Why High Medical Bills Are Killing Us

TIME magazine coverIn his 38-page TIME magazine special report, “Bitter Pill: Why Medical Bills are Killing Us,” Steven Brill dives into our health care system to understand why things cost so much, avoiding the more traditional question of who pays for what. What he found was both disturbing and telling. (His 3:38 min video introduction is at the end.)

His first story starts with the MD Anderson Cancer Center in Houston, a nonprofit facility of the University of Texas, as he follows a patient who had to prepay $48,900 for six days of testing just to determine his cancer treatment regimen, which could easily run half a million dollars. An analysis of the itemized list of confusing charges showed that they were inflated as much as 100 times over retail prices, even before the hospital’s leveraged buying power. Those costs were also way higher than what Medicare would pay for the same tests, procedures and drugs.

MD Anderson, with its 19,000 employees, is one of the city’s top-10 employers, and its CEO last year was paid $1,845,000. Four other hospitals in the 1,300-acre Texas Medical Center are also in the top-10. Clearly, healthcare is a big business, but who’s making the money if it’s not doctors, nurses and technicians? It’s the hospitals, insurance companies, drug companies, equipment providers, and testing companies.

Understanding why the costs are so high was the subject of Brill’s article. Why does a single drug cost thousands of dollars? Why do lab tests done over a few days while in the hospital cost as much as a new car? Why are tax-exempt “nonprofit” hospitals among a town’s most profitable businesses, employing the most workers and run by the most richly compensated executives? And why is technology driving up health care costs instead of lowering them?

Healthcare Monopolies

It has to do with the lack of competition and the fact that you simply don’t have a choice but to pay up. You’re directed to a specific hospital by your physician or insurance company and are unlikely to visit different emergency rooms and compare prices before deciding on where to get your appendectomy. Instead, you expect your health insurer to pay. This insurer often negotiates discounts that are not available to those without insurance, so you feel like you’re getting a bargain. But their 50% discount on a $200 pill may still be ten times more than the same pill bought at retail prices.

“Thank God for insurance,” you may think, because those people who are least able to pay and have no insurance are charged the higher rates. After all, over 60% of personal bankruptcies result from medical issues, and at least that won’t be you, you think. But insurers add nothing to health care but costs, as I’ve written about before.

Many affluent patients who think they have good health insurance don’t find out until it’s too late that their coverage has limits that are far below the real costs they can face. Most employer-provided insurance policies have annual caps of $500,000 or $750,000, which can quickly be consumed by a catastrophic illness. That’s why Obamacare prohibits such limits and will eliminate them out by 2014. That will protect some people but will shift the cost burden onto others.

Americans gasp at the $60 billion price tag for cleaning up after Hurricane Sandy but spend almost that much each week on health care, as noted in our statistics page. We pay more for healthcare than any other wealthy nation but are still sicker and die earlier.

According to Brill, tax-exempt nonprofit hospitals tend to make higher profit margins than for-profit hospitals, but IRS rules preclude them from distributing their profits to shareholders. Instead, they direct it to building expansion, more test equipment, more employees, new services, and acquiring rival hospitals.

Each hospital maintains an internal price list for all charges, called a chargemaster, but prices can vary significantly from one hospital to another across town, but you’ll never know.

Outpatient services aren’t much cheaper and in fact can cost more than in-hospital stays since they still include work done by physicians, laboratories, same-day surgeons, and other hospital treatments like cancer chemotherapy.

Government Insurance

Medicare is often viewed as an entitlement program that’s a drain on the economy, but Brill describes it as probably the most efficient part of our healthcare system. Medicare’s administration and management cost of processing over one billion claims a year is less than $3.80 and in some cases as low as $0.84. Compare that to Aetna’s much higher cost of processing its 229 million claims, which is about $30.

Even Medicare can be more efficient, however. The program can negotiate prices with hospitals and doctors but, thanks to the political influence of pharmaceutical lobbyists, Medicare can’t negotiate lower drug prices. And patients can’t legally buy drugs from Canada or overseas, but some still do. They pay considerably less for drugs that are developed & tested here, manufactured here, then shipped abroad, and shipped back again.

The health-care-industrial complex spends more than three times what the military-industrial complex spends in Washington.

Brill calls for Congress to remove the drug buying handcuffs from Medicare and to open the program to more people rather than the riskier move of replacing our healthcare system with single payer universal healthcare, like the other wealthy nations have. I think he’d buy into the hybrid public/private healthcare system that I proposed.

He calls for tougher antitrust laws to keep hospitals from becoming too powerful, higher taxes on hospital profits, and a surcharge for ultra-high non-doctor salaries. He wants to get rid of the chargemaster and make costs more transparent and competitive. He wants price limits on new wonder drugs until their patent protections expire. And related to tort reform, Brill calls for safe-harbor defenses for doctors to prevent the practice of defensive medicine and the ordering of unnecessary tests. (I disagree on that issue and put more of the blame on insurance companies who benefit from selling malpractice insurance and driving up healthcare costs to justify higher health insurance premiums.)

Brill agrees with my position that Obamacare does good work around the edges of the core healthcare problem but simply changes the rules related to who pays for what. It doesn’t do enough to actually lower the prices we pay.

When you follow the money over decades, you see who benefits from our sick-care system. As mentioned at the beginning of this article, it’s the hospitals, insurance companies, drug companies, equipment providers, and testing companies. Meanwhile, we’ve squeezed the doctors and are discouraging others from entering the field. And of course, we’ve squeezed the patients with a high-cost system that delivers relatively poor outcomes, even forcing some to buy prescription drugs illegally from Canada or travel to other countries as medical tourists.

Author’s Video Introduction

PBS News Hour Interview with Author

7 thoughts on “Why High Medical Bills Are Killing Us

  1. James Blair (Center for Health Care Emergency Readiness) also wrote an excellent review of TIME’s important special report, and I encourage you to read that too. But I take exception to one part of his introduction. 

    Blair said, “Within a lifetime the healthcare delivery system has morphed from its altruistic patient-centered roots into a highly competitive, bottom-line, profit-centered commercial enterprise.” The issue is the term highly competitive, since the healthcare system is far from competitive, at least from the patient perspective. I agree with the profit-centered part of his introduction but side with Steven Brill in thinking that the problem with our system is the lack of competition. 

    When patients are injured or sick, they simply don’t have a choice but to pay up. They’re directed to a specific hospital by their physician or insurance company and are unlikely to visit different emergency rooms and compare prices before deciding on where to get their appendectomy. Instead, they expect their health insurer to pay. This insurer often negotiates discounts that are not available to those without insurance, so the insured patient feels like she’s getting a bargain. But the 50% discount on a $200 pill may still be ten times more than the same pill bought at retail prices.

    And even if patients had the inclination and time to do so, there’s no way for them to get an apples-to-apples comparison of the cost of different treatment programs or treatment centers. Instead, they’re often hit with a series of bills that they don’t understand after leaving the hospital. 

    Health Populi also has a review of Brill’s report.

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