Recent years have seen dramatic increases in the cost of heath care in the US, averaging well over double-digit percentage increases per year at a time when general inflation has (allegedly) been around 2.5%. This has amounted to an almost 50% general increase in the costs of health care since 2000.

The business and political worlds have been realtively snoozy about this trend -- as long as providers and insurers can pre-emptively increase billing to cover rises in expenses, the bottom line is preserved. And as long as the economy in general "grows" fast enough, we can afford to spend more on health care as a society.

Particularly in the past year, however, it is becoming apparent that there are natural limits in play.

I for one had wondered exactly how much longer health care costs could continue to rise given the fact that the average consumer is not making more money in real terms. This is certainly suggestive of some sort of fundamental limit (unless, of course, you want to argue that we're all receiving 50% more value out of health care, in the face of declining performance metrics).

There's a second ominous trend that brings us into contact with today's news item: that the increase in costs is causing a growing portion of society to drop out of the health "insurance" system, as well as for coverage for the covered to be reduced in breadth. The numbers are bad and getting worse every year: for example we are now at 48% of small employers offering health insurance, down from 58% in 2002.

This is exactly what one would expect from a sector that is overcharging for its core services, and which is trying to preserve the bottom line by redistributing present costs. HCA is now learning that these zero-sum fundamentals cannot be ignored:

HCA Inc. reported a 14 percent drop in third-quarter earnings Friday, with less than a month to go before shareholders in the nation's largest for-profit hospital chain are scheduled to vote on a $21.3 billion offer to take the company private.

HCA said its latest results were hurt by higher provisions for doubtful accounts and an increase in uninsured discounts.

Net income fell to $240 million, or 58 cents per share, in the July-September period from $280 million, or 62 cents per share, in the year-ago period.

Well, looky there: a major bottom-line hit because of defaults and the uninsured.

Just how significant a hit? The outlays for the uninsured apparently grew by $36 million between the periods being compared. Add that back into earnings, plus 10% for margins (based on HCA's past financials), and you'd have almost exactly $280 million in earnings. So the increase in uninsured patient costs entirely accounts for the drop in HCA's revenue over the year-ago period.

Investors should think about that for a minute. This puts the health care squeeze on the balance sheet, so to speak.

And this is even before including the impact of "doubtful accounts", which the article says increased 10% since last year. This would be an additional cost of about $62 million. Including this with the above reveals HCA should have earned about $342 million over the year-ago period's $280 million... but instead only made $240 million due to a faltering consumer. This difference is hardly a rounding error -- it is the difference between significant earnings growth and significant financial atrophy.

Trends are not encouraging with regards to these "doubtful accounts" either: health care incidents are the main proximate cause of bankruptcy (some 75% of cases, I believe), and I wouldn't exactly predict that bankruptcies will fall in the coming years.

So this isn't looking at all like the profits-bonanza that the Wall Street equities-floggers have been assuring we will soon see in health care -- supposedly because of the looming hospitalization and boutique care explosion that will be induced by the baby boomers.

On the contrary, I have long suspected that health care is now as profitable as it is going to get unless the regulatory, management, and financial structures of this sector are radically reformed. Otherwise, providers and insurers will find themselves ethically compelled to continue providing care to a population that cannot afford its nominal cost. It appears my concerns are proving justified -- just ask HCA or Kaiser Permanente.

One thing is now certain: Bill Frist and his family were uncannily shrewd in their timing of unloading this turkey on the private equity community. I hope for their sake the deal still goes through! I'm honestly not sure which side I dislike more.