Saturday, March 16, 2013

Bitter Pill: Health Care In America

Steven Brill has written an invaluable piece of investigative journalism for TIME Magazine, Why Medical Bills Are Killing Us, that is a must read for anyone interested in understanding why a country that spends more than 27% more per capita than any other industrialized nation for its health care yet has millions uninsured, 60% of its personal bankruptcies caused by unpaid medical bills and fails to deliver the outcomes that should come with expending nearly one-fifth of our gross domestic product on this one basic service. 

Most of Brill's 24,105 word story is told through the medical bills of random Americans, people who suffered everything from a minor slip and fall ($9,418) to terminal cancer ($902,452) and other maladies in between. And through this storytelling, we learn about the wild discrepancies in how patients are billed, the gross mark ups hospitals charge for everyday items like ointment ($108 for a tube that costs a few dollars), niacin pills ($24 each off a retail cost of 5 cents) and gauze pads ($77 per box), and a system that includes few controls or disincentives for this type of usurious conduct.

If there is a villain in Brill's story it is someone few people have probably ever heard of - the "chargemaster"- a quintessential "man behind the curtain" whose spreadsheet of pricing determines what you are billed, for everything from the latest cancer drug to a simple Tylenol.  But here's the thing, what you are billed, or more accurately, what you, your insurer, or Medicare pays differs depending on who is writing the check - and therein lies the rub. An uninsured 64 year old person is charged more than $6,500 for 3 CT scans that the same patient, had she been a year older and covered by Medicare, would have been charged $825, and with little in the form of a co-pay instead of being obligated to pay the entire bill.  The article is littered with these examples, not just of the compare/contrast between costs charged to the uninsured (or the privately insured for that matter) and Medicare, but of the haphazard and hard to justify rationales for why hospitals, particularly non-profits, have operating margins (and executive salaries) that compare favorably with obscenely successful private corporations. 

When pressed to explain why its chargemaster fees diverge so wildly, the hospital executives Brill interviewed were either evasive ("the issues related to health care finance are complex for patients, health care providers, and government entities alike …") or hid behind patient confidentiality (even though Brill was not asking about specific patients, but rather, general billing procedures). But these charges have real world implications because of the enormous pressure applied to patients who are charged these exorbitant rates. A woman Brill profiles was handed a bill for more than $21,000 for an ambulance ride to a hospital and about three hours of treatment (most of it waiting to be examined) after she complained of chest pains which turned out to be a simple case of heartburn. This included several $200 tests (Medicare pays less than $14 for the same procedure) and $995 for the four mile ambulance ride.  It was not until the woman hired a "medical billing advocate" that the hospital halved her bill (although the ambulance company was not as generous). Of course, hospitals rarely advertise the fact that prices can, in some cases, be negotiated down if one has the wherewithal to dispute those charges (or the money to hire a medical-billing advocate, an industry whose ranks are sure to grow); however, nothing is guaranteed. One of the patients Brill profiled was sued by her hospital over a $7,400 bill and was unwilling, through court-ordered mediation, to reduce the charges. Ultimately, the woman was put on a $20/week payment plan for six years. Another woman, a widow whose husband died of cancer, went through more than a year of negotiations with all manner of health care providers, doctors and hospitals over what was initially a more than $900,000 bill, getting discounts and waivers that whittled her final cost down to about $142,000, a fee she covered mostly by selling a piece of inherited property and cashing out a life-insurance policy. 

Those chargemaster costs also serve a more surreptitious purpose. As Brill illustrates, non-profit hospitals use these inflated figures as a means of promoting their charity care in places like Mike Allen's Playbook, a daily "tip sheet" published by the online site Politico where the American Hospital Association lobbied against a bill in Congress that would have cut hospital payments. The AHA claimed such a law would jeopardize more than $39 billion its members provide in charity care. As Brill notes, that figure is based on the wildly inflated chargemaster rates, which, if compared to what Medicare pays, would shrink that figure down to just $3 billion, or less than one-half of 1% of those hospitals' combined annual revenue. With operating margins that range between 10-12% and not-uncommon seven-figure salaries for its high-level executives, surely, Brill argues, the idea that trimming what hospitals charge their patients would not be unduly burdensome. 

Of course, hospitals find many places to wring profit from their work. Whether it is purchasing doctors' practices or its competitors, hospitals can bargain from a position of strength when it comes to reimbursement rates it offers insurance companies. Hospitals also find great value in the equipment they use. For example, a hospital can recoup its costs on a CT scanner within a year and then pile on pure profit over the rest of the productive life (estimated to be 7-10 years) of those machines. Moreover, tests like CT scans are used far more liberally in the U.S. and at a higher cost than in other countries. To take one example, Brill mentions that even Medicare, which reimburses at a significantly lower rate than private insurance, still pays four times more for a CT scan than what is charged in Germany even as doctors in the U.S. order 71% more of these tests. 

