Wednesday, July 03, 2013

Time Magazine’s “Bitter Pill” – Part IV

A woman, calling the nurse’s station in a local hospital, said, “Hello, I’d like to talk to the person who provides information regarding your patients.” The nurse on the other end of the line said, “I can help you, what is the patients name and room number?” The woman said, “Sara Finkel, in room 302.” “Just a moment” said the nurse. “Oh yes, Mrs. Finkel is doing very well. In fact she's had six full meals, her blood pressure is fine, and her blood work just came back as normal. She's going to be taken off the heart monitor in a couple of hours and if she continues this improvement. Dr. Cohen is going to send her home Tuesday at twelve o' clock.”

The woman said, “Thank god! That's marvelous! Oh! That's fantastic! That's wonderful news!” The nurse said, “From your enthusiasm, I take it you must be a close family member or a very close friend!” “Not exactly, I’m Sarah Finkel in room 302, and nobody here tells me anything.”

In real life of course, Mrs. Finkel would probably remain just as frustrated as the millions of hospital patients who are faced with incomprehensible costs for procedures, tests, drugs, medical equipment, and every other miniscule service and item that the hospital provides. In the seminal article titled Bitter Pill published in Time magazine, this blockbuster exposé imputes the absurd, irrational, ludicrous, nonsensical, unreasonable, (I could go on) health care costs to the Chargemaster billing system used by all hospitals. However, the author, Steven Brill attributes much of our country’s monstrously inflated hospital charges to several factors other than the Chargemasters’ pricing structure.

For example, it’s logical to assume that by shortening the time a patient stays in a hospital, the lower the costs. Similarly, if a hospital stay could be avoided completely by instead using outpatient services, both costs and hospital profits would be contained. However, Mr. Brill writes, “By 2010, average days spent in the hospital per patient had declined significantly, while outpatient services had increased even more dramatically. However the result was not the savings that reformers had envisioned. It was just the opposite.

Brill continues, “Experts estimate that outpatient services are now packed with so much hidden profits that about two thirds of the $750 billion annual U.S. overspending identified by McKinsey research on health care comes in payments for outpatient services.” He sums up by stating that “Put simply, inpatient care at nonprofit hospitals is, in fact, almost nonprofit. Outpatient care is wildly profitable.”


Better known as Implantable Medical Devices, they often comprise the largest dollar expense item on a hospital bill. Brill cites the case of one patient who entered Mercy Hospital in Oklahoma City for a one-day outpatient procedure to fix his aching back. The solution suggested was a neurostimulator made by Medtronics, the largest stand-alone medical technology company. The bill for that alone was over $49,000. The total hospital bill for the one-day procedure was a staggering $87,000.

Brill determined that the wholesale list price on the stimulator was $19,000. As a result, Mercy made a $30,000 profit on this one item alone. He also discovered that, “To the extent that I found any consistency among hospital Charegemaster practices, this is one of them: Hospitals routinely charge 2½ times what these expensive implantable devices cost them, which produces a 150% profit margin.”

IMD’s and Doctors

In 2008, testimony before a Senate committee revealed that “physicians routinely receive substantial compensation from medical device companies through stock options, royalty agreements, consulting arrangements, research grants and fellowships. The committee was also told “During the years 2002 through 2006, four manufacturers, which controlled 75% of the hip and knee replacement market, paid physician consultants over $800 million under the terms of roughly 6,500 consulting agreements.”

In other words, the doctors were being paid (surreptitiously, unless the physician revealed it, which most did not), to use the companies’ products. These unsavory arrangements have been at least partially mitigated as a result of a 2010 ruling by the Obama administration “that any doctor who receives funds from Medicare or the National Institute of Health [must make the conflict of interest transparent] by posting all payments on a website called Physicians Collaboration.” The weakness of this requirement is evident in the fact that the payments (bribes?) do not have to be revealed to the patient.

