Whose Costs? Who Benefits? – A Close Reading of a Hospital System CEO’s Prescription for Controlling Health Care Costs

Yves here. This post illustrates how the slow-moving and ineffective effort to rein in health care costs is becoming politicized. It is ironic in the article where the head of a hospital system professes to offer ideas of how to contain cost, no where does he mention the large deadweight costs imposed by dealing with insurers, which some experts estimate contributes as much as 30% of total costs when you factor in how much MD time is diverted from patient care to fighting to get paid.

In addition, the CEO is less than straightforward about discussing the bad incentives in the system, that doctors are paid for what amounts to piece work and therefore have a monetary incentive to treat overly aggressively. His discussion of “chronic and complex” care suggests that a big culprit is end of life care, when this is one of the few areas where typical costs in America are in line with advanced economy norms. By contrast, American doctors love to prescribe surgeries. For instance, for many orthopedic problems, things like ruptured disks and labrum tears are often asymptomatic, so if a patient has pain and an MRI shows a tear, that does not necessarily mean that the apparent problem on the MRI is actually what is giving the patient trouble. As a result, for most back operations, the patient results six months out converge with having left the ailment alone.

By Roy Poses, MD, Clinical Associate Professor of Medicine at Brown University, and the President of FIRM – the Foundation for Integrity and Responsibility in Medicine. Originally published at Health Care Renewal

The attempt to “repeal and replace” the Affordable Care Act has suddenly made health care dysfunction a hot topic in the US.

For example, today, in my local paper, the Providence Journal, Dr Timothy J Bainbeau, the CEO of the Lifespan Health System,  the biggest regional health system weighed in on the problem of high and increasing health care costs.  A close reading of his commentary suggests how the leadership of big US health care organizations needs to think about whether their actions have become more of the problem than a source of solutions.

The CEO’s Diagnosis and Prescription

Dr Babineau began unremarkably with:

American health care is expensive. Too expensive. On this, there is little debate. In 2001 the median U.S. household spent 6.4 percent of its income on health care; by 2016, the same household spent 15.6 percent of its income on health care. That bigger share of the pie leaves less for other essential purchases, such as food, education and housing.

What was his diagnosis?  He stated that most costs are incurred in the care of severe acute or chronic illnesses.  So his prescription was:

A critical (but often overlooked) point is the fact that as much as 40 percent of spending during chronic and complex episodes is avoidable if providers and systems adhere to established standards of care. Reining in runaway health-care spending must involve better management of high cost episodes of chronic and complex care.

So,

Rather than debate the actual percentage that is ‘wasteful spending’ (now commonly referenced at around 30 percent) we would be better served by continuing the hard work of identifying and eliminating areas within our own systems where needless variations in care add cost without improving outcomes.

To translate, most of health care spending is for severe acute or chronic illnesses.  For patients with these problems, we do too much, that is, by failing to “adhere to established standards of care.”  Therefore, we must learn to do less, by “eliminating areas within our own systems where needless variations in care add cost without improving outcomes.”  His entire focus is on ending needless utilization, presumably of specific diagnostic tests, therapies and programs.

As an aside, his assertions ignore some real controversies.  Dr Babineau implied that “variation” means needless or bad care.  This echoes the old “practice variation” research school, which showed that the rate of certain services, that is tests or treatments, varies in different geographic areas.  The problem is that this school has never clearly shown how much variation is due to variation in patients’ characteristics, including illness severity and preferences, and is therefore “appropriate” in some sense.  It also fails to take into account how much variation is due to the inevitable uncertainty in diagnosis, and in predicting response to treatment.  Few diagnostic tests are perfect, so test results can rarely prove a disease is present or absent, but just can suggest how probable it might be.  Similarly, no treatment always cures, and most treatments have adverse effects.  So at best physicians can only predict the probability that a patient will improve, remain the same, or be harmed by a treatment.

Whose Costs?  Who Benefits?

It is odd, though, that while Dr Babineau wrote an essay on reducing costs, he did not even mention how much anyone pays for any particular test, treatment, program, service, etc.  Nor did he mention whose costs most need reduction: patients’, health care systems’, insurance companies’, governments’, or “society’s” costs?   That was probably due to his point of view, from the bubble of the hospital system C-suite, from which the viewof the outside world may be distorted.

Dr Babineau introduced his prescription for cost reduction with a defense of  American hospitals.

American hospitals and health care systems are among the best in the world.  Rather than decrying ‘American health care is broken’ and in need of rebuilding from scratch, a better strategy may be to look at what works well within our system and ask how we can build on those strengths while facing the escalating costs head on.

Hospital systems are in the health-care business, and we should not be reluctant to say so. No matter what wellness and prevention programs we collectively offer, inevitably a small subset of the population will still get very sick, and it is a core mission of health systems — working in close partnership with our primary and specialty providers — to take the very best and most efficient care of them when that happens.

But should hospitals be “in the health-care business?”     Most physicians of a certain age swore oaths on medical school graduation that we would put care of individual patients ahead of all other concerns, including making money. We surely have not fulfilled those oathes perfectly. Yet at one time health care and medicine could be seen as callings, just ways to make money.

In 2007, Dr Arnold Relman wrote(1) (and see this post):

The law also has played a major role in the decline of medical professionalism. The 1975 Supreme Court ruling that the professions were not protected from anti-trust law7 undermined the traditional restraint that medical professional societies had always placed on the commercial behavior of physicians, such as advertising and investing in the products they prescribe or facilities they recommend. Having lost some initial legal battles and fearing the financial costs of losing more, organized medicine now hesitates to require physicians to behave differently from business people. It asks only that physicians’ business activities should be legal, disclosed to patients, and not inconsistent with patients’ interests. Until forced by anti-trust concerns to change its ethical code in 1980, the American Medical Association had held that ‘in the practice of medicine a physician should limit the source of his professional income to medical services actually rendered by him, or under his supervision, to his patients’ and that ‘the practice of medicine should not be commercialized, nor treated as a commodity in trade.’ These sentiments reflecting the spirit of professionalism are now gone.

