 percent of the U.S. economy, the healthcare industry would be much better understood than it apparently is by our Washington brethren. I can't help but look back and smile at the image of Nancy Pelosi standing at a podium and opining on how she couldn't wait to get the healthcare-reform act passed so we could all discover the great reforms that were included therein. Or when I recall how President Obama confidently reassured the business community that his package was certain to lower the cost of providing healthcare to our nation's workforce. Now, with 15 to 20 percent of health-insurance pricing increases already realized, most every businessman I know accuses the President of being, at the least, grossly misinformed. Some, of course, have much worse to say regarding the President's candor on the subject of costs in advance of the passage of his reform bill.

Unfortunately, the nation's understanding of "world's greatest healthcare system" may not rise much above the low standard set by Nancy and her boss.

Begin with our claim on the title of "finest system in the world." Our "outcomes" are now significantly below those of all major European countries. Healthcare accidents are so common that no one even takes notice anymore, except at the plaintiffs' bar. Population health in this country is becoming a joke. Obesity is rampant, and the incidence of childhood obesity--almost unheard of elsewhere--is of epidemic proportions. The average life expectancy in this country for the first time has began to fall. And, of course, here in the "heartland of free enterprise," our "markets" have produced the highest-cost health system anywhere on the globe.

The U.S. healthcare system really isn't a "market-driven system" at all. Prices aren't set by supply and demand. They are set by the federal government for the public programs, and by the government-licensed providers themselves in the commercial arena. The economics of the U.S. commercial healthcare system more closely resembles the signory or charter system that the French used in their American colonies in the 17th and 18th centuries. "Hey, Jacques, for a fee you can hunt and fish here on this waterway to the exclusion of everyone else with a canoe." Or "Hey, Doc, with this license you can perform heart transplants, but thanks to your trade association we are only going to issue so many new licenses." Limiting providers in a specialty makes price competition unnecessary as long as you've got a seemingly endless supply of people needing a new ticker, as America certainly does.

Our publicly run programs--Medicare and Medicaid--are so ingrained in U.S. culture that they probably won't be overhauled any time soon, notwithstanding some recent rumblings to the contrary in the U.S. House.

Along with its many flaws, the Medicare bureaucracy has one noteworthy feature: At considerable expense to itself as well as the provider community, the public system currently collects cost and pricing data from almost every provider in the country. Medicare uses that information to set the prices it pays for services to public beneficiaries. Indeed, the current U.S. policy goal for Medicare reimbursements is to fund providers at cost, leaving the private system to pick up any balance in a process commonly referred to as cost shifting--more properly, "price gouging." I have a business associate who refers to this practice as a "hidden tax" on U.S. industry, perhaps even the largest of all U.S. corporate taxes. Private reimbursements typically run at 300 to 400 percent of Medicare--in many complicated cases, even higher. If you are surprised by these numbers, just ask your doctor what Medicare pays him for a common office visit these days and compare that number with the charges on your own bill.

By taking advantage of Medicare databases, the opportunity exists in the guise of antitrust policy to require providers in this country routinely to disclose--on bills--the ratio of charges to the Medicare reimbursement rate, a stand-in for cost. Additionally, we could set a maximum on what a provider can charge a commercial client--say, 200 percent of Medicare. Providers whose price schedules reset to 200 percent of their costs would be subject to Commerce Department supervision.

The sentinel effect of such a policy would be quite dramatic because there is scant justification in any other U.S. industry for charges in excess of 200 percent of costs. More specifically, healthcare is a "low financial risk" services industry and enjoys limited competition because of licensing. The "affordability of care" issue that brings a tear to any self-respecting liberal's eye would be helped as well, as commercial overcharging began to fade into history.

Capping commercial reimbursements won't fix the current system's many quality problems; only better medical education will do that. Capping commercial reimbursements won't restore market forces to a poorly regulated industry, either. But it would rein in the practice of healthcare price gouging that now so hobbles American competitiveness.

The main drawback to such a regulatory strategy is that the legislation needed to authorize it would take perhaps 20 pages. What to do with the remaining 2,800 pages in the healthcare-reform package? I have an idea ...

Dean Olson is chairman of the board of directors of Rockford Acromatic Products.
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Author:Olson, Dean
Date:Jun 1, 2011
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