By Dr. Mercola
Americans spend twice as much on health care per capita than any other country in the world; in fact according to a series of studies by the consulting firm McKinsey & Co, the US spends more on health care than the next 10 biggest spenders combined: Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain, and Australia.
Despite that, we rank dead last in terms of quality of care among industrialized countries, and Americans are far sicker and live shorter lives than people in other nations. How is that possible? The short answer is: We’re being fleeced.
In the video above, CNN interviews a family blindsided by medical bills amounting to more than $474,000 after 60-year-old Bob Weinkoff spent just a few days in the ICU, suffering from difficulty breathing.
According to a 2011 report by the global consulting firm Milliman, annual healthcare costs for the average American family of four, if covered by a preferred provider organization, is a staggering $19,393.1
Between 2002 and 2011 alone, the average cost of health care for American families doubled, and since absolutely nothing is being done to rein in the absurd overcharges, there’s every reason to believe costs will continue to skyrocket until the bottom falls out.
Cancer treatments, in particular, have increasingly become exorbitantly expensive, even though no one can explain exactly why it has to cost upwards of $1 million.
By dissecting the medical bills people have received, journalist and author Steven Brill says we can see exactly how and why we are overspending and where the money is going.
Bitter Pill – The Absurd Costs of American Health Care
In a recent Time Magazine interview,2 Brill discussed his very impressive 11-page cover story, Bitter Pill:3 This is one of the longer investigative pieces and thankfully Time made it available for free.
“Simple lab work done 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. When we debate health care policy in America, we seem to jump right to the issue of who should pay the bills, blowing past what should be the first question: Why exactly are the bills so high?”
In his article, Brill gives numerous examples of shocking markups on many hospital charges, such as $1.50 for a generic acetaminophen tablet, when you can buy an entire bottle of 100 tablets for that amount, $18 per Accu-chek diabetes test strip that you can purchase for about 55 cents apiece, or $283.00 for a simple chest X-ray, for which the hospital routinely gets $20.44 for when it treats a Medicare patient.
Most need to know that going to the ER can bankrupt you if you don’t have 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.
Even with insurance you can be decimated. The 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. This was in part due to the hospital’s policy of not just double billing for items but TRIPLE billing. Lab tests are another large cost and hospitals generate over 70 BILLION dollars every year from this service, while the largest lab tester in the country, Quest Diagnostics, only generates ONE TENTH of those charges, and they most likely do far more tests.
As an example, according to Stamford Hospital’s latest expense report, which each hospital is required to file with the federal Department of Health and Human Services, the hospital’s total expenses for lab work in 2010 were $27.5 million. Its total charges were $293.2 million, meaning it charged patients about 11 times its costs for lab work.
The Chargemaster: What You Need to Know About if You Want to Avoid Medical Bankruptcy
As Brill discovered, each hospital has an internal price list called a chargemaster, which contains every single item you may be given or come in contact with during your hospital stay. That includes the little white paper cup you get your medicine in, every box of tissue and band-aid, even a toy to a child (which many mistake as a “gift”) can be billed at upwards of $200. The problem is, no one quite knows how the prices in the chargemaster are created.
“It would seem to be an important document. However, I quickly found that although every hospital has a chargemaster, officials treat it as if it were an eccentric uncle living in the attic. Whenever I asked, they deflected all conversation away from it…
I soon found that they have good reason to hope that outsiders pay no attention to the chargemaster or the process that produces it. For there seems to be no process, no rationale, behind the core document that is the basis for hundreds of billions of dollars in health care bills… No hospital’s chargemaster prices are consistent with those of any other hospital, nor do they seem to be based on anything objective – like cost – that any hospital executive I spoke with was able to explain. ‘They were set in cement a long time ago and just keep going up almost automatically,’ says one hospital chief financial officer with a shrug.
…That so few consumers seem to be aware of the chargemaster demonstrates how well the health care industry has steered the debate from why bills are so high to who should pay them… [T]he drag on our overall economy that comes with taxpayers, employers and consumers spending so much more than is spent in any other country for the same product is unsustainable. Health care is eating away at our economy and our treasury.”
There is no real marketplace as such, as you the buyer is completely separated from the seller. There’s absolutely no market feedback to regulate and control the prices that are charged. For the most part the hospitals charge as much as they want, which plays a large role on why these charges have gotten so outrageously out of control. This simply doesn’t happen in countries outside of the US.
This is a Flash-based video and may not be viewable on mobile devices.
About the only defense for the chargemaster rates Brill was able to get was that it has to do with charity. John Gunn, chief operating officer of Sloan-Kettering told Brill:
“We charge those rates so that when we get paid by a [wealthy] uninsured person from overseas, it allows us to serve the poor.”
If this strikes you as nonsense, you’re not alone. Brill found two major holes in that argument. The first one is the most obvious: The hospital is not only charging those rates to wealthy medical tourists or “Saudi Sheiks,” as Brill puts it. These chargemaster rates are billed to average uninsured Americans who aren’t poor enough to qualify for the hospital’s financial assistance program, and don’t qualify for Medicaid.
