America knows by now that the costs of the American health care system are staggeringly high. But there is a certain paradox in these high costs. For an industry in which so much money is spent, it is worth asking who benefits most.
President Obama would like us to believe it is primarily insurance companies. While many of them are massive businesses, note that the two biggest health insurance companies,
Given that health care makes up one-sixth of the American economy, somebody is making money, right? Indeed, they are called lawyers.
While there are a number of factors that contribute to the high costs of health care, the massive costs of non-medical expenditures–specifically administration, legal compliance, and fraud–figure prominently. Most troubling, these costs do not actually contribute to delivering people health care, and they are ultimately passed on to patients and taxpayers.
Fraud alone costs the system an estimated $100 billion, a significant sum even by todays profligate standards. Medicare fraud has now surpassed cocaine as the largest criminal enterprise in south Florida, which is somewhat unsurprising when you consider that public funds cover the costs of a significant portion of health care. While much of this fraud is of the blatant criminal variety, in many cases it also orchestrated through complex corporate schemes by sophisticated players.
For instance, recently New York real estate owner Rubin Schron and attorney Leonard Grunstein, along with a number of other corporate defendants, settled a case (without acknowledging wrongdoing) that alleged a violation of federal anti-kickback laws, which prohibit knowingly or willfully receiving or giving any remuneration for referrals covered by Medicare or Medicaid. The defendants allegedly masked the kickbacks through a corporate acquisition in which
The defendants in that case settled for approximately $14 million (they probably spent at least half that amount in legal fees). The costs of both legal counsel and these types of quid pro quos are ultimately borne by taxpayers, as businesses pass through higher prices to consumers.
Like much of the modern day American economy, health care is a vastly complex and heavily regulated industry. Due to the sensitive nature of delivering health care, the legal requirements are especially burdensome. While the underlying rationale of many of these laws, like the anti-kickback statute, are important to ensuring the integrity of medical care, they also punish behavior that many would regard as typically innocuous and subject virtually every transaction in the health care field to potential legal scrutiny.
For instance, the anti-kickback statute generally limits physicians ability to invest in medical facilities unless they fall within regulatory safe harbors by comprising less than 40% of the investment interests and revenue generation of the entity. Even employees are limited in how they can make referrals to their employers. The federal Stark Law and its amendments also prohibit many kinds of physician self-referrals to institutions in which they have some form of financial interest.
This is not to suggest that health care fraud laws should be watered down. However, when some suggest that the high costs of health care are due to oppressive laws and regulations that raise the cost of doing business and create barriers to competitors entering the markets, it is not just hyperbole. There are also the massive liability costs that doctors face through medical malpractice suits. A 2003 study by the U.S. Department of Health and Human Services estimated that limits on malpractice could save over $100 billion per year.
Fundamentally the problem with the American health care system is the insulation separating patients from the doctors who deliver them care. These layers ensure regulators and lawyers business but keep the costs to patients and taxpayers painfully high.
As the final debates on health care wrap up, it is worth considering who really benefits from our current bureaucratic system, and would adding new layers of regulators and lawyers between patients and providers really bring down costs? If youve ever hired a lawyer, then the answer should be obvious.
Brett Joshpe is an attorney, author and entrepreneur in New York City.
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