How F**ked Up Is Health Care In The United States?

It is very hard to answer the question posed in the title of this post. No matter how fucked up you think health care in the United States is, it is even more fucked up than that. In this regard, it's a lot like the size of the observable Universe. No matter how mindbogglingly large you think it is, the Universe is even bigger than you imagine.

The fucked-up-ness of health care in the United States is effectively infinite in extent.

If you still doubt that the United States is a joke—that hardly seems possible if you are awake—you might read Steven Brill's Bitter Pill: Why Medical Bills Are Killing Us. It is a very long article because Brill is dealing with infinity.

Brill seeks to answer a few simple questions—

Why do health care services in the United States cost so much?

Why do costs keep going up and up?

I've added a chart for your further edification.

From Doug Short's What Inflation Means to You: Inside the Consumer Price Index (February 21, 2013). The red line shows medical care inflation. If you go back to 1980, health care cost increases are about 500-600% of official CPI inflation.

What are the answers to Brill's simple questions? Well, the answers are pretty simple, too.

The price of health care services are arbitrary, and set by the provider.

Annual price increases in health care services are automatic and arbitrary.

Let's read one of Brill's examples.

One night last summer at her home near Stamford, Conn., a 64-year-old former sales clerk whom I’ll call Janice S. felt chest pains. She was taken four miles by ambulance to the emergency room at Stamford Hospital, officially a nonprofit institution. After about three hours of tests and some brief encounters with a doctor, she was told she had indigestion and sent home. That was the good news.

The bad news was the bill: $995 for the ambulance ride, $3,000 for the doctors and $17,000 for the hospital — in sum, $21,000 for a false alarm.

Out of work for a year, Janice S. had no insurance. Among the hospital’s charges were three “TROPONIN I” tests for $199.50 each. According to a National Institutes of Health website, a troponin test “measures the levels of certain proteins in the blood” whose release from the heart is a strong indicator of a heart attack. Some labs like to have the test done at intervals, so the fact that Janice S. got three of them is not necessarily an issue. The price is the problem.

Stamford Hospital spokesman Scott Orstad told me that the $199.50 figure for the troponin test was taken from what he called the hospital’s chargemaster. The chargemaster, I learned, is every hospital’s internal price list. Decades ago it was a document the size of a phone book; now it’s a massive computer file, thousands of items long, maintained by every hospital.

Stamford Hospital’s chargemaster assigns prices to everything, including Janice S.’s blood tests. 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. They even argued that it is irrelevant. 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.

Because she was 64, not 65, Janice S. was not on Medicare. But seeing what Medicare would have paid Stamford Hospital for the troponin test if she had been a year older shines a bright light on the role the chargemaster plays in our national medical crisis — and helps us understand the illegitimacy of that $199.50 charge. That’s because Medicare collects troves of data on what every type of treatment, test and other service costs hospitals to deliver.

Medicare takes seriously the notion that nonprofit hospitals should be paid for all their costs but actually be nonprofit after their calculation. Thus, under the law, Medicare is supposed to reimburse hospitals for any given service, factoring in not only direct costs but also allocated expenses such as overhead, capital expenses, executive salaries, insurance, differences in regional costs of living and even the education of medical students.

It turns out that Medicare would have paid Stamford $13.94 for each troponin test rather than the $199.50 Janice S. was charged.

Janice S. was also charged $157.61 for a CBC — the complete blood count that those of us who are ER aficionados remember George Clooney ordering several times a night. Medicare pays $11.02 for a CBC in Connecticut. Hospital finance people argue vehemently that Medicare doesn’t pay enough and that they lose as much as 10% on an average Medicare patient.

But even if the Medicare price should be, say, 10% higher, it’s a long way from $11.02 plus 10% to $157.61. Yes, every hospital administrator grouses about Medicare’s payment rates — rates that are supervised by a Congress that is heavily lobbied by the American Hospital Association, which spent $1,859,041 on lobbyists in 2012. But an annual expense report that Stamford Hospital is required to file with the federal Department of Health and Human Services offers evidence that Medicare’s rates for the services Janice S. received are on the mark. According to the hospital’s latest filing (covering 2010), its total expenses for laboratory work (like Janice S.’s blood tests) in the 12 months covered by the report were $27.5 million. Its total charges were $293.2 million. That means it charged about 11 times its costs.

