American healthcare is too profitable

(FT.COM) The U.S. healthcare system is bedeviled by greed, with drug companies, device manufacturers, hospital organizations, physician groups, and insurers scrambling to grab a slice of the more than $3 trillion we spend on medical care each year. We have access to the most cutting-edge treatments. We also have a system in which two-thirds of the people who declare bankruptcy do so partly because of medical costs, even after the Affordable Healthcare Act (aka Obamacare). And, as everyone knows, the U.S. spends far more than most of the world on healthcare but receives only middling outcomes by OECD standards.

The bifurcation within our healthcare system is poised to get worse. Covid and the promise of higher public spending on healthcare are drawing the sharpest-elbowed investors to an industry that doesn’t allocate resources as ideally as the “invisible hand” of efficiency would suggest that it should. (Although, frankly, after 30 years of covering business, I’m hard-pressed to think of an industry that does.) The unprecedented sums of money sloshing around a complicated and opaque system will undoubtedly make the rich richer and sicker.

Private equity, in particular, is pouring money into the healthcare sector, investing $26bn in life sciences and $44bn in medical devices in 2021, the highest rate in a decade. This follows a 20-fold increase in private equity spending on healthcare deals — including leveraged buyouts, growth investments, secondary investments, and so on — between 2000 and 2018, according to an INET working paper released in 2020.

Many medical professionals, consumer advocates, and academics say that quality and access to care are declining as the industry consolidates and closes smaller practices in poor or rural areas, pushes doctors to increase volumes of patients seen, and encourages more expensive diagnostic tests and the use of less costly equipment.

High healthcare prices can limit patients’ ability to take what physicians prescribe, which leads to worse health outcomes, larger medical bills, and often financial hardship for patients, including bankruptcy. It also raises healthcare costs for public and private insurers alike.

While seventy-nine percent of Americans think the price of prescription drugs is “unreasonable,” according to a 2019 Kaiser Family Foundation poll, and about 9 in 10 say they support the idea of the government negotiating prices, voters will blame Democrats if drug prices remain high even though Republicans continue to block all pricing reforms.

And it’s going to get worse. Millennials, who now account for the largest share of the U.S. population and labor force, are seeing their health — including physical and behavioral health conditions — decline faster than the previous generation as they age, according to a report published by Moody’s Analytics, based on data from Blue Cross Blue Shield.

As a result, millennials, or individuals born between 1981 and 1996, will likely see more expensive health care costs in the year ahead. If the trend continues at the current rate, millennial treatment costs are still projected to be close to $4,500 annually, roughly 33 percent higher than Generation X’s at a comparable age, by 2027. That’s about $375 per month.

The bottom line is that healthcare is way too profitable for the players. Insurance companies and PBMs are making millions in profits, and the drug industry continues to be among the most profitable industries in the country.