The Bitter Pill of Health Care Costs

A recent cover story from TIME, “Bitter Pill: Why Medical Bills are Killing Us,” has been making waves around the health policy world. The article examines the lack of transparency behind medical billing, and details the experiences of patients – including their shock and dismay – upon receiving their bills. (One such story involves a woman who, after dealing with hundreds of thousands of dollars in medical bills for her now-deceased husband, says she won’t remarry because she “can’t risk the liability.”)

The author, Steven Brill, makes the argument that  medical billing is almost an arbitrary business, stating, “When you look behind the bills that Sean Recchi and other patients receive, you see nothing rational — no rhyme or reason — about the costs they faced in a marketplace they enter through no choice of their own. The only constant is the sticker shock for the patients who are asked to pay.”

Indeed, the prices charged by health care providers can be tens of times the ‘street’ value. Brill notes several of these incidences, including a patient who was charged $18 for a diabetes test strip, when the identical test strips can be purchased from Amazon in a box of 50 for $27, or for about 55 cents each.

Brill argues that the logic behind medical billing is really no logic at all. “What are the reasons, good or bad, that cancer means a half-million- or million-dollar tab? Why should a trip to the emergency room for chest pains that turn out to be indigestion bring a bill that can exceed the cost of a semester of college? What makes a single dose of even the most wonderful wonder drug cost thousands of dollars? Why does simple lab work done during a few days in a hospital cost more than a car? And what is so different about the medical ecosystem that causes technology advances to drive bills up instead of down?”

“Recchi’s bill and six others examined line by line for this article offer a closeup window into what happens when powerless buyers — whether they are people like Recchi or big health-insurance companies — meet sellers in what is the ultimate seller’s market.”

Brill’s conclusion is that hospitals and other providers can simply charge what they want because consumers – patients and their families – are simply participants in a “fixed poker game that [they are] forced to play in the worst of times with the worst of cards.”

The cost of health care in the U.S. is only increasing, and these costs are placing an ever-larger burden on all payers. “When you crunch data compiled by McKinsey and other researchers, the big picture looks like this: We’re likely to spend $2.8 trillion this year on health care. That $2.8 trillion is likely to be $750 billion, or 27%, more than we would spend if we spent the same per capita as other developed countries, even after adjusting for the relatively high per capita income in the U.S. vs. those other countries. Of the total $2.8 trillion that will be spent on health care, about $800 billion will be paid by the federal government through the Medicare insurance program for the disabled and those 65 and older and the Medicaid program, which provides care for the poor. That $800 billion, which keeps rising far faster than inflation and the gross domestic product, is what’s driving the federal deficit. The other $2 trillion will be paid mostly by private health-insurance companies and individuals who have no insurance or who will pay some portion of the bills covered by their insurance. This is what’s increasingly burdening businesses that pay for their employees’ health insurance and forcing individuals to pay so much in out-of-pocket expenses.”

Brill also looks at how provider consolidation is driving up prices. “But insurers are increasingly losing leverage because hospitals are consolidating by buying doctors’ practices and even rival hospitals. In that situation — in which the insurer needs the hospital more than the hospital needs the insurer — the pricing negotiation will be over discounts that work down from the chargemaster prices rather than up from what Medicare would pay. Getting a 50% or even 60% discount off the chargemaster price of an item that costs $13 and lists for $199.50 is still no bargain.”

A solution to this, Brill concludes, would be to “tighten antitrust laws related to hospitals to keep them from becoming so dominant in a region that insurance companies are helpless in negotiating prices with them. The hospitals’ continuing consolidation of both lab work and doctors’ practices is one reason that trying to cut the deficit by simply lowering the fees Medicare and Medicaid pay to hospitals will not work. It will only cause the hospitals to shift the costs to non-Medicare patients in order to maintain profits — which they will be able to do because of their increasing leverage in their markets over insurers. Insurance premiums will therefore go up — which in turn will drive the deficit back up, because the subsidies on insurance premiums that Obamacare will soon offer to those who cannot afford them will have to go up.”

For more information on health care costs, check out AHIP’s iPad app.

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