As we examine other bills, we’ll see that like Medicare patients, the large portion of hospital patients who have private health insurance also get discounts off the listed chargemaster figures, assuming the hospital and insurance company have negotiated to include the hospital in the insurer’s network of providers that its customers can use. The insurance discounts are not nearly as steep as the Medicare markdowns, which means that even the discounted insurance-company rates fuel profits at these officially nonprofit hospitals. Those profits are further boosted by payments from the tens of millions of patients who, like the unemployed Janice S., have no insurance or whose insurance does not apply because the patient has exceeded the coverage limits. These patients are asked to pay the chargemaster list prices.

If you are confused by the notion that those least able to pay are the ones singled out to pay the highest rates, welcome to the American medical marketplace.

You do not have to be rocket scientist to see the point—if health care providers can set prices and raise prices arbitrarily, they will do so, to their great benefit. They do so because they can, just like universities and colleges do. And as Brill says in the video below, if the health care "reform" bill (aka. Obamacare) had done anything to rein in costs, it probably would not have gotten through Congress.

As Brill points out over and over again, the health care industry constantly strives to deflect attention away from the question

why are costs so high?

in an always successful attempt to get people to focus on the question

who will pay those high costs?

This is not surprising, of course — there are a lot of animals feeding at the health care trough. Some of them have gotten quite fat.

In fact, the American economy would be far, far worse than it already is if the health care monster had not been permitted to grow arbitrarily large and ever more expensive. Job creation in health care runs very far ahead of any other industry.

So don't look for the health care monster to be dismantled anytime soon.

Let me spell it out for you. The United States economy is a

J. O. K. E.

 

Comments

[Ben]

Shameful. What can else you say after reading all of this?

[JohnWDB]

Dave, there are a couple of other factors in these gaudy sticker prices.

1) Hospitals lose money on most ED patients; 55% nationwide do not pay a single penny; some other percentage has some insurance that under-reimburses (medicare and to a greater degree medicaid)

2) they depend on privately insured patients and the few uninsured who pay cash to make profits or break even

3) the amount private insurance and govt insurance reimburses is fixed, so the amount they bill uninsured patients will be drastically inflated. the wide majority of these patients will not pay one penny of the bill. the majority of the rest will settle with collections and pay 30% of the bill. a few suckers will actually pay the sticker price

This system, in the aggregate is called "cost shifting", wherein very few people every end up paying the sticker price. The hospital knows this, so they set the sticker price very high, knowing they will generally settle for some fraction between 0 and 30% of it with most patients.

Healthcare has tons of selfish interest driving it, just like any other human system, but these bloated sticker prices are influenced by lots of other things. Cost shifting is just one symptom of an irreparably broken system.

[Dave Cohen]

@JohnWDB

Perhaps you missed the part where I said the problem was effectively infinite in extent.

And I quote --

Thus, according to the latest publicly available tax return it filed with the IRS, for the fiscal year ending September 2011, Stamford Hospital — in a midsize city serving an unusually high 50% share of highly discounted Medicare and Medicaid patients — managed an operating profit of $63 million on revenue actually received (after all the discounts off the chargemaster) of $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.

That's a lot of cost shifting.

I will spend the rest of the day investigating other countries I might live in, or other planets I might live on.

-- Dave

[Mr. Roboto]

In fact, the American economy would be far, far worse than it already is if the health care monster had not been permitted to grow arbitrarily large and ever more expensive. Job creation in health care runs very far ahead of any other industry.

Yes. In fact, I suspect that one of the ulterior motives of Obamacare is to force everyone to blow into this bubble to keep it inflated by mandating that everybody buy some form of private insurance. I still can't believe how many co-dependent-doormat Democrats drank the Obamacare Kool-Aid.

