Health Care Economics IV

Who should make money from health care? Although a pretty innocuous question, it is loaded with controversy. Let's start with the players who are clearly for-profit. Pharmaceutical companies invest millions of dollars into designing new drugs. The time and cost of getting a new medication through the pipeline can be staggering, and this is why they have a protected patent time. During this time, brand name drugs can be exorbitant as there are few or no competitors. Although the intention is for pharmaceutical companies to recoup the cost of innovating, designing, creating, and testing, some drugs (particularly statins and antidepressants) have made the company and shareholders quite wealthy. Big Pharma occasionally has welfare programs for those who cannot afford the expensive drugs, but that covers only a fraction of patients. At some level, the cost of healthcare is driven up by costly drugs. Is this ethical? Say a new drug comes onto the market which cures HIV. The absolutely ethical thing is to distribute this widely, like we would a vaccine. But the economic decision is to sell it to the highest bidders, an issue even more complicated because curing all HIV would then eliminate demand for the drug. Device companies often have similar interests.

What about hospital administrators? The Time article attacks CEOs who make a fortune running their non-profit hospital. Indeed, there are examples of CEOs at academic hospitals who make more money than university presidents. But being in top hospital administration is not an easy job. Few people are willing to take on such responsibility, and fewer still have the skills necessary. The risks are high; a badly publicized case, a poorly timed inspection, a dearth of donors, an infection outbreak, equipment failure, or a dozen other things can get the CEO fired, even if it weren't preventable. Upper management needs leadership, communication, decision-making, financial savvy, and many other skills to be successful. Does this deserve a salary in the millions? I'm not sure who decides.

Are doctors pocketing the money from healthcare? Not really. We do make a comfortable living, but when normalized for the years of education required (while incurring debt), a business degree or career in law is much more practical. Some doctors do make a fortune consulting for device or pharmaceutical companies, but that involves conflicts of interest beyond the scope of this post. And there is a lot of discrepancy between medical specialties as well. But as a whole, the huge cost of healthcare is not lining the pockets of physicians.

Lastly, what about those insurance companies? Like pharmaceutical companies, they are run (for the most part) as for-profit businesses whose primary concern is the shareholder, not the patient. As a result, we see those practices the Obama administration has called egregious: capping payments, denying patients for insurance, excluding pre-existing conditions, charging exorbitant rates. And hopefully with the new health care law, such offenses will become rare.

Are there other players? Overhead really isn't driving costs up. Perhaps malpractice insurers and lawyers are pocketing a good amount of money. Non-profit hospitals that make a lot of money occasionally return that to the community by expanding facilities and hiring more staff. But in a sector that costs so much of GDP, where's the money going?