The Supreme Court challenge to attorneys’ and physicians’ professionalism was orchestrated by extreme market fundamentalists. Since 1978 when I obtained my MD from Brown, market fundamentalism (sometimes confusingly called “neoliberalism“) has become dominant in the US.

On the (now sadly dormant) Hooked: Ethics, Medicine and Pharma blog, Dr Howard Brody discussed the application of this reigning orthodoxy in economic.  Basically, supporters of market fundamentalism et al seem to assume that all markets are idealized free markets, and that free markets are like a super computer combining all human thought to provide wisdom in the form of price information.  Furthermore, since the market is based on supposedly rational choices made by free individuals, one cannot go back to question such choices.

Hence Dr Babineau is hardly alone in regarding all of health care now as a business. But he and many others like to ignore the theoretic problems with market fundamentalism applied to health care, specifically the possibilities that 1) people’s choice may not be free, may not be rational, and may not be based on coldly rational cognition and the best possible knowledge; and 2) one person’s economic choice may limit another person’s choices, or directly harm another person.   And never mind that Dr Babineau leads a non-profit organization, which states (per the most recent, 2015 Rhode Island Hospital IRS Form 990) that its mission is “delivering health with care.”

Market fundamentalism suggests that hospitals and other health care organizations should be run like businesses to improve efficiency.  Thus Dr Babineau allowed “it is a core mission of health systems — working in close partnership with our primary and specialty providers — to take the very best and most efficient care of them when that happens.”  Efficiency requires the reduction of costs, but whose?

The worry is that Dr Babineau is really out to improve his own institution’s efficiency, very possibly because he has incentives to do so.  There is considerable anecdotal evidence that hospital CEOs are rewarded for efficiency, but the effiicency of their own hospitals, not the health care system.   CEOs may get incentives when they increase hospital efficiency by cutting the institution’s costs and/or increasing its revenue (look here for some examples.)  Sometimes these incentives are hugely disproportionate to any improvements in net financial position (look here for examples).  Sometimes CEO compensation goes up even when CEOs have cut the pay of or laid off lesser employees to cut costs (look here for examples).  Sometimes their pay goes up even when their actions correlate with worsening quality of care (look here for examples).

I cannot find any published rationale for Dr Babineau’s compensation, but it is certainly substantial.  According to the most recently available IRS Form 990 (2015) for Rhode Island Hospital, Dr Babineau’s total compensation (in 2014) was $2,405,868.

So the concern is that the sort of efficiency Dr Babineau advocates may benefit his organization’s and his own bottom line, but maybe not patients, or society.  And the promise he made that his own hospital system will improve efficiency may actually conflict with his promise to improve patient care.

Summary

I submit that if we are really worried about why our health care system is sick, why we as individuals pay more and more for health care that is not improving, we should look beyond limiting practice variation or eliminating obviously useless, and hence perhaps uncommon services to improve “efficiency.”  Instead, we should question whether health care can ever really function as a free market, and certainly whether hospitals, other health care “providers,” and health insurers should be businesses that put their revenues ahead of patients’ and the public’s health.

I am not a Catholic, but found the clearest voices on this issue to be those of the current and former Popes.  Pope Benedict XVI decried the transformation of medicine and health care into a business.  As we noted here, he wrote

during the current economic crisis ‘that is cutting resources for safeguarding health,’… Hospitals and other facilities ‘must rethink their particular role in order to avoid having health become a simple ‘commodity,’ subordinate to the laws of the market, and, therefore, a good reserved to a few, rather than a universal good to be guaranteed and defended,’

Furthermore,

‘Only when the wellbeing of the person, in its most fragile and defenseless condition and in search of meaning in the unfathomable mystery of pain, is very clearly at the center of medical and assisted care’ can the hospital be seen as a place where healing isn’t a job, but a mission,…

More recently, Pope Francis said,

Doctors, nurses and those who work in the field of health care must be defined by their ability to help their patients and be on guard against falling down the slippery slope of corruption that begins with special favors, tips and bribes, the pope told staff and patients of Rome’s ‘Bambino Gesu’ children’s hospital Dec. 15.

The worst cancer in a hospital like this is corruption,’ he said. ‘In this world where there is so much business involved in health care, so many people are tricked by the sickness industry, ‘Bambino Gesu’ hospital must learn to say no. Yes, we all are sinners. Corrupt, never.’

Thus, I challenge health care executives to state their willingness to  put the care of patients ahead of their  organizations’ revenue and own pay.  Will anyone step up?

Reference

1. Relman AS. Medical professionalism in a commercialized health care market. JAMA 2007; 298: 2668-2670. [link here]

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68 comments

  1. b1daly

    Yves, this is an example of a point I’ve been trying to make in comments here for a while, previously in regards to the concept of “neo-liberalism.”

    I don’t believe there are a significant number of policy makers who really believe that market forces can bring the kind of efficiency to health care, that they can to commidites.

    When I took undergrad Econ in college, in the eighties(!), the classes in which the basic concepts of how “free markets” work are taught, always taught about the limited conditions required for the theories to hold. The exceptions to the theories were just as much a part of the curriculum. Namely, the undergrad in Econ 101 learns about “externalities, monopoly and monopsony power, problems of asymetric information, problems with “goods” like health care that have very inelastic demand curves, the problem of public goods.”

