Brill's Bitter Pill

It may have taken a week, but reading Steve Brill's lengthy Time magazine article about the cost of medicine in America is worth it. I couldn't imagine reading it online, so I went out and bought a copy on the newsstand. This had the added benefit of rewarding Time, in a small way, for publishing it.

The upshot is that hospitals charge whatever the hell they want to people who don't have insurance, while insurance companies pay about half as much, and Medicare pays maybe 10 percent as much. And Medicare is not stiffing the hospitals -- its rates are based on what things cost, including overhead and even the education of medical students.

Things I learned from Brill

There's this thing called the "chargemaster," which is the source of hospitals' prices. The chargemaster prices from one hospital to the next have nothing in common. Hospital PR people repeatedly told Brill that the chargemaster rates don't matter, that "no one pays those." This was at the same time that he had called up to ask about people who were being charged the chargemaster rates. The chargemaster comes up with prices like $18 for a single diabetes test strip, which in reality costs no more than 55¢. Or a stress test with radioactive dye priced at $7,997.54 when Medicare pays $554 for the same test.

There's a whole industry that has sprung up, called medical billing advocates, made up of freelancers who help uninsured people get their bills lowered by negotiating with hospitals. They're usually people who used to work in claims for insurance companies, and Brill gives many examples. (They even have their own association, of course, called the Alliance of Claim Assistant Professionals.)

Nonprofit hospitals, especially large ones in urban and surburan areas, are not really nonprofits, despite their tax status with the IRS. They make huge profits and pay their CEOs (and many other high-level staffers) unreasonably high salaries. Nobody needs to make over a million dollars a year, let alone the head of a nonprofit organization:

• MD Anderson (Houston's famous cancer hospital) president -- $1.845 million (not including compensation from pharmaceutical companies)
• Stamford (Conn.) Hospital CEO -- $1.86 million 
• Bridgeport (Conn.) Hospital CEO -- $1.8 million; CEO of its parent organization, $2.5 million
• Mercy Hospital (Oklahoma City) CEO -- $1.93 million; executive vice president $3.7 million. Plus five other executives making over $1 million

The charity care provided by nonprofit hospitals, when priced according to Medicare prices instead of the inflated chargemaster rates, is worth only $3 billion -- which is less than half a percent of the hospitals' annual revenue. And this includes their bad debt, not just purposeful donations of care. Lots of for-profit companies give away more than half a percent of their annual revenue.

The nonprofit status of these hospitals leads to perverse incentives. Since they can't retain the earnings, they spend them on huge salaries and new buildings and equipment, which then require higher prices to pay for them.

Medical interests spend more money on lobbying than any other industry -- $5.36 billion in 1998, compared to just $1.3 billion by oil and gas interests or $1.53 billion by defense and aerospace, for instance.

Testing is a cash cow for whoever owns the equipment, whether the hospital or a medical practice. "A typical piece of equipment will pay for itself in one year if it carries out just 10 to 15 procedures a day." U.S. health care providers order 71 percent more CT scans than Germany, and despite its "low" payment rates, Medicare pays four times as much for CTs as Germany does. (That's because testing prices are directly controlled by Congress, which is lobbied heavily by the industry, rather than Medicare.)

The medical device tax, which is part of the Affordable Care Act and is opposed by every member of the Minnesota congressional delegation regardless of political party, is actually a good idea. Medical devices are over-used and should be curtailed. Minnesota's Medtronic has a profit margin of 75 percent. Compare that to Apple's profit margin of 40 percent. Huh.

Way too many people have insurance that doesn't cover anywhere near what things cost. As Brill put it, "the appeal of having something called health insurance for a few hundred dollars a month is far more compelling than comprehending the details" -- such as unrealistic day payment rates or low caps on total coverage.

Less good about the article

Brill, unfortunately, comes up short when it's time to talk about solutions. He offers some that are good, like allowing Medicare to negotiate prices on drugs and durable medical goods like wheel chairs. "If we paid what other countries did for the same [drugs], we would save about $94 billion a year" out of the current $280 billion we're paying.

He's also in favor of allowing Medicare to fund studies of comparative effectiveness, so that it can pay for drugs that are effective at the lowest cost, instead of every drug approved by the FDA.

He even flirts with the idea of lowering the Medicare age by, say, 10 years, while charging people to get into it -- and admits that such a change would save money for people and the government. How can that be, you ask? Well, under the Affordable Care Act, the government will be subsidizing care for low-income people, and they'll be paying a lot more for that care than if the patients were getting Medicare prices.

But then he bails out on this direction, saying this about the idea of single payer health care:

...no doctor could hope for anything approaching the income he or she deserves [emphasis added] (and that will make future doctors want to practice) if 100% of their patients yielded close to the low rates Medicare pays.

...the prospect of overhauling our system..., displacing all the private insurers and other infrastructure after all these decades, isn't likely. For there would be one group of losers -- and these losers have a lot of clout. They're the health care providers like hospitals and CT-scan-equipment makers whose profits -- embedded in the bills we have examined -- would be sacrificed. 

If doctors didn't have to go into incredible debt to get their degrees, they might be less motivated by money. There doesn't seem to be a problem recruiting doctors in European countries, because it's still a well-paid, high-status profession. And for Brill to throw up his hands at the existing infrastructure, after he's just spent 30 pages showing how sick it is, is beyond frustrating.

How did Canada make the change to single payer? It happened because one province did it, and then the outcry and demand from regular people in other parts of the country made it the law of the land everywhere. There's no reason that can't happen here, too, despite the entrenched interests.

Even Brill admits, "this is not about interfering in a free market. It's about facing the reality that our largest consumer product by far -- one-fifth of our economy -- does not operate in a free market."

His recommendations:

• Tighten antitrust laws so hospitals can't dominate their regions and control prices
• Tax hospitals 75 percent on their profits and on non-doctor salaries over $750,000
• Outlaw the chargemaster
• Amend patent laws or set price limits on drugs. "Just bringing their profit margins down to the level of software companies could save billions of dollars."
• Decrease what Medicare pays for CTs and MRIs and cap what insurance companies pay for them
• Implement medical malpractice reform to decrease defensive medicine

That last one sounds good on paper, though it has all sorts of problems operationally. But I'm willing to go along with well-thought-out malpractice reform if we can make a lot of other changes first.

Steve Brill may not think single-payer is realistic, but he's certainly provided the movement with a lot of high-profile ammunition.