The Plague of Rising Health Care Costs

Is there a way to solve the problem of ever rising health care prices in Wisconsin?

For starters, just how bad is the situation? The latest Rand Corporation analysis, released in May, found that costs paid by private insurance were 318% higher in Wisconsin than the estimated price paid by Medicare for the same services. That put Wisconsin at the fifth highest costs in the country, and highest in the Midwest, with the national average coming in at 254%.

And those prices are about to rise even higher. As of July 1, the huge Ascension Wisconsin chain raised the cost of its room prices by a whopping 18% to 20%, as Rich Kirchen reported.

A key factor driving these costs is executive salaries. A new report found that Wisconsin led all states in the increase in median compensation for executive management positions in health care, as Becker’s Hospital Review reported. The report by Medical Group Management Association found that median total compensation for executive management rose by nearly 38% over the five yrs from 2019 to 2023.

The report found big regional differences, with an executive management position paying about $101,000 more in the Midwest than in the South. In 2023, the pay gap between Wisconsin and Texas, the lowest paying state, was $283,388.

Yet these averages greatly understate the pay going to top health care executives. As Urban Milwaukee has reported, Ascension paid its top executive about $15 million a year and 6 executives below him $2.8 million to $8.3 million per year. Advocate Aurora paid its 16 staff members compensation that ranged from from $1.34 million to $7.7 million per year in 2021; All together the top 16 staff collected $36.75 million. Keep in mind this pay is going to executives running tax exempt nonprofits, meaning they are subsidized by the taxpayers. They also get subsidized through charitable donations they collect, which amounts to many many millions for a giant like Ascension.

A key factor driving the rising salaries and costs are mergers of heath care organizations into ever bigger entities. A recent study by four top economists, including UW-Madison professor Stuart V. Craig, looked at 1,000 hospital mergers from 2002 to 2020 and found that 20% of them (238) could have been flagged by the Federal Trade Commission (FTC) using standard merger screening tools as likely to lessen competition and raise prices. Yet the FTC took enforcement action against just 13 of the mergers.

The study found the mergers that occurred between 2010 and 2015 did lead to overall price increases of 5% or more via increases in both inpatient and outpatient prices. In this state, the Wisconsin Manufacturers and Commerce has noted, the newly merged Advocate Aurora chain’s relative cost to Medicare “increased from 409 percent in 2020 to 530 percent in 2022 – the same year Advocate Aurora and Atrium Health announced they would merge to form” an even bigger multi-state hospital system.

The consequences of these price hikes is devastating, as another study co-written by Craig found: Even a 1% increase in health care prices reduces per capita labor income, increases unemployment and lowers federal income tax receipts, with the increase in unemployment concentrated among workers earning between $20,000 and $100,000 annually. That, in turn, leads to increase in deaths from suicides and overdoses, the study found.

One Wisconsin pundit who has been writing critically about the costs of medical care for many years is longtime CEO and former journalist John Torinus. When exploding health care costs threatened his company Serigraph’s solvency, Torinus searched the country for solutions and instituted reforms at his company.

His most recent column looks to the past, to Teddy Roosevelt’s trust busting and the famed Progressive, “Fighting” Bob La Follette, who pushed for a Public Service Commission to regulate the prices of public utilities in Wisconsin. I like the spirit behind the recommendation but the reality, alas, the PSC over time became a classic example of regulatory capture, where the state agency is staffed with former or future utility insiders and has allowed big price hikes. The PSC does such a poor job that the nonprofit Citizen’s Utility Board was created to lobby against big price hikes for residential payers and the nonprofit Wisconsin Industrial Energy Group was created to advocate for manufacturing companies, which have been gouged by high prices for electricity for decades.

One thing that might help is a law requiring hospitals to be more transparent about their prices, so consumers can make wiser decisions. The House of Representatives overwhelmingly passed such legislation but the bill was never taken up by the U.S. Senate. But there is no reason such a law couldn’t be passed by the Wisconsin Legislature.

Some states have also passed laws that, noting hospitals are tax exempt, require them to provide more charity care and/or community benefits.

But neither of these laws take on the central problem, of mergers that have created massive monoliths with huge market power. Torinus has urged Democratic and Republican leaders in state government to take action. “They must have forgotten that consumers are also taxpayers and voters,” he writes.

Or is it because of lobbying by the Wisconsin Hospital Association, which brags that “We are consistently ranked among the top lobbying organizations in the state.”  Odds are, any attempt to reduce hospital prices and executive salaries will be opposed by this group.