    This is Econ 101. I suspect the only people who have a simplistic “market fundamentalist” view of healthcare, are unsophisticated persons, with a conservative/libertarian instinct.

    Paul Ryan is not such a person, and I believe that when Republicans, like him, speak with apparent fealty to such simple minded notions, they are doing so as a cheap and easy form of Propoganda. To persuade uninformed voters that their proposals have merit. That they are really looking out for the good of the American people.

    The reason I think this distinction matters, is that there are very real conflicts, of wealth, power, prestige, that permeate human culture. The complicated systems that determine “who serves, and who eats.”

    In a forum like this, where readers are relatively informed on matters of economics, it would serve better to try and have accurate descriptions of the problems that are a regular subject of NC.

    And this is largely the case. I especially appreciate the detailed discussions about issues like the conduct of the various players in the Calper’s conflict, for example.

    I’m just saying, that it’s easy to think, oh, so and so said this, and therefor they must believe it, or their must be “serious thinkers” who do. If this is not the case, it frames the debate against an imaginary foe.

    Food for thought, I guess.

    If you have any examples that contradict my thesis, I’d be very interested in reading more about it.

    Thanks!

    1. human

      ?

      I don’t believe there are a significant number of policy makers who really believe that market forces can bring the kind of efficiency to health care, that they can to commidites.

      Policy makers beliefs’ have nothing to do with this runaway train of the medical industrial complex. “Never, ever” will there be single payer, HRC.

  2. bmeisen

    How do you calculate health care costs for the median Amer. family? 15% of Americans have no health insurance, a percent or two are grotesquely overinsured (think Congress critters). Moreover, what gets to be called health care in this calculation? Teeth? Physical therapy, mental health, plastic surgery, shoe inserts? Cherry-picking and admin and compensating health care executives competitively because you don’t want that talent to jump to the competition which is of course the sharks running St Mary’s across town.

  3. Disturbed Voter

    True market force health care (and I am not proposing it) would involve no insurance, just pay for service. That neoliberals have never proposed this, is proof that they have been engaged in propaganda. Neoconservatives haven’t proposed this either. Therefore the proper frame of analysis is power politics, not equilibrium economics. Some of us have the power to make our neighbors, by various devious means, to pay for our medical care (and other luxury items). This is of course an act of violence, that our society accepts. The government is an exclusive source of socially approved violence that can be harnessed by our betters to benefit asymmetrically. The idea that this asymmetry is generally beneficial has been challenged.

    1. JEHR

      Some of us have the power to make our neighbors, by various devious means, to pay for our medical care (and other luxury items

      Does that include having everyone pay what he can with some paying more because they are rich and others paying less because they are disabled or poor? What is “the power to make our neighbors…pay for our medical care”? Is medical care a luxury item that only the rich can afford? Why?

      You have me confused.

      1. Disturbed Voter

        Sorry to confuse. Humans are predators. We exploit our environment, and people are a part of our environment. The problem of how much medical care should cost, is a separate and difficult problem. Whether we choose to subsidize someone out of compassion, is also a difficult one, because the actual amount of ideal medical care … if you include end-of-life intervention, is greater than the planetary GDP, given the individual expense, and the number of people involved.

        We can do individual or collective charity … just don’t call it an entitlement.

  4. Normal

    Being on a high deductible plan, I am finding it more and more difficult to shop for medical care.

    I have just run into a new (to me) and creative way for doctors to take more money from me. A doctors office can charge a certain amount for a given procedure code. A hospital can charge an additional “facility fee” that a doctor cannot charge. So prevailing wisdom is that you should have your procedure at a doctors office, not a hospital, to save money.

    I’m now going to a doctor whose office has been purchased by a local hospital. The billing goes through the hospital, making it legal to charge the facility fee. In case you were wondering, the facility fee can equal the procedure fee.

    Medicare has a “site-neutral payment rule” that prevents this abuse, but for private people, facility fees are still part of the medical shopping minefield.

    1. justanotherprogressive

      And therein lies the rub. How do you shop for medical care when information about medical care providers is so hard to find. Where do find a list of what a particular doctor charges for each type of medical are and how good they are at providing that care? Yes, there are reviews, but most of those reviews are based on the social qualities of a physician, not his/her technical abilities. There are hospital reviews online, but if you live in a rural or semi-rural area, your options of hospitals is limited, usually to one or two. The choice of testing laboratories you have access to is limited to only those your doctor chooses for you. Then, how do you know what tests you actually need v. those that are unnecessary? And all this supposes you are well enough to actually do the search. If you are ill or in pain……
      And don’t forget that the medical practice your doctor belongs to, has very specific money-making requirements for its doctors. I had a lovely conversation with my doctor a couple of months ago about what she has to recommend to satisfy the requirements of her clinic owners v. what she would actually like to do. But, like most young doctors, she has too much debt to open up her own offices…..

      1. Ivy

        Doctors are catching up to mechanics and attorneys. Apply the standard rates (e.g., x time to change spark plugs, 6 minute increment attorney billing when I thought about your case in the shower) to any and all perceived issues, allowing an hour of work to be billed at a multiple of that time.

        A decent attorney closes the gap between the 2,000 hour work year (40 hours x 50 weeks) and the 8,760 hour actual year, looking at the batting average. If you are a 3,000 hour hitter, ya done good and get an extra partner distribution by keeping your job. Trends start in unusual places, then infect the rest of the untreated economic organism, because they can.

        Somewhere along the line, moral hazards and ethics avoidance creep in, or rush in.