[Jamie]

Hi Dave, my first time commenting although I have enjoyed your writings for several years now and I think you are spot on. I realized the direction of healthcare in the US as my company benefits dropped every year while premiums went up. I finally dropped it when they added a $8000 deductible on top of $700/month premiums effective eliminating any routine health care. Even considering premiums are not tax deductible outside of company plans, I assembled better coverage for less which actually allowed money for routine expenses... but that wasn't going to last as those options were disappearing..

So I moved to Canada where they gave us provincial health coverage from day one .. its not free, its still funded by taxes (15% HST, income taxe, etc) but you are covered even if you are unemployed .... so people go to the hospital for broken bones etc and come out without a bill. Traveling to the US is considered very risky though as even travel insurance doesn't always... better to go someplace friendly:)

[Ben]

Dave, the video at the bottom of your blog entry is not working.

[Alexander Ač]

"Pessimists live longer and healthier lives" --

According to a new study, older people who have low expectations for a satisfying future may be more likely to live longer, healthier lives than those who see brighter days ahead.
"Our findings revealed that being overly optimistic in predicting a better future was associated with a greater risk of disability and death within the following decade," said lead author Frieder R. Lang, PhD, of the University of Erlangen-Nuremberg in Germany.

http://in.news.yahoo.com/pessimists-live-longer-healthier-lives-055247966.html

Cheers

[Dave Cohen]

@Ben

I switched in the same video from youtube. That should work for you.

-- Dave

[JohnWDB]

Didn't miss it Dave. I've read every word of your blog every day for 8 months. Just trying to add something, since this is the field in which I work. Healthcare is an interesting study, because it is a confluence of all the broken systems that human beings create to "solve" problems. Insurance, whether it's public or private, serves to insulate the consumer from costs, as do FHA mortgages, subprime auto loans, and subsidized student loans. It also disincentivizes cost-effective medicine. This is exacerbated by the fact that most Americans don't choose their own policies and coverages but have them provided by their employer. They are then double-insulated from the costs. Of course, that is changing since jobs with benefits are becoming scarce...

@Mr. Roboto, I would be surprised if Obamacare has that effect. More likely is that private insurance is made even more expensive due to a higher percentage of persons carrying government insurance which reimburse less. More people will abandon private policies due to rising costs and carry gov't insurance. Ultimately, there will be a 2-tier HC system with only very wealthy people carrying private insurance and the masses on gov't insurance. I may be wrong in this prediction, and I'd be interested to hear how you see it unfolding. As much of a crony capitalist as Obama is, he seems to believe single-payor HC is essential, so I believe he sees OC as the first step.

[Dave Cohen]

@Jaime

Thanks for contributing. I'm afraid moving to Canada is not likely an option for me, especially at my age. But I do like the idea.

-- Dave

[Dave Cohen]

@JohnWDB

I appreciate the fact that you read here.

There are some things that are so fucked up that knowing the details doesn't really help much. Health care in the U.S. in one of them.

Also, when you said

a few suckers will actually pay the sticker price

you should be aware that I had to go the ER about 2 years ago, and I am one of the "suckers" without insurance who paid the exorbitant sticker price. I now pray daily that I don't need to make such a trip ever again.

This topic is personal with me.

-- Dave

[Oliver]

Dave and all US readers - If you don't already know, here in the UK the coalition government is doing everything it can to dismantle the state-funded National Health Service, which provides healthcare free at the point of use and is funded by National Insurance contributions (an extra tax) that everyone in work must pay. They are railroading this through, despite a massive outcry from the general public (excluding those few rich enough to benefit from private health insurance).

Do you know whose healthcare system the UK government is holding up as a paragon of excellence? You guessed it - the US!

It is blatantly obvious - and evidenced upon simple research - that the real reason for the dismantling is that a large number of politicians have financial interests in the corporations that are taking over health services here. I assume they are envious of the huge profits that go to US shareholders in the only growing sector of the economy, bar "defense" spending.

I also presume many members of Congress personally benefit from the healthcare feeding trough, otherwise this abomination of the low-paid and poor paying the most for healthcare would have been controlled by now.