There are a number of other factors cited by Brill that increase costs unnecessarily–excessive hospital executive pay; over-doctoring; Congressional mandates that restrict research to determine the most cost effective drugs; the unusually high profit margins enjoyed by medical device makers, and several more––too many to list here.

The Way Out of the Sinkhole

That’s the headline Mr. Brill uses to list his direct quotes as to how to lower the costs of health care and improve the entire system:

We should tighten antitrust laws related to hospitals to keep them from becoming so dominant in a region that insurance companies are helpless in negotiating prices with them. The hospitals' continuing consolidation of both lab work and doctors' practices is one reason that trying to cut the deficit by simply lowering the fees Medicare and Medicaid pay to hospitals will not work. It will only cause the hospitals to shift the costs to non-Medicare patients in order to maintain profits.

Similarly, we should tax hospital profits at 75% and have a tax surcharge on all non-doctor hospital salaries that exceed, say, $750,000. Why are high profits at hospitals regarded as a given that we have to work around? Why shouldn't those who are profiting the most from a market whose costs are victimizing everyone else chip in to help? If we recouped 75% of all hospital profits (from nonprofit as well as for-profit institutions), that would save over $80 billion a year before counting what we would save on tests that hospitals might not perform if their profit incentives were shaved.

We should outlaw the Chargemaster. Everyone involved, except a patient who gets a bill based on one (or worse, gets sued on the basis of one), shrugs off Chargemasters as a fiction. So why not require that they be rewritten to reflect a process that considers actual and thoroughly transparent costs? After all, hospitals are supposed to be government-sanctioned institutions accountable to the public.

We should amend patent laws so that makers of wonder drugs would be limited in how they can exploit the monopoly our patent laws give them. Or we could simply set price limits or profit-margin caps on these drugs. Why are the drug profit margins treated as another given that we have to work around to get out of the $750 billion annual overspend, rather than a problem to be solved?

Just bringing these overall profits down to those of the software industry would save billions of dollars. Reducing drug makers' prices to what they get in other developed countries would save over $90 billion a year. It could save Medicare––meaning the taxpayers––more than $25 billion a year, or $250 billion over 10 years, depending on whether that $250 billion is compared with the Republican or Democratic deficit-cutting proposals, that's a third or a half of the Medicare cuts now being talked about.

Similarly, we should tighten what Medicare pays for CT or MRI tests a lot more and even cap what insurance companies can pay for them. This is a huge contributor to our massive overspending on outpatient costs. And we should cap profits on lab tests done in-house by hospitals or doctors.

Finally, we should embarrass Democrats into stopping their fight against medical-malpractice reform and instead provide safe-harbor defenses for doctors so they don't have to order a CT scan whenever, as one hospital administrator put it, someone in the emergency room says the word head. Trial lawyers who make their bread and butter from civil suits have been the Democrats' biggest financial backer for decades. Republicans are right when they argue that tort reform is overdue. Eliminating the rationale or excuse for all the extra doctor exams, lab tests and use of CT scans and MRIs could cut tens of billions of dollars a year while drastically cutting what hospitals and doctors spend on malpractice insurance and pass along to patients.

Steven Brill’s Time magazine article ends with these words:

Over the past few decades, we've enriched the labs, drug companies, medical device makers, hospital administrators and purveyors of CT scans, MRIs, canes and wheelchairs. Meanwhile, we've squeezed the doctors who don't own their own clinics, don't work as drug or device consultants or don't otherwise game a system that is so gameable. And of course, we've squeezed everyone outside the system who gets stuck with the bills.

We've created a secure, prosperous island in an economy that is suffering under the weight of the riches those on the island extract.

And we've allowed those on the island and their lobbyists and allies to control the debate, diverting us from what Gerard Anderson, a health care economist at the Johns Hopkins Bloomberg School of Public Health, says is the obvious and only issue: “All the prices are too damn high.”

So what was left in your wallet Mrs. Finkel?