        1. craazyboy

          Ah.The “Attorney Economy”. I was wondering what would follow the “Information Age”.

          Well, hospital upper management has closed in on law firm senior partner pay too. We have upper level hospital execs in low cost of living AZ making a million, or even a few million if you’re CEO, each and every year. No recessions – every year is good!

      2. anonymous in Southfield

        how good they are at providing that care

        You’ve just struck at the number one problem, in my opinion, in healthcare. This is a problem faced by all consumers shopping for healthcare, in this country and around the world. Here’s a succinct example by analogy:

        If automobile manufacturing were like health care, warranties for cars that require manufacturers to pay for defects would not exist. As a result, few factories would seek to monitor and improve production line performance and product quality.

        The quote is from Best Care At Lower Cost, The Path to Continuously Learning Health Care in America published by the National Academies of Sciences, Engineering and Medicine.

        Most of the issues we all now talk about concerning health care and its delivery, are covered in the somewhat wordy report. However, one important feature of medical care the report emphatically states is not commonly known; improving the quality of care in this country would dramatically lower costs. Most likely, if our medical care system were working the way it potentially could in terms of the quality of care, we would not be having this discussion.

        It is entirely possible to improve the quality of care but until we start reporting on the results and outcomes of care we can’t get to the place we’re all striving for-affordable care for 97% of the population who need it. We know more about the performance of professional ball players than we know about the capabilities of doctors, hospitals and laboratories.

      1. craazyboy

        Then you just go to your general practitioner, whom will order a bunch of tests and then recommend a specialist to go to. The specialist will order a bunch of even more expensive tests and recommend you need to see a team of specialists at a hospital, because the hospital has test equipment no one else can afford. You then have the most “efficient” path the industry can provide in order to spend the next few weeks or months dropping off bags of hundred dollar bills at all the healthcare providers around town.

        1. Carolinian

          A friend’s daughter just went through the very scenario you describe as the puzzled doctors put her through an escalating series of very expensive tests and never did find out what–if anything–was wrong with her. One suspects the problem has less to do with technology than the doctors themselves who lack the knowledge to make a diagnosis on the basis of experience and instead use their wallet draining machines as both a crutch and a legal shield. There seems to be way too much medicine by “trial and error.”

          Of course this approach is very profitable for the institutions involved so they have little incentive to change things. All of which is to say that capitalism itself is the problem with medicine–it isn’t just about the insurers.

          1. craazyboy

            I think it’s standard practice. I had two friends go on the run around, with huge expenses racked up and no results. One ended up getting surgery, which didn’t help. He was later told by a different surgeon-specialist that he chose the wrong kind of procedure – which was the procedure recommended by the surgeon that specialized in that procedure. He finally gave up at that point.

            So the old adage of get 3 opinions still holds – and don’t listen to any surgeons may also be a good idea.

            1. cocomaan

              Many surgeons think they are god’s gift to the universe and should be believed on virtually nothing. I have seen way too many promise vulnerable people experiencing debilitating pain that surgery will result in a better quality of life. Later, they get liver failure because they’ve been prescribed, and I’m not joking, a year of antibiotics at age eighty.

              It’s insane.

  5. ArkansasAngie

    So … 30% of cost is insurance admin.

    I’m all for a single payer, universal system.

    How do you handle the unemployment of insurance related folks whose jobs would disappear?

    1. dw

      the same way we handle the off shoring of other jobs . we just ignore until it becomes a political problem

  6. a different chris

    arrgh I cannot find the link although I just read it this morning – probably WaPo. Anyway, it was about the “Widowmaker” where some 46yr old professional woman had some minor but odd middle-of-the night discomfort and was going to “sleep it off” but her (also professional) husband thought it was just too weird and made her go to the hospital, where she – who assures us she was both an exerciser and a healthy eater, and I believe her – found out that plaque had detached from her veins and blocked quite a bit of her heart.

    Anyway it ended with a strong admonishment to “go see the doctor” even if you don’t think (whatever) is serious. And I thought – yeah, tell that to the Deplorables that don’t have $500 for an emergency let alone $1000 to spend because they feel “off” a bit.

    1. susan the other

      Read a while back that one of the major causes for vein and artery plaque is occult chlalmydia, and or some sub-chronic condition that can and should be treated every year with a round of tetracycline just to be on the safe side. I generally take a round of antibiotics for something every year or so so I assume it slows down whatever occult damage I have going on, but I do not like taking antibiotics because they make me sick as well. also just fyi – my doc tells me that a bottle of red wind a day probably does a good job thinning my blood for all practical purposes. too much alcohol has a corrosive effect on your veins, but just enough is a good thing. But I’ve never heard this advice, on either thing, come from my doctor in advance. which is when it needs to come. i don’t think good advice like that causes the health care system a dime.

  7. cojo

    There will never be a “free market” in healthcare due to the massive information asymmetries. Healthcare providers train up to and over a decade at times to learn their profession. For a layperson to comprehend the why’s and hows of what is being required to treat them is just absurd. Unfortunately, this ends up where both the ‘fee for service’ provider and patient are under the impression that more is better. Hence, physicians have to pledge an oath to not abuse their power and to have the patient’s best interests at hand. Now, I don’t know of any oath pharmaceutical, Hospital, and insurance administrators have to partake in, especially for the MBA sort.

    Also, here is a nice graph from BLS on the ballooning of “administrative costs” since the 70’s. The interesting thing is why they took off in the 1990’s. This was also the same period during which the last serious attempts to curb healthcare costs occurred without result.

    http://californiaonecare.org/tag/administrative-costs/

    1. craazyboy

      Of course this has been known as fact for around 50 years now in the rest of the developed world. Hence, single payor and the government setting prices and service levels.

