Too Damned High: The Madness Behind the Medical Industry
The article, written by Steven Brill of Time Magazine, is entitled, "Bitter Pill: Why Medical Bills are Killing Us." It is well-researched and carefully structured to provide the maximum amount of information and perspective. Focusing on a few poignant case studies to illustrate his points, Brill then provides context, analysis, and a steady stream of statistics. He winds up by looking at the laws and public policies that have allowed such a system to develop, and offers advice on how such regulation can be ameliorated. Most relevantly, he gives a well-backed evaluation of Obamacare and the current problems with pushing regulatory health-care legislation through Congress. According to Brill, Democrats and Republicans both deserve the wagging finger. Perhaps most surprisingly of all, Brill gives an excellent defense of Medicare, which, he points out, actually consists of more privately contracted regulators and consultants than government employees. I highly recommend that you just skip this blog post, and read the article for yourself. If, however, you are short on time, read on.
I will try to give a brief summary of the article, and highlight some of its most shocking points. The article, itself, however, gives as concise a take as could be expected for such an intricately screwed up system. It is long, but it should be read. Lack of information and fear of the necessity to take action is what allows such systemic callousness to develop, and it can only be prevented through knowledge and sustained outrage.
It starts with the manufacturers of prescription drugs, implants, scanners and other high-tech health equipment, who standardly mark up their prices by over 100% past the point of profit. The article gives the example of a group of doctors who stood up to a pharmaceutical company, and declared that they would no longer prescribe a colo-rectal cancer drug call Zaltrap, because it cost over $11,063 a month to patients. Instead they would prescribe the equally effective drug Avastin, which cost only $5000. The company that produces Zaltrap at first shrugged off the physicians, claiming their prices were reasonable. The next month they cut the price in half. This is dramatically indicative of the fact that these companies mark up their prices way past the point where they reimburse R&D costs, even way past where they are making healthy profit.
Such outrageous profit margins continue even more egregiously with hospitals. If you go to the hospital, your bill will be determined by something called a chargemaster. It is an outdated database system that is individual to each hospital, and which has seemingly random numbers attached to procedures, drugs, and services. The prices increase automatically over time, and hospital financial departments, when confronted, typically declare that bills produced by the chargemaster are "irrelevant," "not real," or "negotiable." Except, of course, to those patients who are forced to pay them, and who are not informed that they are "negotiable." Indeed, if they are sold to a bill-claiming attorney, they may not be. Charges made by the chargemaster are typically 11x more than the cost of the product itself.
And how do we know the 'actual cost' of the product? Well, unless you are uninsured, in which case you have to pay the bill at chargemaster prices (aka, you're screwed), your bill goes to an insurance company which knows the charges are actually bullshit and has a deal with the hospital to pay a certain percentage of each item, usually between 35-50%. Medicare pays even less than that, since it has extensive data and research on the actual cost of the item, which would include not only the product itself, but also the faculty costs, facility costs, maintenance costs, and even medical staff educational costs. In effect, Medicare gives as 'fair' a price as can be had. For a procedure which one hospital's chargemaster charged a patient $199.50, Medicare would only pay $13.94. Thus, of a several hundred thousand dollar bill, Medicare might only pay 15%. Of course, some physicians claim that Medicare pays too little, 10% too little. Even if such a claim were not demonstrably false, the hospital's profit margin on everything else is more than enough to cover such an oversight. But, such a claim is false, because many physicians and hospitals actively solicit Medicare patients.
Basically, hospitals are a money-making business. In fact they are an incredibly successful and enviable money-making business. For example, Stamford Hospital, located in a mid-size city with about 50% of its patients on Medicare and Medicaid, makes $63 million dollars in profit annually, a 12.7% profit margin. That's a profit margin that any successful for-profit business would be proud to have, and it is just about the average. The average operating cost profit for a hospital is 11.7%, including those who operate at a loss! And hospitals that are listed as non-profit make more profit than those who do pay income tax. Plus, as they have no shareholders, they are able to recycle the wealth back into the facility and staff, leading to hospital administrative salaries in the millions (CNN pointed out that the highest Hospital Administrative Salary is for the chief executive at Northwestern Hospital: $10 million). Essentially, hospitals are run like a business, and they make good money. Even better, because they are often non-profits who market themselves as being charitable institutions, they enjoy a good reputation as well.
On top of extreme pricing, hospitals also very frequently overuse expensive diagnostic methods and products, when cheaper ones will do. The most obvious example is the CT scan. Usually, a simple x-ray will suffice, but CT scans are more advanced and more expensive. Why not charge double 'just to make sure?' There is a somewhat valid explanation of this practice however. Medical malpractice will not allow the safe harbour defense (that doctors cannot be penalized for following a course of action that would have been peer-approved in the same circumstance). The fault for refusing to take such a common-sense approach to lawsuits lies with the Democratic party, which has boycotted tort reform to benefit plaintiffs lawyers, their traditional consistuents. However, hospitals undermine their own trustworthiness about such matters, by frequently double or triple billing items, in one instance charging $7 for three cotton gauze pads (buying 150 at Walmart costs around $3.50), when such an item should be included in the surgery service or facility charge. They know that a wife worried for her husband, who is going through life-threatening cancer or surgery, is unlikely to read through such bills.
