Thursday, February 28, 2013

Healthcare’s rape of the American wallet

Imagine:  You’re in a small town miles from anywhere when your car breaks down.  There’s only one repair shop.  Your repair bill includes three diagnostics — one at the beginning, a second to make sure the first one was right, and a third after the repair in case the mechanic replaced the wrong part — plus charges for the mechanic’s overalls, grease rags and each tool used to fix it.  The part he replaces, which you could buy at Pep Boys for $49.95, is billed at $495 plus separate charges for each bushing and bolt that came in the box with it.  The labor includes a second charge for the coworker who looked at the engine briefly while the mechanic was in the loo.  And there’s a separate charge for the repair shop itself.  Thank God you didn’t drink any coffee while you were there.

This is just a taste of what hospital billing is like.

David Catron chortles in The American Spectator over the success of Circle Holdings in turning around Hinchingbrooke Hospital, near Huntingdon in Cambridgeshire, the poster child for everything people say is wrong with Britain’s National Health System and socialized medicine in general.  “This is the first time such a company has been given control of an NHS hospital and the results will not come as a surprise to anyone who understands free enterprise.”

It will also come as no surprise to those who believe the market provides the most efficient health care delivery model that, in addition to dramatically improving the financial prospects, privatization has improved patient satisfaction. Before Hinchingbrooke was taken over by Circle Holdings, patients had a very low opinion of the hospital and the care it provided. Now, this perception is dramatically improved: “Patient satisfaction has risen to 85 per cent, placing Hinchingbrooke in the top six of the East of England’s 46 hospitals.”


The article is rather facile in its analysis.  Customer satisfaction is up, yes, and now Hinchingbrooke is paying off its debts, okay.  If profitability and customer satisfaction are the only measures in play, then by gar it looks like the free market wins again.

But as Steven Brill’s TIME Special Report “Bitter Pill: Why Medical Bills Are Killing Us” makes abundantly clear, profitability and customer satisfaction are not the only metrics to be considered.  The whole point of getting every American insurance coverage — besides creating a windfall for the insurance industry, I mean — was to bring the costs of healthcare under control.  And it’s here that the free-market model fails because the factor that keeps costs down, open competition, has been successfully kept to an absolute minimum by the healthcare system itself.  This is just one of many problems that a recent study by the Institute of Medicine, “Best Care at Lower Cost: The Path to Continuously Learning Health Care in America”, talks about.

“Bitter Pill” takes a look at common medical billing practices that generate incredible amounts of revenue for hospitals, often giving them operating profit margins that would be considered insanely successful in any private industry.

The main issue, put simply, is price-gouging: line items on hospital bills are well in excess of the actual cost to the hospital, with some items double-charged (if they’re part of prepackaged kits) and triple-charged (if the kits themselves are part of the hospital’s standard services supposedly covered by the facilities charge).  Theoretically, these “chargemaster prices” — so called for the databases hospitals use to generate these bills — are merely convenient fictions used as starting points for negotiating with insurance providers.  For the uninsured and underinsured, however, they’re all too real.  And a 50% discount on an item whose chargemaster price is eleven times cost still leaves insurance providers paying an outlandish markup.

Everyone talks about tort reform, but no one does anything about it.  This encourages doctors and hospitals to over-test, sometimes preferring more thorough (and expensive) tests, ostensibly to do everything possible to avoid a malpractice charge but in the meantime piling more charges onto the bill.  Conservatives have tried to introduce “safe harbor” provisions, which would give doctors the shelter of “reasonable effort” based on standard medical practices; liberals, in love with tort lawyers, have foiled all such attempts so far.  So the over-testing continues, an ongoing form of greenmail for which we all pay.

There are other contributing factors.  For instance, despite the image the pharmaceuticals lobby paints of high R&D costs for their drugs, the companies still have high profit margins once all costs including tax are factored in.  Another problem is conflict of interest as doctors get financial incentives, in the form of consultant’s fees and ownership, from medical device manufacturers to prescribe their products.  And non-profit hospital executives are often some of the highest-paid executives in the nation, with salaries and benefits to make them one-percenters.

The healthcare market isn’t a true market.  In a true market, the purchaser has sufficient information and time to comparison shop between merchants who must compete for his dollar.  In our healthcare system, costs are deliberately hidden, the customer doesn’t have nearly sufficient information (and often no time), and for many functions there’s little to no real direct competition … especially when the regional hospital is the only one for miles and miles.  The patient is too often a captive consumer, motivated by fear and forced by circumstances to buy whatever is being sold at the price being charged.

The result: Healthcare’s ongoing rape of the American wallet, both directly and indirectly through insurance costs.  And, if Brill is telling the truth about the healthcare lobby outspending the defense lobby by 3:1, that’s the way they like it.

A single-payer system is not necessarily the answer.  One thing we can do is pass a Fair Medical Billing Act which would include prohibition of billing for certain operating costs, standard tests and consumables, open publication of certain charges, the much-needed “safe harbor” provision, and the dedication of a certain percentage of operating profit to reducing patients’ bills incurred over the previous year.  There should also be incentives to develop a means of creating fair competition between providers.  The most important thing it should do, though, is end the chargemaster system and require line-item billing at cost for all nonstandard tests, procedures, consumables and equipment not defined by the Act as part of operating costs.

Any other bright ideas?