      1. Cojo

        We will continue to give the free market innovators a chance to experiment with the US population specifically to avoid the conclusion that single payer is the most sensible solution to our ridiculous system.

        1. Tom Bradford

          “You can always count on Americans to do the right thing – after they’ve tried everything else.” – Winston Churchill

  8. cnchal

    >. . . Basically, supporters of market fundamentalism et al seem to assume that all markets are idealized free markets, and that free markets are like a super computer combining all human thought to provide wisdom in the form of price information.

    Customers of the health care system are never allowed to see a price list, so price information is only available to the sellers. Where are the cops and handcuffs when you really need them?

    Calling a ‘hospital system’ non profit is a joke when the head cheese makes $2.4 million per year and his jawb appears to consist of coming into the office to throw darts at a list of procedures and medicines to see which ones get their prices increased and making sure his customers are clueless when it comes to discovering all of those prices, until the sale has closed and it’s too late to return the merchandise.

    Productivity and efficiency look totally different, depending on whether one is a seller or buyer. Dr Babineau’s gross income of $2.4 million ( or $6,591 for every day of the year) in 2014 looks very efficient to him. He comes in and throws a few darts, raises a few prices and says to himself, ‘a jawb well done’ and then off to lunch with his insurance buddies, who do similar work for similar pay.

    >Will anyone step up?

    Everyone knows the game is rigged, so the answer is no.

  9. Pat

    First rule to bring health care costs down. Publish the cost of procedures like a fast food restaurant. No different prices for different payers. No additional fees, see Normal’s comment above.

    With all the talk about making people better consumers, I never see that being demanded by our ‘representatives’. I sure don’t see our CEO above making it. All because our current system is all about ripping as much money as possible for as many small groups of people as possible regardless of actual health care needed or even provided.

    The real answer and first step is to make health care a right.

    As to Disturbed Voter’s proposition that I want to force some people to pay for other people’s health care. They are right. Here’s the thing, just I think everyone in the US needs to contribute to the public good in regards to education, clean air and water, emergency services, etc. I believe that everyone in the US needs to contribute to public health, and by that I mean the health of every person in the country. When our country is healthy, we are better off overall. And yes, I do believe that those who have gained the most give the most, because I believe they have benefitted the most from our society. The current power politics is that the poor slub who is not desperately poor and/or is older but not old enough pays the most toward the second or third home of the Insurance, Drug Company and private Hospital CEOs. We know this because, well we as a people resemble a third world country in decline when it comes to the health of our general population. So our current system is theft AND abuse AND murder. Let’s just go to theft of largely ill gotten gains to start paying back those who have been being ripped off for the last thirty years that I know of.

    1. JimTan

      Hospitals in California are required to publish their Chargemaster (a comprehensive list of items billable to hospital patients) online:

      http://www.oshpd.ca.gov/chargemaster/

      These documents show how healthcare costs grow out of control. They remind me of a quote from a NYTimes article some years back:

      “Orla Roche’s bill, for example, included $529 for “supplies and devices,” though her mother is perplexed about what those are: Orla left the emergency room with gauze wrapped round her head (under $1 at Internet supply stores), festooned with a pink cartoon sticker. According to the chargemaster price list for California Pacific, a vial of skin glue is billed at $181, a tube of antibiotic cream at $125.84 and a vial of local anesthetic at $79.73. These items can be purchased for $15.99, $36.99 and $5 on the Internet, though hospitals — which buy wholesale and in bulk — pay far less.”

      http://www.nytimes.com/2013/12/03/health/as-hospital-costs-soar-single-stitch-tops-500.html?pagewanted=all

      Healthcare in the U.S. is an economic transaction where a service is provided before its cost is known, and there is no price negotiation therefore no price competition.

      1. ChiGal in Carolina

        Also, after Brill’s Bitter Pill article a website was set up by HHS to look up different hospital prices for same procedure. Maybe under current regime it has gone away

      2. WhiteyLockmandoubled

        the chargemaster is not a price list, it’s a list price. Nobody except a few unfortunate uninsured people and out of state insurers who lack a contract with the hospital pays it. Prices are negotiated by 3rd party payers at steep discounts (in some regions as much as 80%-90%) to the chargemaster and are considered trade secrets.

        the chargemaster is a regulatory artifact. It can, and does influence prices in various pricing schemes for legacy reasons,and so there is an incentive to inflate it rapidly. But it’s not a list of actual prices paid by or for the overwhelming majority of patients. Price secrecy is an important problem in US health care.

        1. Skorn

          I was recently scheduled for an expensive diagnostic test and since I have a large out-of-pocket deductible to meet through an employer sponsored plan, decided to call the billing department to inquire about cost. Over an hour later and I was no closer to finding out the price. I could not get the list price nor the negotiated rate arranged by my insurance provider. I called back a second time with similar results, but at least received a plausible explanation.

          The billing department could not generate a price since I’d not yet received “care”. I was told the patient cost is generated entirely by “encounters” logged within the patient’s electronic medical record. No notes from Dr stating “provided service xyz” means no price for the patient. Nice catch 22.

          And I live in a state that requires basic price transparency. It would be nice to have my own personal attorney to fire off a letter reminding the Hospital to “comply” with existing laws, but
          my average citizen legal fund must go toward healthcare deductibles and coinsurance.

      3. Mark

        They can’t tell you the price beforehand because the price varies depending on who’s paying the bill. It’s let’s-make-a-deal. If you pay cash, you pay the exorbitant rates quoted above. If you have insurance, your insurance pays a negotiated rate that it has made with that particular healthcare system. You pay a fraction of that rate as a co-pay/co-insurance.