Dave - many people I speak to here are fearing exactly what happened to you, that urgent medical care will soon be unaffordable both at the time of need and in paying insurance premiums.

Perhaps this is all Darwinian, and part of a supranational culling agenda.

[Brian]

For all it's complexity, the health care issue seems incredibly simple to me. We have chosen to have a "for-profit" health care system. That system is incapable of providing an actual national "health care" system. It is fully capable of providing an "elite" health care system, as in, "I am elite, so I get health care."

Either a national health care system is designed to place the health of the citizens first, or it is not. There is no gray area here. If the priority is the health and well being of the citizenry, they you are not going to have a "for-profit" health care system. Conversely, if you have a "for-profit" health care system, you do not have a national "health care" system. Rather, what you end up with, and what we have in the US, is price-rationed health care.

Simply put, either health or money is the most important thing. Can't be both because they are often, if not always, in conflict. In the US, we have chosen, as we almost universally do, to make money the most important thing. If the most important thing in a system is to wring more money out of that system, then that is what that system will evolve to do.

In short, we have precisely the system that our priorities demanded... that is, we have what we asked for... a giant, every-growing, health-dollar strip-mining operation that can employ millions of people. God Bless America!

[Don Levit]

PPACA encourages participants to be in networks, in order to get the "discounted" prices.
Out-of-network coverage involves zero cost-sharing from the government, and there is no maxinmum out-of-pocket for out of network expenses.
For the plan we hope to offer in the Texas Exchange for 2014, we envision no network participation. The costs of setting up and maintaining a network must be stagerring.
The premium savings must be significant.
Instead. we will have consumer advocates who have experience in negotiating medical bills after the fact.
Because medical bills are a joke, we think it is comical not only to have networks, but also to pay the price quoted.
Don Levit

[Dave Cohen]

@Brian

Re: Either a national health care system is designed to place the health of the citizens first, or it is not

Yes. Exactly right.

best,

-- Dave

[Mr. Roboto]

@JohnWDB: I must be lacking some major information about Obamacare, because I thought the elimination of the public option meant that all insurance that people would be buying as mandated by Obamacare would be provided by private industry.

[Alexander Ač]

Hello,

I am sure most of you know the documentary about the health care joke in U.S.A. - Sicko from M Moore: http://topdocumentaryfilms.com/sicko/

Alex

[adam]

This is one place where the "free market" speak is not total BS. With both health care and college, it's someone other than the consumer who controls what gets paid, and very rarely in either case is the consumer able to tell beforehand how much they are likely to pay. A transparent market with public prices would clean this crap out like Hercules cleaning out the Augean stables.

I say, make them put up public menus and tell them they have to set a price rather than make up a new one each time. The most common procedures should all be on a menu like at a fast food place, with the procedure and the cost publicly available. Additionally, my father worked for a medical company (oxygen supply) and they made most of their money from Medicare, so any claim that Medicare doesn't pay is BS.

As for the lady in the story, why couldn't the paramedics or whoever saw her first not figure it out on the spot that it was indigestion? That's a very, very common situation and there is no excuse for going through the whole nine yards. They should have been able to tell her before they put her in the ambulance.

[Alexander Ač]

Yes, with health care goes education as well:

"If you don't live in Chicago you might not know that the CEO and the dozens of other six figure a year mayoral cronies who run the Chicago Public Schools want to close 129 public schools this year, more than a third of the city's total."

http://www.blackagendareport.com/content/why-isnt-closing-129-chicago-public-schools-national-news

Alex

[JohnWDB]

@Dave: I've been that sucker, too, on an 8 grand ER bill. How can you know? I apologize for the offense--just trying to indicate how this broken system works.

@Adam: I don't think we can make such blanket statements. What medicare and medicaid pay vary wildly. Durable medical equipment, such as what your pop sold has to be reimbursed at a profit or the company wouldn't sell it, since most of their patients are elderly and have medicare. The troponin referenced in the article probably costs the hospital $40-ish (though medicare pays $10). The actual enzymatic assay for troponin is more than $10 itself. Clearly, the hospital management knows how to play with numbers to get the maximum profits, but many individual procedures are drastically under-reimbursed. For a big hospital, this may not matter much. For a private doc, this might mean a failing practice. I have worked at a neuro clinic where each medicaid 45 min doctor visit was reimbursed at $15. We would've been better off standing at the front door, handing each medicaid patient $100 to not come inside. Lots of people are getting rich in medicine, but this has less and less to do with excellent medicine and more to do with knowing how to manipulate the system. That is a broken system.

