Time Magazine’s “Bitter Pill” – Part I
Martin Feldstein, Professor of Economics at Harvard University published an article citing the fact that Congress and the Administration were actively considering plans to impose direct controls on the costs of more than 7,000 individual hospitals. He then stated, “The explosion of hospital costs is now the central problem of our national health care policy.” Despite his reputation as a staunch Conservative, he also wrote, “More generally, now that Medicare and Medicaid provide benefits for the aged and the poor, it is the rapid increase of hospital costs that provides the primary impetus for national health insurance.” What? Very few are aware of this letter since it was written in 1977.
In April of that year, President Carter proposed mandatory hospital cost controls that passed the Senate in October 1978, but was defeated in the House in November 1979. It would appear (as you will soon read) that Congress’ decision 34 years ago was a drastic mistake. However, one must give credit to Professor Feldstein’s prescient powers since the specter of high hospital costs has now made the cover of Time magazine. (Information about that piece of doomed legislation was not covered in the Time magazine article.)
Shorter Lives. Poorer Health
An important adjunct to the Time article is a report issued by the prestigious Institute of Medicine of the National Academies in January of this year. It totally discredits the opinions of a number of our more nationalistically and politically inclined congressional representatives (some in the highest towers of power) who express the strong opinion that the United States has the best health care system in the world. The cover of the report (shown here) sums up the contents in four words: “Shorter Lives, Poorer Health.”
“The United States is among the wealthiest nations in the world, but it is far from the healthiest. For many years, Americans have been dying at younger ages than people in almost all other high-income countries. This health disadvantage prevails even though the U.S. spends far more per person on health care than any other nation.” That’s the opening paragraph of the report that compares American health care with that provided by other comparatively wealthy nations. In fact, ranking 17 countries by life expectancy at birth, the U.S. is last amongst men, and next to last amongst women.
This despite the fact that in the U.S., we spend almost 20% of GDP on health care compared with about half that in most developed countries. What’s contributing to the high costs and poor results? Here are the Time article’s blockbuster observations.
The Bitter Pill
Time has been in publishing mode for 90 years. Its March 4th issue contains the longest article ever published in that magazine’s entire history––36 pages and 24,000 words with the front cover title, “Why Medical Bills Are Killing Us.” Although the length of the article is remarkable, more so is the timeliness of this startling exposé, the public interest that has been generated, and the depth and quality of writing, all of which should result in a Pulitzer Prize for the author. Moreover, the potential consequences that may very well result from these revelations could be stunning–– let’s hope so.
The author, Steven Brill, is what might be called an entrepreneurial journalist, having founded Court TV, two magazines, (one, Journalism Online sold for $45 million), plus other ventures. Oh yes! He is the author of three books, has been a columnist for Newsweek and Es-quire, and has written articles for The New York Times, the New Yorker, plus this most recent blockbuster in Time.
In the seven months that it took Brill to write the article, the results of his examinations of hundreds of bills from hospitals, medical equipment manufacturers, doctors, and drug companies were summed up in the article’s headline, “Bitter Pill: How outrageous pricing and egregious profits are destroying our health care.” What he discovered would be a revelation, perhaps even to some within the health care industry.
If you haven’t yet read the full Time magazine article, I strongly urge you to do so here: TIME: Why Medical Bills Are Killing Us. If you don’t get red-in-the-face, furious (Jon Stewart, while interviewing Brill did) I would be surprised.
The Dreaded “Chargemaster”
The key focus point causing elevated blood pressures when reading the article, and a major portion of Brill’s skewering of the health care industry, results from hospital expenditures, and physician and clinical expenditures that have typically been growing faster than GDP. Because these categories comprise over half of all health care costs, (31% and 20% respectively) they are responsible for half or more of the excessive healthcare cost growth. Brill saves most of his ammunition for the hospitals, stressing in his Time article, “How outrageous prices and egregious profits are destroying our health care.”
Even if you have had the misfortune of being in a hospital, it would not be surprising if you never heard of the hospital industry’s Charge Master Management System. A Charge Description Master (CDM) file (more commonly referred to as the Chargemaster), is a comprehensive listing of items that can be billed to a patient or insurer by a healthcare provider. Its purpose is to develop an accurate summary of charges and services that doctors and nurses provide during the course of patient care, as well as the cost of each to the patient.
A Chargemaster list contains many thousands of hospital services, medical procedures, equipment fees, drugs, supplies, and diagnostic evaluations such as imaging and blood tests. While it seems logical that such a file is a necessary evil, according to Brill’s detailing of real life situations, the word “evil” has become its dominating feature. Brill obviously considers the Chargemaster a malevolent driver of excessive costs.
It’s Jaw Dropping
In our capitalistic society, there is almost always some logical and accepted relationship between the cost of goods and services and their selling price. Not so however in the Chargemaster universe. Prices are unconscionably manipulated to the point of absurdity, with no realistic relationship to actual costs, all to increase hospital profits. Few outside the industry are familiar with this practice.
Brill writes, “There is the jaw-dropping difference between those list prices and the actual hospitals’ costs, which enables these ostensibly nonprofit institutions to produce high profits even after all the discounts.” This is the major point that Brill attempts to make, and is the main thrust of the article, especially since these preposterous list prices are irrationally higher than they should be, when compared to Medicare pricing.
Brill’s uses a simple model for describing how hospitals charge. You are probably familiar with the saying, “follow the money.” He does just that by selecting eight hospital patients, some with no insurance, and some with limited insurance (Medicare patients need not worry). He then meticulously examined and dissected their actual hospital bills, exposing inexcusable and egregious mark ups on every item on the dreaded Chargemaster list. He then provides numerous examples of scandalous markups on many hospital charges. Here are a few:
Simple lab work implemented during a few days in the hospital can cost more than a car. A trip to the emergency room for chest pains that turn out to be indigestion brings a bill that can exceed the price of a semester at college.
An X-ray that Medicare compensates at around $20 can generate a charge 14 times that amount. The charge for one simple acetaminophen pill can buy a bottle of 100. In one case it was determined that an over the counter pain pill was marked up over 10,000 percent. How about a charge of $18 for one diabetes test strip that you could buy for 55 cents?
Going to the ER can bankrupt you if you don’t have adequate levels of insurance. One example given in his article was a school bus driver who slipped and fell on her face and went to the ER. Three CT scans cost her nearly $7,000. She was just short of qualifying for Medicare and wound up being billed the full charge, for which Medicare would have only paid $825. But since she didn’t have Medicare, she got the full bill.
With low insurance coverage you can be decimated. One featured story reviews a man in his 50s who had insurance, developed pneumonia and was hospitalized for one month and came out with a nearly $500,000 bill. After insurance coverage, their bill was still over $400,000.
Brill does not stop with horror stories of individual patients. He covers the role played by the big non-profit hospitals that he claims produce higher profits than the for-profit institutions, and incidentally pay mind-blowing salaries to executives.
He also examines the costs and profits involved with medical devices, the bills for catastrophic illnesses the ridiculous profits generated by lab tests, and mind-boggling salary levels. These issues will be reviewed in next month’s issue.