        The hospitals will charge as much as they can get away with. They operate the same way colleges do with tuition: why charge less and leave money on the table?

        1. Skorn

          I think Hospital consolidation encouraged by the ACA has affected prices as well. Several large Hospitals merging together create leverage to gouge the insurance companies on price that also inflate “facility/hospital” based fee schedules, increasing patient costs. There are virtually no private practices left in my very blue coastal state. It’s Big Medicine, drive to another state, or become a medical tourist.

          1. dw

            it actually started long before that. go back to 1990s to the early 2000s. and not just hospitals but doctors offices too, along with just about every other provider. most of it was driven by the need to be able actually negotiate with insurers. since health insurers are large and used to have an incentive to get the best price they could, they negotiated very hard. to offset that providers had to bulk up. now insurers haven become all but monopolies is areas, just pass on the cost to us.

    2. craazyboy

      When they tell us we are supposed to shop in a market that refuses to quote prices, that is a sure tell that they are just not really serious about the whole thing.

      Also, under our current system, it is the insurance companies that are the only ones that can control cost. But there is plenty wrong with that approach. As we are finding out, it is easier and more profitable for them to just pass thru and mark up whatever their costs are.

      1. dw

        since all health care is local, its harder to negotiate with providers when they have merged them selves

  10. Steve Ruis

    Uh, these are the same hospital leaders who, when they used modern systems to ensure correct patient care which then caused a significant loss of revenue (due to unneeded procedures being forgone) eliminated the patient care systems? Those people?

  11. Paid Minion

    Just try actually asking anyone in your doctor’s office for a price list. You will find they don’t have a clue.

    Last time I was between jobs and uninsured, I asked how much my outside lab tests were going to cost. (Standard tests for a standard checkup)

    “We will need to find out” is the answer I got. A few days later, they call me and tell me “….a couple hundred dollars”.

    Sixty days or so later, the lab bill shows up ….. $600 dollars. I guess thats “a couple hundred”.

    I’ve come to the conclusion that dying suddenly of a heart attack/stroke at age 60-65 is a valid estate management strategy.

    1. craazyboy

      I always ask how much things cost and am usually amazed at the hems and haws I get from the office people when I call on the telephone and ask a simple question like “how much is an office visit at your place.” I would almost have to conclude I’m the first customer!

      Fortunately, I haven’t had the need to partake in these services much, yet. But one time the office girl let it slip that the price “depends” because different insurance companies reimburse at different amounts. Therefore, she needs to have my insurance company so she can look up the price! I said I have a deductible, and will actually be paying 100% out of pocket. She joked that maybe I’ll get lucky and have a cheap insurance company.

      In spite of these headwinds against being a good shopper, I have found a way, advantageous to me, to do some things.

      Here’s a test lab that deals direct with any patients. Your full price for the usual blood chemistry tests performed when you get a standard checkup IS $55. Get it done first and carry it in to your doctor.

      http://www.healthcheckusa.com/heart-disease-cholesterol-tests/heart-health/super-chemistry-heart.aspx

      1. ckimball

        Thank you craazyboy. I feel you have given me a key to a door in a box I didn’t know existed. Amazing.

      2. LAS

        Unfortunately, they don’t have a location in my state, NY or NJ. Bummer. Wonder if the states can prevent the svc.

        1. Shilo

          Find a Lab Near You

          Locate the convenient LabCorp Patient Service Center closest to you now.

          Do not follow this link if you live in NY, NJ, RI, MD or MA. Residents of these states cannot have their blood drawn at LabCorp.

          1. katiebird

            I think Life Extension does the tests in their lab for those states

            Residents of NY, NJ, RI and MD are not permitted to have blood drawn at LabCorp, due to state regulations. Blood draw kits will be sent in lieu of a requisition. Additional fees for drawing and processing your blood may apply.

        2. katiebird

          My dad has used Life Extension for his blood tests for 20+ years. He hates the idea of asking a doctor for a test and with LE he can get whatever tests he wants.

  12. Spring Texan

    interesting on the disparities between a healthcare system covering everyone, and ours:

    https://www.statnews.com/2017/03/13/cystic-fibrosis-canadians-americans/

    In 2011, cystic fibrosis researchers noticed something weird. Patients with this deadly genetic disorder were living longer and longer — but those in Canada seemed to be living significantly longer than those in the United States…. the median age of survival for Canadians was 50, and only 40 for Americans. The gap persisted even when they looked only at data from the most severe cases….

    When researchers took the 32,699 American patients who visited American cystic fibrosis centers between 2009 and 2013, and broke them down according to their insurance coverage, the comparison with their 4,662 Canadian counterparts was telling.

    The Canadians, all of whom get government-provided health coverage, had the same risk of dying as those Americans who had private insurance. When compared with Americans on continuous Medicare and Medicaid, though, Canadians’ risk of death was 44 percent lower. And the disparity was even greater when it came to Americans with no insurance at all.

    1. cojo

      A cautionary tale in this study; the American’s who had “government” healthcare in the form of Medicare and Medicaid, as well as no insurance, made up the difference in mortality. I suppose the takeaway is that the Canadians have uncovered two secrets that we are unable to figure out here, one, how to cover everyone with universal government provided health coverage, and two, how their government provided health coverage is superior to the US Medicare and Medicaid models.

      1. Romancing The Loan

        Those two are effectively the same secret. When you cover everyone you can set your own prices and your own incentives.

      2. rocky

        Not necessarily. Medicaid and Medicare recipients with CF are poor by definition. It isn’t at all unusual for poor people to have worse outcomes than rich people. Poverty is statistically physically dangerous. And while access to care helps, it isn’t the whole picture.

