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JAMES FLANIGAN

Health Care: We Demand Best--and Pay for It

November 22, 1987|JAMES FLANIGAN

Why are Americans paying so much for health care?

Against all seeming logic, medical costs are going up faster than inflation, even though the government has been clamping down on Medicare payments for four years now. And private health insurance companies have instituted cost controls on orders from employers trying to curb the expense of company medical plans.

Furthermore, such measures have had an effect, shortening hospital stays and encouraging outpatient treatment. Hospitals on average are only 60% occupied these days and many have closed whole floors rather than pay to heat or cool empty rooms.

Yet this year, with general inflation running about 4%, hospital costs have gone up slightly more than 7% and doctors' bills have risen 7.5%. Total U.S. health expenditures will be close to $500 billion, according to government estimates, up almost 40% since cost containment began in 1983.

To many Americans it looks like a system in chaos, and a wasteful one at that.

But that is only partly true. To be sure, doctors and hospitals finding ways around cost containment, plus lingering inefficiencies, are big reasons for the rising costs.

But it is equally true that there have been genuine improvements in health care.

And as the system continues to change, an important point is how seriously medical care is taken in American society. Even in recent years, with all the emphasis on cost controls and budget cutting, Congress has acted to extend health benefits to unemployed workers and the trend in state laws has been to establish health care for the indigent and insurance pools to cover poor health risks.

Medical advances have not been neglected either, as insurance coverage has expanded to cover kidney and heart transplants.

So what is likely in the next few years is that U.S. health care will try to muddle through to greater efficiency--perhaps a fifth of the nation's hospitals will close--while continuing to pioneer in medical science.

Choosing Doctor Important

Now about those doctors and hospitals. It is clear, says Kenneth Abramowitz, health care analyst for the Wall Street research firm of Sanford C. Bernstein, that the hospitals are loading higher charges onto private insurers to make up for the discounted payments they are forced to take from Medicare. Statistics show private payments rising 12% to 15%, compared to 1% to 3% for the government kind.

They are able to do that because employers will go only so far to cut medical bills. They are reluctant to force employees to use a cheaper, fixed-fee health maintenance organization, even though the care may be superior. The right to choose one's doctor, and therefore whatever hospital treatment the doctor orders, takes precedence over strict economics.

Doctors, too, are keeping their incomes up by performing more treatments in their offices, ordering more office visits and more testing, notes analyst Thomas McGinnis Jr. of the Eberstadt Fleming investment firm.

And hospitals have kept their doors open by introducing psychiatric care and drug and alcohol treatments for which they receive full "retail" payments, offsetting discounted reimbursements from the government and insurance companies. Wall Street complains because operation of less efficient hospitals has hurt the growth of investor-owned companies such as Humana Inc. and Hospital Corp. of America and health maintenance chains such as Maxicare and U.S. Health Care Systems.

But, again, other economics are at work. It may be unfortunate, but drug, alcohol and psychiatric clinics answer a market need.

And as to more expensive treatments, well, magnetic resonance imaging, which is now replacing X-ray scanning equipment, costs more. But it is also safer than X-rays and gives better-defined pictures.

New drugs to combat cholesterol or to dissolve blood clots in heart attack victims may be expensive, but nobody denies that they represent medical advances.

Why do Americans pay so much for health care? Because they want the best. And, with allowance for lingering inefficiencies, they sometimes get it.

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