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Wednesday, February 27, 2013

Time story on health care overcharges: must read

Posted By on Wed, Feb 27, 2013 at 11:32 AM

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Steven Brill was interviewed on NPR this morning about his extensive (26,000 words) Time magazine cover story, "Bitter Pill: Why Our Medical Bills are Killing Us," on what our real focus on American health care should be: The $750 billion in excessive charges that pharmaceutical companies and hospitals bill yearly.

According to one of a series of exhaustive studies done by the McKinsey & Co. consulting firm, we spend more on health care than the next 10 biggest spenders combined: Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain and Australia. We may be shocked at the $60 billion price tag for cleaning up after Hurricane Sandy. We spent almost that much last week on health care. We spend more every year on artificial knees and hips than what Hollywood collects at the box office. We spend two or three times that much on durable medical devices like canes and wheelchairs, in part because a heavily lobbied Congress forces Medicare to pay 25% to 75% more for this equipment than it would cost at Walmart.

Brill looks at the 344-page hospital bill charged a lymphoma patient that found a charge of single Tylenol as $1.50; the pills are available for slightly more than a penny on Amazon. He found a charge to the patient of $13,702 for a cancer drug that MD Anderson, which buys in volume, can buy for $3,000 to $3,500 — a 400 percent markup. He cites the bill from Yale New Haven Health System for a woman's one-day trip to the ER when she slipped and fell in her back yard. She had a hairline fracture of her nose. CT scans, blood tests, doctor bills came to $9,418 — a sum the hospital said is fair "because everyone gets the same bill."


Brill also looks at charges by a Mercy hospital in Oklahoma — that's the system that includes Mercy Hospital in Hot Springs, the sale of which is being reviewed by the Vatican — for a one-day outpatient for minor surgery to put a spine stimulator in his back. The total: $87,000.

The big-ticket item for Steve H.’s day at Mercy was the Medtronic stimulator, and that’s where most of Mercy’s profit was collected during his brief visit. The bill for that was $49,237.

According to the chief financial officer of another hospital, the wholesale list price of the Medtronic stimulator is “about $19,000.” Because Mercy is part of a major hospital chain, it might pay 5% to 15% less than that. Even assuming Mercy paid $19,000, it would make more than $30,000 selling it to Steve H., a profit margin of more than 150%. To the extent that I found any consistency among hospital chargemaster practices, this is one of them: hospitals routinely seem to charge 21⁄2 times what these expensive implantable devices cost them, which produces that 150% profit margin.

Mercy, a charitable non-profit, pays its top seven executives more than $1 million each; Brill cites from its IRS filings that its executive vice president made $3.4 million,

Brill concludes that the United States has a good model for healthcare delivery: Medicare. But, he writes,


The real issue isn’t whether we have a single payer or multiple payers. It’s whether whoever pays has a fair chance in a fair market. Congress has given Medicare that power when it comes to dealing with hospitals and doctors, and we have seen how that works to drive down the prices Medicare pays, just as we’ve seen what happens when Congress handcuffs Medicare when it comes to evaluating and buying drugs, medical devices and equipment. Stripping away what is now the sellers’ overwhelming leverage in dealing with Medicare in those areas and with private payers in all aspects of the market would inject fairness into the market. We don’t have to scrap our system and aren’t likely to. But we can reduce the $750 billion that we overspend on health care in the U.S. in part by acknowledging what other countries have: because the health care market deals in a life-or-death product, it cannot be left to its own devices.

Put simply, the bills tell us that this is not about interfering in a free market. It’s about facing the reality that our largest consumer product by far — one-fifth of our economy — does not operate in a free market.

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