So, you might ask, with all this going on, why has no one noticed? Why haven't we regulated these fields more strictly? The answer is simple. The health industry has one of the biggest lobbies in Washington, and they have spent an estimated $5.36 billion dollars lobbying Congress, in comparison to $1.53 billion for defense and aerospace lobbies and $1.3 billion for oil and gas interests. It is also easy to see why they would win in the public's eyes. They might claim that Congress is trying to cut funding for $39.3 billion worth of health services for the poor through a small tax on certain services, when in fact, these are chargemaster prices, meaning that they are closer to $3 billion. With their profit margins, however, such a tax does not need to be passed down to the consumer. $3 billion, for the whole industry, would certainly be affordable. Yet, the 'drama factor' of such a claim is likely to incite political passions. Thus far, the HMO lobby has also prevented Medicare advocates from pushing legislature through Congress that would allow Medicare contractors to negotiate directly for the prices of products, such as drugs, instead of just the facility costs. This would further dramatically reduce patients' bills at the cost of hospitals' profit margins. Thus far, it has been vetoed.
After reading this article, I was shocked at the callousness which seems to be inherent in this industry. It is enraging. However, it is important to recognize that not all hospitals fall under this umbrella. There are certainly 'good' hospitals, which take on patients that cannot afford to pay, and use the money gained from those who can to support those in need. Obviously, when only some people can pay and others cannot, but require the same amount of care, the costs must go up for those who can pay to cover those who can't. There are hospitals that operate at a loss, or who make just enough profit to balance depreciating assets and enjoy moderate growth. However, the fact is that, industry wide, hospitals are a profitable business. In the end, they are not only making ends meet, but they are making money. And that wealth comes at the expense of the sick.
Update 1: Universal Health Care
Universal health care has been proven to be the most cost effective and fair health care system time and time again. It is used in the EU, Australia, Britain, and almost every other first world country. Yes, it is expensive, but: a) If the general health of the population is not worth spending money on, then what is? Defense? Are we willing to fight wars, but not keep our people healthy? b) If their was a national public health care program, insurance companies and hospitals would be forced to give fair prices, and the overall costs would decrease.
"Current health spending in the US is sufficient to cover a single payer system. And the majority of people and health professionals support this approach. The major barrier is corporate influence over the US political process. Health insurance, pharmaceutical and private hospital corporations spend millions to lobby and elect legislators who are favourable to their interests. Legislative staffers are often hired from these industries, and lobbyists for the industries are often former legislative staffers. For example, staffers and lobbyists were very successful in making certain that the ACA would protect their profits.
It is not likely that the US will move to Single Payer unless a strong grassroots movement demands it. And corporate forces, including corporate political parties, do what they can to prevent this. During the health reform process, tens of millions of dollars were given to grassroots groups and labour to support the ACA and the White House made sure that they complied with the Democrat's messaging. Now, these same groups are allying with the health insurance corporations to promote the purchase of their products."
Update 2: American Hospital Associate Media Advisory
The American Hospital Associate sent out a Media Advisory the day before the Time Magazine article went to press. In it, they advised hospital employees about how to address concerns and complaints stemming from the article. On the whole, I was unimpressed with the response. They gave the normal spiel, saying how difficult it is the treat everyone, even those without insurance, etc. and reiterated their commitment to making sure all patients understand their bills. All in all, I thought their rhetoric was fairly standard and did not specifically address the issues brought up in the article. However, there were three crucial pieces that I thought were truly relevant to the information presented in the article:
1) They stood by the claim that Medicare underpays for procedures by 10%. I am not sure what to make of this number. I believe further investigation to be necessary. On the one hand, I can see such a complaint stemming from unusual readings of the numbers, but I can also understand how this might be an honest assessment. (The Time article gave a compelling but anecdotal rebuttal of this claim.) In some cases, practices and smaller hospitals that do not have such specialized facilities such as labs, trauma centers, or surgical centers may have to send patients (or tests) out to other facilities, with whom they do not have such amenable agreements as those between large insurance carriers and hospitals. The effect would be that these smaller hospitals or private practices end up paying 'chargemaster' prices for such treatment. Obviously, this would be reflected in a patient's bill.
2) The following quote seemed to have the most substantial information from the whole Media Advisory. However, I found the bolded clause below most telling. Although I understand the sentiment given is one of complaint about how patients do not pay what they owe (and it may indeed be true that one in four hospitals operate in the red), I could not help but thinking how ridiculous such a statement is. Frankly, why is it the case that the vast majority of patients are not even expected to pay what is listed on the hospital bill, yet the bill still exists? Such a state of affairs is inefficient and confusing at best, and completely dishonest and moronic at worst. "It’s important to keep in mind what is charged and what is eventually paid are two different numbers. Because nearly all of a hospital’s payments are set either by government, which pays less than the cost of caring for patients, or through negotiations with private insurance companies, the vast majority of patients do not pay what is listed on the hospital bill – which is why one in four hospitals operate in the red. What is most important and relevant to patients is how much they will pay out-of-pocket. Because insurers determine how high their customers’ out of pocket rates will be, customers need insurers to provide realtime information." - http://getpaidfaster.securebillpay.net/american-hospital-association/
3) Time Magazine has published a correction on one fact: “The original version of this article stated that the total annual amount of charity care provided by U.S. hospitals cost them less than half of 1% of their annual revenue. In fact, the uncompensated care hospitals provide, either through charity programs or because of patients failing to pay their debts, amounts to approximately 5% of their total revenue for 2010.”