@Mr. Roboto, you are correct, the public option is on hold, but this is sort of semantic. Insurance is mandated, but much of that ends up being an expansion of medicaid, which is tax-payer funded. Medicaid, which is currently awful, will be improved and expanded, so it ends up becoming the "public option", though only available for those who can't afford private policies. As that percentage expands, medicaid continues to expand. Again, I could be wrong on this projection, and this isn't to say that Obamacare is good or bad. It's just sort of pissing into a maelstrom...

[JohnWDB]

@Adam, one more thing, regarding this indigestion. Why can't the EMT's do an EKG on site and be trained to follow a very specific algorithm to decide who should come to the ER? They could. but there are several pressures at work that keep them from doing that (capitalism, tort, heroism, etc). Don't underestimate tort--the lady in the article spends 24 hrs in the hospital and has 3 troponins drawn because that is the "standard of care" for "ruling out an MI (heart attack)". If the hospital fails to give her the "standard of care", and they miss an MI, they can be sued and the individual practitioners may lose their licenses and at the very least have their public records smeared. If a few such events happen, the hospital is investigated by CMS (the medicare people) and the gov't refuses to fund the hospital's medicare population. A physician can be reasonably sure a complaint is not an MI just from the history (the story the patient tells and their medical history and risk factors), but if he's wrong once out of 1000, his career can be ruined, and if the same thing happens 3 times, the hospital is sunk.

[Jamie]

I should add a side-note to my earlier comment. In spite of the fact we do have decent health care here, we still rarely use it. Even in the US we used a lot of alternate medicare which was a lot more successful even though we paid it out of pocket. I say this as someone who parents were very much establishment medical people. I have found naturopathic doctors and chinese traditional doctors to routinely get much better results with fewer side effects and at less cost for most illness's we get. If you have broken bones, or need heart surgery etc, then a hospital is the place to be, but preventative care will get you a long way. Herbal treatments are often more effective with few side effects than allopathic medicine but they take longer.. There are herbal teas which can support your heart or hormones or nerves or allergies. Check out herbal books like those by Rosemary Gladstar which will give you herbal remedies you can prepare yourself. Places like Mountain Rose Herbs carry very good herbal blends which are a good addition. (I have women friends who suffered horrible migraines each month with no results from their doctors, who eliminated them with herbal tea).

To take away here is the current system IS broken so you have to find your own affordable system..

[Mike]

I've always said that by the time the Boomers are fully retired in the next 15 years, there will be only 3 industries left in Merica

(1) Military-Police-Government complex

(2) Healthcare

(3) Shitty Service Jobs like cashier or barista

Although to be fair, it feels like we are already there ;)

[JohnWDB]

@Mike, they're actually replacing baristas with Starbucks vending machines by Coinstar. I suppose someone has to stock the machines with coffee concentrate and powdered milk once in a while...

http://www.geekwire.com/2012/coinstar-seattle-coffee-automate-barista/

[Mr. Roboto]

@John WBD: Once again, what you say is at variance with my understanding of Obamacare. Those who cannot afford assurance will (supposedly) receive monetary assistance from the government in order to buy health insurance from private industry that satisfies the requirements of the mandate. And according to the Time article, Obamacare will make the premiums drastically more expensive once the legislation makes it illegal to place any sort of annual cap on benefits. Everything I hear about Obamacare makes me think it's going to be a disaster and a boondoggle.

I wonder how many people every year end up dying because they don't seek out the medical attention they need because they know that our medical system is really only interested in sucking them dry like a vampire? After all, it's not unreasonable to conclude that one might just be better off dead in a society that viciously punishes people for being destitute the way the USA does.