        1. Cojo

          By the same token, if all Canadians implies a broader, and thus socioeconomically lower levels than richer Americans with private insurance, we can conclude that the care is superior in Canada to compensate for the broader (poorer) demographics.

  13. JEHR

    If only you could encourage a group of family physicians to set up a practice that is paid for by the pooled resources of a community. (Someone would have to do group funding beforehand.) These family physicians would have to make contacts with specialists who would be willing to work for the shared community payments. The idea is to cut out the insurance business altogether. When other patients see how caring such a practice could be, you would have people from everywhere clambering to join your group. Maybe pay could be “in kind” at first until the project got going. The pay might not be extravagant at first but the results would be magnificent. There must be innovators out there that could carry out such a project; in fact, I bet there is one taking place somewhere in the US right now.*

    *I looked and found self-funding small employers which isn’t quite what I had in mind.

    The ongoing machinations in your health care system make me ill from despair.

    1. cocomaan

      The Amish call it “Mutual Aid” and that’s pretty much the idea: community/church based, with a set of doctors willing to work with them for actual costs, and community decisions about medical procedures. When someone needs an expensive unusual procedure, the community takes up a collection.

      http://www.cammutualaid.org/

      They are also comfortable with talking about end of life care in the context of what someone is owed by their community. The line used by the person I saw lecturing about it was something like, “My mother told me Ive done my work when she decided not to get care for X ailment”

      The only way out of this healthcare mess is to begin apprehending medicine on a local level, rather than this migratory, I-owe-nothing-to-anyone level. Think of the show Northern Exposure.

  14. rc

    The healthcare cost and access problem is pure corruption that leads to unnecessary pain, suffering and death. Insurance is not healthcare unless it guarantees access for all.

    1. Do not allow insurers to make profits.
    2. Mandate that insurers spend 98+% of premiums on healthcare (medical loss…this is the margin of distribution company).
    3. Whatever the doctor says goes — no denial of care.
    4. Everyone pays the same price for a procedure, hospital service or drug.
    5. Prices are negotiated by the government–the US as biggest consumer should get lowest global price.
    6. Universal care that targets a national price below 12% of GDP–that is 150% of what the best countries for quality, outcomes and cost spend.

    1. Mark

      7. Tort Reform. Physicians won’t change their workup practices to follow generally accepted best practices until there’s some type of tort reform. “Defensive medicine” is a very real concept that colors every patient interaction and causes docs to order all sorts of expensive tests and imaging to rule out things they know are very, very unlikely, but would be “indefensible” if missed. A pool of capital to take care of patients who have adverse outcomes and review of individual doctors in questionable cases by a panel of peer physicians would be a good start. The attorneys need to go.

      1. dw

        tort reform doesnt work. several states have done (Texas and California just name 2), and the results, show it doesnt work. and oddly enough that makes sense, cause when the malpractice insurers were called testify about it, under oath, they had to admit that that their costs were only driven up by less than %2 total. but that what really drove it was the 6% of providers that cause 80% of the suits. but then that really reflects on the states as they run licensing of doctors. and this is like the other ‘holy grail’ allow insures to sell across state line. which some states already allow. but no insurer wants to do it, since it costs a lot of build a network up

  15. Joey

    There is no real market.

    The government (thru Medicare/Medicaid programs) appears to be setting the price with poorly negotiated terms (probably with the quid pro quo that the healthcare providers will create jobs). Just like government employees, the healthcare workers, to justify their jobs, then become rapacious in generating ‘revenues’ from the patient population that fall into their net. Any patient, not on guard, will then be subjected to unnecessary procedures. I have personally felt intimidated and pressured to undergo unnecessary procedures.

    The existing healthcare setup is an abomination. Period.

  16. JTMcPhee

    So the game is clearly rigged. Since we are talking medical insurance and billing and pricing, which is not by any stretch “health care” except by Narrative convention, what might be the “prescription” or “order” that might be written to blow away all the incentives and vectors and momentum and inertia that saddle us ordinary USians, who are not Elected By God to be Rich and Connected, with the miseries we are all experiencing?

    I just spent most of the morning trying to get a prior authorization for a sustaining medication a patient has been on for years. The small pharmacy he used abruptly shut down last week, after sending us a notice that a prior authorization was being required by his pharmacy benefits insurer, without giving us accurate info on how to contact the provider. They had his current coverage information in their pharmacy electronic record, but while they apparently transferred the paper hard-copy scripts they had to another pharmacy, they did not provide the coverage information. The patient is disabled and not able to access the coverage that SOME UNsurance company has been providing, to date, and thus there’s no entry into the forking complex of “Department of Denial” bureaucracy to persuade some “utilization professional” that this med ought to continue to be covered under his “plan.” This is about 25% of what my nursing day consists of. One way of controlling costs, right?

    Simple cruel BS — and as a person who gets VA health care and prescriptions pretty much seamlessly and with little cost and overhead (and yes, it’s not perfect and getting worse thanks to the neoliberals preying on the great carcass of it) I know it’s possible, for millions of people, to have working health care, not the broke-d!ck crap that plagues all but the what, 5% of us? Who can “afford” that “concierge” very special actual health care, not driven by the incentives we mopes have to pay for.

    What’s the fix, hmmm? Since so many of us have figured out how to profit from the racket as it is, as it has become “normal-ized”? And are unlikely to give up our advantages without a real fight?

    1. Cojo

      It seems to be that when the argument for asking the patient to “shop around” as a mechanism to keep prices down is used, what is really meant is, ‘there shall not be any form of regulation, conformity of price or procedure, no transparency. The cost shall be what it may for the manufacturer, the only way it seems the insurers can control what they pay is through obstruction, paper shuffling, jumping through hoops, and only then, might they pay for the service they are obligated to.

