Blame Congress for high health-care costs

IN AMERICA nearly one in every five dollars spent is on health care, a larger share than in any other country. Many of the culprits are well-known. Americans have more procedures, pay more for them, and face exorbitant administrative costs. One driver of rising costs has often been overlooked, however: politicians.

So Zack Cooper of Yale University and three other researchers argue in a paper to be published on September 4th. They studied reforms passed in 2003 that allowed over-65s to obtain prescription drugs through Medicare for the first time—the biggest expansion in the scheme’s history, costing some $400bn over the next decade. The legislation had a rough ride. President George W. Bush wanted to sign a law before running for re-election in 2004, but many Republican congressmen opposed it. In the end enough self-styled fiscal conservatives changed their minds, and the House of Representatives approved the bill by 220 votes to 215.

Mr Cooper and his colleagues studied the necessary arm-twisting and its effects. To do so, they looked at the use of an obscure rule. Section 508 allows the federal government to waive the standard amount hospitals are paid by Medicare, which normally follows a tariff designed by technocrats. Typically, the waiver is used to pay hospitals more in places where labour is expensive. It seems to be handy for persuading wavering politicians, too.

Hospitals in districts where a Republican congressman supported the Medicare Modernisation Act were five times more likely to receive a waiver than those in ones where a Republican lawmaker voted against. Those hospitals spent 25% more than they otherwise would have in the seven years after the law, according to the researchers. Between 2005 and 2010 the 29 hospitals that received the most lucrative waivers spent an average of $1.25bn more than if they had not received one.

Some of the windfall went on equipment and staff. The average hospital to benefit from a waiver increased its number of nurses by 16% per year from 2006 to 2010. But the splurge seems not to have improved care. No changes were registered as a result in the mortality rate for patients admitted to hospitals with a heart attack, or in the time taken to discharge those who survive one—two standard measures of quality.

Chief executives fared well, though. The average bump in bosses’ pay in the sample of hospitals benefiting most from the waiver was 81% over the same period, equating to a pay rise of about $428,000 per year above that received by bosses of similar hospitals with no waiver. Politicians benefited indirectly. Legislators with hospitals granted waivers in their district saw a 22% overall increase in campaign contributions after the act. Donations from individuals in the health industry in their state increased by 65%.

Section 508 is just one example of how deals to pass legislation raise costs. By some measures, no industry spends more on lobbying Congress than health-care providers. The Affordable Care Act, better known as Obamacare, was replete with sweetheart deals. For that reason, it is perhaps fortunate that Republican lawmakers were too divided to write and pass a health-care law of their own.

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