Pigs At A Trough

Posted 02/17/2014

I regularly revisit last year’s Time Magazine Special Report “Why Medical Bills Are Killing Us” with the same conflicted feeling I had at about age six when I learned that something painful, like picking a scab or jiggling a loose tooth, also afforded a secret pleasure that could not be shared with friends. 

Time’s revelations about healthcare finances were (and still are) truly painful to read, but there’s a glimmer of hope at the end that we’re not altogether circling the drain. Author Steven Brill, seasoned investigative journalist and founder of Court TV, spent months deciphering hidden costs in the health care system (focusing especially on hospital billing practices) to find out why Americans had been spending $2.8 trillion annually on their care—roughly 20% of the US GNP–while getting so little health in return.

If Brill singled out one villain in his piece, it was the system of hospital pricing you’ve likely never heard of called the “chargemaster,” an internal and extremely secret price list of everything a hospital can charge you for. It’s the hospital’s chargemaster that will list the $77 box of four gauze pads on your bill, $580 for that hour of oxygen you never used, and tens of thousands of other items and procedures. The skin marker used to write “This one” on your knee so your surgeon didn’t operate on the wrong leg? A bargain at $25.

I once wrote a Health Tip about a student who meandered into Northwestern’s emergency room with a bladder infection and left with five bucks worth of generic antibiotics and a $10,000 bill. That’s chargemaster in action.

There’s virtually no system to check this unmitigated greed except Medicare, which sends every hospital its own chargemaster and tells the hospital, “This is what we pay. Those $74 gauze pads? We’ll pay you $3. Period.” Medicare’s maximum reimbursements to a hospital are a fraction of the hospital’s usual charges, though a Medicare supplement policy can help the hospital make up some of the difference. Generally when you’ve got both Medicare and a supplement, the hospital will accept the two as “enough.”

Don’t fret if the Medicare payment looks low to you. Hospitals are still raking in plenty of coin.

Insurers negotiate individually

Private insurers like Blue Cross, Aetna, and dozens of others individually negotiate their rates with hospitals, paying somewhere between the Medicare bargain-basement rate and the full retail “rack rate” of a hospital’s chargemaster. The real losers in this system are uninsured patients, who often are billed the chargemaster price (hence the $10,000 bladder infection). Kicking and screaming will usually trigger a 50% discount, which sounds good until you realize it translates into a still-crazy $34 for four gauze pads.

Adding insult to injury, most hospitals enjoy not-for-profit status and as a result are tax exempt. Their management teams, however, are compensated more like the heads of for-profit corporations. Northwestern Memorial Hospital’s CEO made $9.7 million in 2010, about 50 times the average salary earned by a Northwestern primary care physician. By comparison, in 2011 the CEO of the American Red Cross earned $561,000.

These not-for-profit hospitals aren’t particularly charitable either. Of Northwestern’s 2010 tax-exempt revenue of $1.16 billion, a pathetic 1.85% was spent on charity care. They did even better in 2011, with $270 million in tax-free profits on $1.3 billion in revenue. As I wrote my property tax check this week I thought that if someone reversed the tax-exempt status on Northwestern’s juicy lakefront property, the hospital could single-handedly support county-funded John H. Stroger Jr. Hospital (formerly Cook County).

What Brill suggests toward the end of the Time article is a total ban on the concept of chargemaster fees and pegging all reimbursements from everyone (Medicare, Blue Cross, the uninsured) to the fees established by Medicare. This is the glimmer of hope I referred to earlier, because personally I think it will eventually occur. It has worked for years in France, where even though there are competing health insurance companies the reimbursements to hospitals and physicians have been standardized by the government. Although US hospital systems would kick and scream in the face of this, there’s something inherently absurd in every insurance company negotiating separately, with better rates given to insurers who have a major presence in a particular geographic area. As you might expect, if a company gets unfavorable rates and has to pay more for services, it passes them on in the form of increased premiums.

Whatever the market will bear

And while Brill does a remarkable job alerting us to the financial sinkhole our health system has become, I do want to add that outrageous prices and over utilization of services extends far beyond the hospital setting.

Because there are so few consistent controls on the pricing of any health service, from an office visit when you have the flu to a lab test, x ray, CT scan, prescription drug, or piece of medical equipment (like a cane), health care costs are usually based on whatever the market will bear. If it can bear a lot (i.e., you’ve got great insurance), expect more of everything: diagnostic tests, prescription drugs, referrals to specialists, and possibly minimally useful or altogether unnecessary surgical procedures.

In an area where prices are relatively low and fixed, such as Florida, with its older Medicare population, speed is the name of the game. Primary care doctors in a group will see 50 to 60 patients a day, referring as many as possible for further testing (using equipment owned by the hospital) and also to the group’s specialists for more procedures. A small skin cancer removed from a patient’s cheek may ultimately cost thousands of dollars as various pre-surgery clearances are totted up from internists, cardiologists, neurologists, and ophthalmologists, plus post-operative wound care nurses and dermatopathologists.

Let’s face facts. With this much money involved, it seems as though everyone in the income-generating segment of health care (i.e., fee-for-service) has the potential to get sullied if they don’t watch themselves. Obviously the vast majority of physicians and other health care providers are hardworking, dedicated to the health and well-being of their patients. But then you see a recent news item that alleges a hospital administrator rewarded emergency room doctors who funneled in the most admissions, red flagging physicians who did not. A few weeks ago, I cited a story about an orthopedic surgeon accused of billing for a multitude of procedures he’d never performed. Money poisons the brain.

Where’s Mine?

With healthcare spending a staggering $2.8 trillion annually, let’s recall the late columnist Mike Royko concerning Chicago’s motto, which he suggested be changed from the fairly tedious “I Will” to a more accurate “Where’s Mine?” $2.8 trillion spent in health care every year? Pigs at a trough.

Cogitating on all this, I uncovered a dust-covered book I’d bought almost 35 years ago, The Great Billion Dollar Medical Swindle, actually a best-seller when it first appeared in 1980. I even remember the full-page ad that appeared in the now long-gone Chicago Tribune Book Section when the book was released. I’d immediately bought a copy because its author, Keith Lasko, MD, was a pre-med and med school classmate of mine.

In the third year of medical school, in alphabetical order, the class separates and moves into different hospitals. Given my “E” to his “L,” I never again crossed paths with Lasko. Had he written his book today, though, he’d have to change the title’s “billion” to “multi-trillion,” and with these musings I was curious to discover what had become of him. I remember the emotion that coursed through me as I read Swindle back in 1980. Lasko, writing like the proverbial loose cannon, was convinced the entire health care system was corrupted by financial greed. No one was exempt. He took on everyone and everything: medical schools, doctors, hospitals, drugs, alternative medicine, health insurers. He was very angry and very public about his views, and for a while a regular on talk shows.

Then he vanished. He didn’t appear at any of our class reunions and I occasionally wondered about the consequences of taking on the entire health care system. For all I knew he was wearing cement boots on the bottom of the Chicago River. After some investigating, I found out what had happened.

Interesting story. But that’s for next week.

Be well,
David Edelberg, MD

P.S. Let me share the wisdom of the Onion about our health care system.