  17. LAS

    Most hospitals deliver medical care, not health care. We purchase a vastly over-expensive and inefficient service when we try to deploy hospitals to provide health care.

    Actually, most people don’t need doctors or medicine at all to be healthy; they need a few childhood vaccines, absence of abuse, solid housing, good food, exercise, education, unpolluted environment and social support (a little love). In short, all the social determinants of a good life are what makes someone healthy, almost by nature.

    If we got good health care in this country (USA), we’d need a lot less medical care. Medical care would be reserved for trauma, rare conditions and occasional check-ins/screens.

    Except in the USA over the past 30 or so years, public policy has grown weak (to save rich people from paying taxes), that our population is much more exploited, insecure, vulnerable and sicker than it has to be, and misled as to the source of the problem. Inequality and dark money are the root cause of much social injustice including potentially avoidable medical emergencies.

    Second the hospital medical system can respond very rapidly when it has a financial incentive to do so along with sound vision. Medicare going from fee-for-service reimbursement to diagnostic related group reimbursement caused hospitals to shorten patient length of stay for nearly every condition within the span of a few years. Ingenuity to devise solutions exists. The real problem is that our national ingenuity is harnessed to the elite 1% radical conservative agenda and our national values corrupted by corrupt laws (i.e,. the Ryan alternative to ACA).

  18. Keith Newman

    As a Canadian I read here yet another article on the absurd US healthcare industry with dismay. The solution is simple and has been done in every other country even vaguely comparable to the US. Implement a single payer publicly financed system.
    The US spends 18% of GDP on healthcare, Canada spends 10.5%, 7.5 percentage point less. Hence the US wastes around $1.3 trillion on healthcare alone.
    The country is being openly looted by the healthcare industry, the military/security complex and the financial industry. It is now the most dysfunctional country in the advanced world: bad healthcare, bad education, no vacations, no parental leave, vast areas in 3rd world status, etc.
    People, fix your country before its increasing dysfunction leads to even more war and destruction and brings us all down into nuclear Armageddon.

    1. Dead Dog

      Yes, Keith, fix your country USA.

      I think they’re trying, mate. But the forces against them are entrenched and dependent on the continued pillage of the poor and weak.

  19. shinola

    To paraphrase an Econ. prof. form the mid 70’s:

    If you want to get rich, go into the medical “bidness” (he actually said it that way so as to distinguish it from actual honest business practices). It is not subject to free market rules. Sick/injured people are desperate; and you can charge desperate people however much you want.

    1. John

      We’ve been trying to “fix” our country for decades.

      But the people have no power. Which is apparent to anyone by now.

      Our legal system has failed us. It was pushed to the breaking point by the greed of the elites whose operating MO is crime and looting.

      Now the whole foundation is crumbling as each day makes clearer.

      The elites are above the rule of law and the Constitution of the land.

  20. ginnie nyc

    It always infuriates me to read about those ‘deadbeat’ chronically ill patients who suck up all the ‘healthcare’ dollars. My immediate response to poor Dr. Bainbeau cannot be printed in a family blog. So sorry I continue to struggle to stay alive – with very little help from most of his colleagues, who no longer condescend to take my lousy government insurance – just shove you out the door with no referral. Some just stop taking my calls to make an appointment.

    These are the guys I used to chase around the halls to clean up their paperwork before the JCAHO inspections. At least some of them were using their time to actually treat patients – now their vacation home payments are more important.

  21. templar555510

    As a Brit reading this piece and the comments that follow only serves to reinforce the proposition that America needs a national health system . We in this country never, ever have to worry about the cost of our healthcare and whether or not we have the means to pay for it. Americans are fed the lie of ‘ choice ‘, but we have choice ; if you want to go to another doctor for a second opinion you can . But, and it’s big but BUT, you don’t have to worry about the cost . My daughter lives in the US and is married to a doctor ( a neurosurgeon ) and was pregnant last year and the whole process was complicated and expensive, in spite of their insurance cover. Rise up Americans and demand a national health system . Ours is under threat from our stupid neoliberal Tory government who think that ‘ market discipline ‘ will improve our health service and have invited a lot of sharks into this artificial marketplace many of which are American multinationals . It is all being done by stealth, but we are getting wise to their antics and will resist as best we can and you must do the same.

  22. dw

    the problem with our health care ‘system’ is that nobody in it cares about the patient. most see it as a business, where you are trying to make the most from each patient (customer?). and since the patient (customer) has no idea what they need to solve a problem (be like going to a car dealer looking fo a vehicle, without any idea of what you need it for, and no idea how much it might cost. and no one can tell you either). part of it that doctors now really treat their practice as a business, and now that the more they do, the more they make, and that they can expand that even more by buying up other providers (like labs, hospitals, other doctors, specialists), and they then refer their patients to these. and partly they are driven because they have really large college debt (its not cheap to be a doctor). course the cost of schools doesnt help either. but since they are more focused on increasing sales, its not always about whats best for the patient (customer). and insurers dont care about the patient either (whether its a group or individual policy or not). but since providers have merged, they started loosing their negotiation leverage, and some times that because states restricted that. so they just pass it on in premiums, and of course they ae always looking for a way to avoid paying.

    so maybe it is the single provider that actually fixes because the doctor works for the provider, and it doesnt have the extreme drive to lower costs, but to actually help the patient.
    but we can have that till the GOP destroys the insurance market, which they are working on. they just dont know it,cause its the tax cuts that drives them. not much else

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