Comment by levocardia
12 hours ago
Also, commercial insurers are essentially cross-subsidizing Medicare: the higher revenue from commercial insurers is partly why Medicare can be paid less. Similar dynamics exist with drug prices: the high US cost is a cross-subsidy to other countries. Maybe this is good (someone's got to fund R&D), maybe this is bad (it's a net wealth transfer to the elderly), but it's an important part of the dynamic either way.
The cross-subsidy argument is one hospitals use to justify high commercial rates: "Medicare underpays, so we have to make it up on commercial." The HCRIS data lets you test this. If cross-subsidization were the full story, you'd expect cost-to-charge ratios to be tight — hospitals would charge commercial just enough to cover the Medicare shortfall. Instead, the median markup is 2.6x across all hospitals, and 3.96x for nonprofits. That's not cross-subsidy. That's pricing power in a concentrated market.
Would like sources about the pharmaceutical sector being "subsidised" by the American system, heard it many times but haven't seen it substantiated.
If you want to understand the hidden cross-subsidies in the US healthcare financing system then a good place to start is the book "The Price We Pay: What Broke American Health Care--and How to Fix It" by Dr. Marty Makary.
https://www.bloomsbury.com/us/price-we-pay-9781635574128/
Looked into a summary of the book, with notes by chapter and haven't found any mention of the American system subsidising pharma prices for other countries. It mentions a lot PBMs (like CVS, Cigna, etc.) as the culprit for high prices in the USA and talks about how when pharmacies are allowed to compete the prices do go down.
From the book it seems much more like the American public is being taken advantage of by the prescription fulfillment from pharmacy networks rather than subsidising anything for the rest of the world.
> Today, approximately 80% of Americans get their medications through a PBM.2 American businesses financing the coverage and the employees paying for their medications are usually oblivious to the price gouging. When people get frustrated that drug prices keep going up, they often point the finger at pharma bad boys like Martin Shkreli. More often, though, the price spikes are taking place right under their noses.
> If we could slash the spread, it would make a tremendous difference for thousands of businesses. According to a recent analysis in the journal Health Affairs, reducing generic reimbursement by $1 per prescription would lower health spending by $5.6 billion annually.
> Health insurance companies direct their business to their own PBMs, which increases their margins. For example, OptumRx, one of the big three PBMs, is owned by America’s largest health insurance company, UnitedHealth Group. Insurers may offer less expensive health insurance premiums. But then they use their PBM to achieve a greater profit margin.
> The PBM Express Scripts is now owned by the insurance company Cigna, and as I write this book, a merger between the PBM CVS Caremark and the insurer Aetna is being finalized. Together, the big three PBMs—OptumRx, Express Scripts, and CVS Caremark—control approximately 85% of the U.S. market and manage medication benefits for most people in the United States.