When it comes to health care, there are many points along the continuum where the industry sticks its snout in the trough. Medical device makers turn enormous profits on everything from run of the mill walking canes ($21.97 billed to Medicare for a product that goes for $12 on Amazon) to neuro stimulators (wholesale price? $19,000. Price billed to patient? $49,237). A cancer drug Brill estimates was made, tested and marketed for between $300-$500 is sold to hospitals for $3,500, who then turned around and bill patients more than $13,000 for a dose. Like those non-profit hospitals, drug makers like to tout their philanthropy, but as Brill notes, for a company like biotech giant Genentech, which claims to have given away $2.85 billion in free medicine since 1985, that is based on the price it sells its medications for, not what it costs to produce. Looked at through this lens, that figure represents less than 1% of the company's sales, not nothing, but not much to crow about either. Brill also debunks the argument that regulating what drug companies can charge for their products would affect their investment in research and development by noting that most drug companies generate healthy profits even in places like Europe, which has far more stringent price controls and that net revenue, to take one example at cancer drug maker Grifols, was more than 32% in 2012 - a figure that includes its R&D and a sum that would be marginally impacted by tighter controls over what it could charge for its drugs here in the U.S. 

All of this matters because no other single industry hovers over our economy like health care. Not only does it account for nearly 20% of our economy, it is a massive employer projected to have 10 of the 20 fastest growing occupations between now and 2020. Even in a place like New York City, which is synonymous with high finance, twice as many hospitals (8) as banks (4) are among its 18 largest private employers. As our population ages and the broad expansion of coverage under the ACA take root, how health care is delivered, at what cost and how it is paid for will become larger and larger issues that will require thoughtful decisions divorced from the hysteria of "death panels" and "socialized medicine." 

When it comes to recommending changes, Brill argues that controlling cost is the most obvious place to look. As he points out, to do so would be to accept what happens in reality anyway -  hospitals collect anywhere from 20 to 60 cents on every dollar they bill anyway - largely because of the baked in "discounts" to its chargemaster fees given to insurers and Medicare. The only people paying full price are the uninsured, who, not coincidentally, are least likely to be able to afford the cost of care anyway. Debt hangs over these unfortunate souls and cripples them while hospitals farm out collections to agencies with little motive to cut a deal. Even when the ACA becomes operational, the law does little to address spiraling costs. While insurers must justify large (more than 10%) increases in their premiums, doctors and hospitals are not under the same obligation and are free to continue using their exorbitant chargemaster rates. This, combined with the creeping monopolistic tendencies of hospitals, will likely result in higher premiums, an outcome that will significantly mitigate the value of having all of those additional people in the insurance pool.  

As the largest consumer of health care, Medicare is another obvious place to look for savings, but it is here where Brill's reporting is most disappointing - not because of any defect in his writing, but rather, because solutions that seem common sense, such as allowing people under 65 to buy into the program, perhaps at some modestly higher levels, or permitting the program to negotiate over drug prices, are non-starters. This is a key point because the government is going to be subsidizing the private insurance of a lot of people in their 50s and early 60s starting next year when the ACA is fully rolled out. Brill argues that it would be better (and cheaper) to take that money and re-direct it into lowering the Medicare eligibility age as opposed to raising it, which would put taxpayers on the hook for subsidizing people who are more expensive to insure on the private market. As for drug prices, while Medicare's hands are tied, Brill mentions that when a group of hospitals wrote to Sanofi, advising the drug maker they would no longer use one of their cancer treatments because of its cost, which was more than twice as much as another drug that was just as effective, Sanofi quickly backed down and lowered the price on its medication by half.  Brill estimates allowing Medicare to bargain over drug prices would save the program up to $250 billion over 10 years. 

Ironically, many of the market efficiencies that conservatives lionize are far more prevalent in Medicare than private insurance. As Brill notes, quality control and metrics on everything from call center wait times to the percentage of claims that are improperly denied (a ridiculously low 1%) are all aggressively monitored in Medicare, whose administrative costs are about two-thirds of 1%, while a private insurer like Aetna has overhead costs of 29%. Wringing the same efficiency out of the private insurance world would also be a big step toward lowering overall costs. More curious is Brill's support for tort reform, a bĂȘte noire of the right wing but a policy that has already been enacted to mixed results in a number of states throughout the country. Other suggestions, like levying a 75% tax surcharge on non-doctor hospital salaries above $750,000 and "outlawing" the chargemaster are pie in the sky, though in lieu of eliminating the chargemaster, "truth in billing" and closer scrutiny of non-profit hospitals who hand out multi-million dollar compensation packages to its executives might be feasible. 

Ultimately, Brill's deep dive into our health care system shows what happens when what is considered a fundamental right in the rest of the industrialized world is profit driven and treated like a commodity in our country. Everyone skims their profit off the top as costs pile up before landing in the patient's lap, either in the form of a heavily padded bill or an insurance premium that goes up and up with each passing year. Our leaders in Washington would do well to read Brill's piece, lower the temperature on their rhetoric and realize that improving efficiency and providing quality health care are not mutually exclusive; indeed, for our health care system to survive, they will need to work hand in hand. 


  1. Thank you for this post. Very informative.

  2. Thanks for this summary. I will send it to the people I sent Brill's article as I know that the vast majority did not have the fortitude to read his lengthy article

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  4. 'suffered everything from a minor slip and fall ($9,418) to terminal cancer ($902,452)'.

    I can't believe how expensive the healthcare system is in America.
    Thanks for the summary/article.