Health Cost: What Limit?

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Federal and state governments promote unnecessary hospitalization too. In the Miami area, a February survey found four times as many chronically ill Medicaid patients being treated in hospitals as in nursing homes. Dr. Gerard Mayer, who directed the survey, explains: "Medicaid in Florida makes such low payments to nursing homes that the homes limit the number of beds available to indigent patients. The catch-22 is that the patients wind up waiting in hospitals which are even more expensive" because Medicaid does pay nearly 100% of basic hospital costs, whatever they are.

The worst result of the system of third-party payments, however, is a far more insidious one: since the government and private insurers pick up most medical bills, no one in the system has an incentive to hold down those bills. On the contrary: if a doctor or a hospital substitutes an inexpensive treatment for a costly one, he or it merely collects less money from Medicare, Medicaid, a Blue plan or a private insurer.

The lack of necessity to watch costs would be inflationary in any business. In health care it has been catastrophically inflationary, because powerful underlying forces—economic, psychological and technical—would be working to drive up bills even if a determined effort were made to hold them down. Among these forces:

> Hospitals are inherently expensive places. They must maintain elaborately equipped facilities—emergency rooms, for example—24 hours a day, even though those facilities are used only sporadically. They are labor-intensive: the general ratio is 2.64 employees for every hospital bed. Aggressive unions have forced hospitals to raise the once depressed wages of their nonprofessional people (cooks, cleaners, clerks) so sharply that, for example, wages and benefits now take 70% of the budget of New York Hospital-Cornell Medical Center, vs. 35% only 20 years ago. The introduction of expensive machinery raises rather than lowers labor costs. For example, if a hospital buys a CAT (computerized axial tomography) scanner, a kind of super X-ray machine, it must also hire highly trained, highly paid technicians to run it.

> Doctors feel they have a right to charge high fees—their median income is a towering $65,000 a year—to make up for the long training they must undergo and the 80-hour weeks that many say they put in, and to compensate them for bearing the responsibility of making life-and-death decisions. Says one Boston specialist with an international clientele: "Remember that when a doctor has finished seven or eight years of schooling, two or three years of internship, two or three years of specialization, by then he is married, starting a family and an expensive practice, and is at his peak outlay. Consider the long years of learning and not earning, the killing hours and loss of contact with family." A few doctors indeed hint that they are underpaid—or observe that they earn less than corporation chiefs and top sports stars, though their value to society is at least as great. Whatever one may think of that argument, the physicians' attitude obviously does nothing to hold down medical costs.

> Most important, medicine has become an industry employing costly technology as sophisticated as that found in the space