David Frum

04.03.13

Somebody Has to Drive Down Healthcare Costs

Yesterday, Ezra Klein reported the strange case of a hospital that charged $1,206 to clip a toenail.

Last week I posted 21 charts showing the absurdly high prices Americans pay for health care. One reader wrote in with a story that is perhaps more compelling than any of them:

Let me briefly share with you a rather amazing personal experience of overcharging by a Harvard-affiliated hospital here in the Boston area. It’s not a huge matter, but it is so outrageous and almost funny in a way that I thought you might have an interest in using it, maybe in something you are otherwise working on.

The hospital did a single toenail clipping. The bill is $1,206.
To avoid misunderstandings, this was not a surgical intervention. It was the same kind of clipping that you do yourself every week, except that only a small piece of only one nail was clipped.

The whole encounter, including the prior doctor consultation, took about 15 minutes.

Admittedly, the tiny piece of toenail was sent in for lab analysis, because the doctor thought there might be some infection. (There wasn’t.) But the lab charges, although extremely high, were only part of the issue.

When I read such stories - and of course there are millions of them that never get written - I think of a sprightly essay by Rob Long. I'll quote the relevant part below, stick with it, it's worth it.

I know two guys who make three-bean salad. A few years ago, they pooled their money, bought a small machine that fills jars, and they went into the three-bean salad business. They buy beans from some huge wholesaler, already cooked, and the machine dumps them into jars, fills the jars with pickling solution, seals the jars, and then another machine slaps a label on the jars that says something like, "Kountry Kupboard" three-bean salad, or maybe "Artisan's Pride Salad," or maybe "Sunny Ridge Ranch Three-Bean Salad" –- I don't know what the name is, only that it's not from a sunny ridge or an artisan or a country cupboard, it's from a machine that dumps wholesale beans from some gigantic industrial food company -– something like, probably, Drax Chemical, Munitions, and Foodstuffs –- and puts it in friendly jars.

And it's good. If you like that sort of thing. So good, in fact, that a few years ago these guys got a visit from Wall*Mart, or someone like them, and they wanted to sell their three-bean salad in their gigantic stores that pepper the globe.

Good news, right? Now you can sell your stuff to the world in the most efficient way possible. Think how many jars of three-bean salad you're going to sell!

So a representative of the giant retailer visits my friends and takes a tour of the factory and tells them that it looks to him like it costs them about $1.11 per jar. "Wow," they said. "You guys are great. That's exactly what it costs us."

So the guy from the giant retailer tells them that the company will pay them $1.1101 for each jar. Giving them a profit of .01¢ per jar. Which they can take or leave, but if they don't take it, he's going to find someone, somewhere, who can make three-bean salad for that price and he's going to stock it in his unfathomably large retail chain for $1.11 and it's going to be very very hard to sell three-bean salad for more than that, anywhere, no matter how sunny the ridge is.

So, of course, they take it. And they're doing okay, but every year the price goes...down, which isn't supposed to happen but does happen when you're talking about an operation the size and scale of, say, a Wall*Mart. Which isn't a terrible outcome, really -– because the people who shop there benefit from the low, low everyday prices and can fill up on three-bean salad for about a buck eleven, and gaze at the pretty label of the country kupboard opening up to an artisanal farm nestled in a sunny ridge, rather than a picture of what's really happening, which is two guys getting grey hair trying to shave another .02¢ off the price of the jar.

Long proceeds to draw some lessons from the incident about the future of writing on the Internet. But when I read those paragraphs years ago, it struck me: what American healthcare needs is a merciless Sam Walton figure who will brutally tell hospitals, "That $1200 toenail clipping and test? It's now $87. Take it or leave it. And if you don't take it, I'll find somebody else to take it."

I'd prefer that this hypothetical healthcare Sam Walton be a private company operating in a competitive marketplace. But it's going to have to be somebody, and if it's not "Mr. Sam," it's going to be Uncle Sam.