So in essence, middle-class Americans are being bankrupted to help pay for the poor and the elderly while still allowing the hospital to rake in massive profits and paying their executives some rather astounding salaries. For example, at Montefiore Medical Center, a large nonprofit hospital system in the Bronx, its chief executive has a salary of $4,065,000, the chief financial officer of the hospital makes $3,243,000, the executive vice president rakes in $2,220,000, and the head of the dental department makes a not-so-shabby $1,798,000 per year. Similarly, 14 administrators at New York City’s Memorial Sloan-Kettering Cancer Center are paid over $500,000 a year, including six who make over $1 million.
“Second, there is the jaw-dropping difference between those list prices and the hospitals’ costs, which enables these ostensibly nonprofit institutions to produce high profits even after all the discounts,” Brill writes.
“…[N]o matter how steep the discounts, the chargemaster prices are so high and so devoid of any calculation related to cost that the result is uniquely American: thousands of nonprofit institutions have morphed into high-profit, high-profile businesses that have the best of both worlds. They have become entities akin to low-risk, must-have public utilities that nonetheless pay their operators as if they were high-risk entrepreneurs.
As with the local electric company, customers must have the product and can’t go elsewhere to buy it. They are steered to a hospital by their insurance companies or doctors (whose practices may have a business alliance with the hospital or even be owned by it). Or they end up there because there isn’t any local competition. But unlike with the electric company, no regulator caps hospital profits.”
Hospitals Profit Despite Receiving Only a Small Portion of Billings
Most hospitals end up receiving just 35 percent of what they bill, yet they still manage to make tens of millions of dollars in operating profits each year. Some hospitals, including Sloan-Kettering and MD Anderson, who are tougher in their negotiations with insurance companies, end up getting around 50 percent of their total billings, which quite literally amounts to a fortune. Stamford Hospital reported $63 million in operating profits in 2011, even though about half of their patient base is highly discounted Medicare and Medicaid patients. The actual revenue received, which included all the discounts off the chargemaster, was $495 million.
“That’s a 12.7% operating profit margin, which would be the envy of shareholders of high-service businesses across other sectors of the economy,” Brill writes. “Its nearly half-billion dollars in revenue also makes Stamford Hospital by far the city’s largest business serving only local residents. In fact, the hospital’s revenue exceeded all money paid to the city of Stamford in taxes and fees. The hospital is a bigger business than its host city.”
Medicare is Part of the Problem
Medicare was signed into law in 1965. At the time, the House Ways and Means Committee predicted the program would cost $12 billion in 1990. By the time 1990 rolled around, the actual cost was $110 billion. This year, Medicare costs are estimated to hit nearly $600 billion. As if stuck in an infinity loop, Medicare and Big Pharma (which has successfully manipulated the political system to their unbridled advantage) drive health care costs ever skyward.
As opposed to other countries, American laws actually prevent the government from restraining drug prices. Federal law even prevents the single largest drug buyer – Medicare – from negotiating drug prices. This is a perfect example of how Big Pharma has successfully manipulated laws in such a way that they can operate completely unrestrained in the US, under the flimsy argument that high prices and profits are required in order to fund costly research to develop potentially groundbreaking drugs to treat our ever-proliferating ills.
The only thing Medicare is allowed to do is to add six percent on top of the average sales price drugmakers sell the drug for to hospitals and clinics.
However, Congress does not control what drugmakers charge for their drugs. Pharmaceutical companies are allowed to set their own prices, and when it comes to one-of-a-kind drugs like some cancer drugs, the safeguards built into a free market system disappear, making price setting anything but fair.
Pharmaceutical companies also give rebates to hospitals to create incentive to dispense the drug, as the hospital can then make a greater profit. But since hospitals around the country not only get the same drug at varying rates, and the “average sales price” Medicare bases its payments on doesn’t necessarily reflect these rebates, the base price Medicare uses is oftentimes not very average at all… In some cases, this can result in a hospital still making upwards of 50 percent profit on what Medicare pays for the drug!
In the example Brill includes in his report, a cancer serum called Flebogamma costs the manufacturer an estimated $200-300 to collect, process, test and ship. According to the drugmaker, the average sales price for the drug is $2,003. Sloan-Kettering bills $4,615 for the drug, which Medicare then cuts down to $2,123 ($2,003 plus 6 percent).
“In practice, the average sales price does not appear to be a real average. Two other hospitals I asked reported that after taking into account rebates given by the drug company, they paid an average of $1,650 for the same dose of Flebogamma, and neither hospital had nearly the leverage in the cancer-care marketplace that Sloan-Kettering does. One doctor at Sloan-Kettering guessed that it pays $1,400. …So even Medicare contributes mightily to hospital profit – and drug-company profit – when it buys drugs,” Brill notes.
Further adding to the problem of unrestrained costs is the fact that Medicare is not allowed to pay attention to comparative-effectiveness research. What this means is that if two drugs are found to be of equal effectiveness but one costs far less, Medicare is not allowed to make the decision to reimburse for the lower priced drug only.