The Bitter Pill: Time Magazine’s Story on Health Care Costs

March 25, 2013

Steven Brill’s article on health care costs in the March 4 issue of Time magazine is the talk of the town in health care. While journalists have generally praised the piece, reactions from those in health care have been mixed. The American Hospital Association critiqued a number of Brill’s major points in a fact sheet, Setting the Record Straight on TIME’s Article “Bitter Pill.”

In general, however, there is little doubt that Brill’s main point is true. To encapsulate Brill’s 36 pages into a couple of sentences: Hospital charges are generally not reflective of costs, and it is those who can least afford to pay them who often bear the burden. His emphasis (though it was not entirely clear) was on individuals who lack insurance or have high copays and deductibles: those who generally do not benefit from contracts established by public payers like Medicare and Medicaid, and must therefore bear the burden of payments based on charges. (Medicare and Medicaid often pay at rates that are at least 50 percent lower than what hospitals charge.)

In many cases, hospital charging structures were developed long ago without much analysis of the actual cost of delivering services. These structures haven’t received much attention because relatively few patients actually pay for health care based on charges. But some states have placed limits on what hospitals can charge the uninsured–a point overlooked by Brill. Uwe Reinhardt wrote in the New York Times’ Economix blog about steps taken in New Jersey; Illinois enacted the Hospital Uninsured Patient Discount Act to limit the amount hospitals can charge or collect from uninsured patients.

Brill also made broad statements about the excessive profitability of hospitals as an industry; these statements, too, are not entirely supported by the facts.

The solution to the charging issue is straightforward: bring charges more in line with costs and/or regulate price more broadly in the health care system (like all-payer rate setting systems in Maryland or public payer systems in the U.S. and other countries).

But will this resolve the health care cost issue in America? Unfortunately, I don’t think so; Brill emphasizes the charging problem at the expense of other critical issues.

Health care spending is a product of the price and quantity of care, and we have problems with both. Looking at one or the other in isolation is problematic. We know from target income research and failed experiments like the Sustainable Growth Rate formula that practitioners are skilled at finding ways to compensate for price cuts with increases in the use or intensity of services.

Brill is somewhat dismissive of the Affordable Care Act’s ideas for addressing the cost of health care. But while its approaches may be flawed, they have a solid foundation. Ideas like bundled payments and accountable care organizations are designed to affect both price and use.

Addressing the unit price of a service alone is not the answer. Linking price and use, and providing incentives for quality and effective care is what we must do if we truly intend to address the “bitter” cost of health care in America.