I blog about free markets in medical care and transparent pricing.
A woman recently received treatment for a scorpion sting in the Chandler Regional Medical Center emergency room in Phoenix and was billed $83,000, $80,000 of which was for the new anti-venom serum, Anascorp. You can read the article about it here.
If you are distracted by what her insurance paid and what she still owes and the “out of network” comment at the end, you need to pay more attention to this blog. This is scandalous, but not because her “insurance” company didn’t pay enough on this claim. Actually, part of the scandal is that the insurance paid as much as they did on this claim! Let’s break it down.
Chandler Regional Medical Center (if you guessed that they are “not for profit” you get a gold star) refused to disclose how much they paid for this new drug, prior to marking it up to $40,000 per dose. Would it surprise you to find out that they paid $3750 for the drug? Actually, the patient received two doses, so they have $7500 in drug cost to recover. So they marked the cost of the drug up 10 times. Insurance paid a little over $50,000 and the hospital, needing another $25000 from the patient to not make a profit, is aggressively billing the patient.
Making sure that everyone has insurance is the answer? So shake-down artists like this hospital can be guaranteed a great haul on every heist? If you aren’t angry yet, read this link about what the drug costs in Mexico where it was developed and how Uncle Sam’s bringing the FDA to the table has driven up the cost.
Cui bono? You know the drill by now. Hospitals make a haul from patients who pay them. Hospitals make a haul from patients who don’t pay them, too, through the uncompensated care scam. They benefit the extent to which they claim they lost. Like a reverse-Enron. Their uncompensated care rebate is maximized to the extent that they claim they didn’t collect on bills. Now you see why they price this drug so aggressively. The hospitals also are raking in such huge profits that they need to claim ridiculous losses (gotta have ridiculous bills for this) to maintain the fiction of their “not for profit” status.
Insurance companies? Bills like this represent their excuse for driving up premiums every year. Brokerages that sell insurance products receive commissions based on the amount of the premiums, so you know they are fighting their tears when they tell you about your higher rates next year. Insurance companies will also “back charge” group insurance plans for “repricing” claims. In this woman’s case, the insurance company will get a percentage of the amount they “saved” the group plan by reducing the hospital payment from $83,000 to $57,000. Can you see now why the insurance company actually loves hospitals that charge like this? One insider has told me that the majority of the insurance company profits come from this “repricing” scam, not from premium collection.
The FDA granted the exclusive distribution rights for this drug to a Tennessee company called “Rare Disease Therapeutics.” Understand they don’t make this drug. They distribute it. Like beer. How do you think they got this gig? Thank you Uncle Sam!!
I have an idea. Since the drug can be profitably sold in Mexico for $100, why don’t we directly import it and pay them $200? That’s just not how we do things is it? Not nearly enough “cui bono’s” when you do it this way, I guess.
G. Keith Smith, M.D.
I’m writing this from Washington D.C., just having experienced the TSA experience many have come to know and love. The Association of American Physicians and Surgeons invited me to participate in a congressional briefing with Rep. Paul Broun, GA and I feel compelled to make a report.
Very few in power here have shunned the influence peddling that seems to go along with the job. Those who are principled seem a bit sad, much of their vigor gone with Justice Robert’s ruling.. Lost with Robert’s ruling was a real opportunity to roll back the commerce clause’s grip on states and on the federal overreach. The likelihood that a court challenge will occur again in our lifetime presenting this opportunity is remote, according to one legislator speaking to me. The beast of big government has the upper hand, like never before.
The beast is bankrupt, however. One libertarian congressional staffer told me openly that Medicare is going to vaporize whether this is politically palatable or not. The money coming in doesn’t remotely cover the anticipated expenses by as early as 2017. The implosion of this Ponzi scheme will be accelerated by the court’s decision to uphold the Unaffordable Care Act (UCA,) bringing fiscal insolvency to this program likely prior to 2017. Any legislator in office when that happens is probably finished. I found it interesting that there was more discussion about how to unwind or dissolve Medicare and Medicaid than how to reform this ill-conceived entitlement program.
The legislative “kick the can” approach, always leaving tough decisions and issues for the future legislators continues and will bring collapse and chaos to the medical arena and many others. So many corporatists have bet their future on loot from Uncle Sam to fund their various market-unworthy scams. These folks will soon be bankrupt and deservedly so. Hopefully, more bailouts will be politically impossible and these companies will be reorganized and sold off, cleansing the marketplace of this mall-investment.
What will happen after the government medical juggernaut hits bottom? We will have to fiercely oppose any “top down” solution that does anything other than remove all federal interference. I’ve come to some conclusions. Health care is not a federal issue. It is not a state issue. It is not a government issue at all, at any level. Making health care a government problem makes one’s health, another’s liability and begs for control, rationing and euthanasia, ultimately.
Health care is a service that physicians provide to patients utilizing whatever necessary resources are at their disposal to achieve the best outcome. That ‘s it, isn’t it? Anything that interferes with this process is the “issue.” Robbing one individual for the health benefit of another is an “issue.” Government created scams like PPO repricing and uncompensated care, two of the primary culprits of the high cost of medical care, are “issues.”
Government has been the massive “issue,” interfering with the delivery of health care for several decades now and bringing us from a time when no one needed insurance to a time when even with insurance, bankruptcy is a reality for the sick. Federal “solutions” to health care have focused on insurance coverage, rather than an examination of the true costs, an approach designed to distract attention from those profiting from the finance of health care while having nothing to do with its delivery.
There are some glimmers of hope, though. There is general acknowledgement that the high price of care is Washington’s fault. There is a realization that the politicians must choose their path: take the money or lose their power. The collapse of government health care will be a rough political ride for those who are in office when it happens. If for no other reason than preserving their own political fortunes, we might yet see a roll back, one that will occur in tiny, almost imperceptible bites, though.
There are some good people in D.C. Not very many though. “The reason people think politics is dirty, is because it is dirty,” as Lew Rockwell has said. I think this is why I always feel like I need a hot shower when I get back.
G. Keith Smith, M.D.
From now on, I am going to refer to “not for profit” hospitals as “not show a profit” hospitals. I believe that no other group deserves more blame for the disastrously expensive state of health care in this country than these big “not show a profit” hospitals. They, of course, have an incredibly powerful lobby, the American Hospital Association, which has bribed sufficient players in D.C. to allow them to have their way with the sick. I thought it might be useful to review their role to date.
These big hospitals were granted a concession of tax-free status when required to see all patients (that could pay or not) that came through their doors. The value of this concession is incalculably huge and while sufficient to cover the costs of indigent care and finance hospital expansions, was nonetheless insufficient to slake the greed of those running these outfits.
The poor mouthing tactics of the “not show a profit” hospitals have gone on for some time but reached a fevered pitch in the mid to late ‘90’s when physician-owned specialty hospitals made their debut (my apologies to those physician-owned hospitals that predated this time). “Doctor owners are cherry picking,” was their cry! “They are leaving us with all of the patients who can’t pay,” they screamed. Here in Oklahoma, a state-commissioned “Trauma Task Force,” was hijacked by these goons, using that vehicle to make an anti-competitive case against these new physician-owned facilities. A libertarian-leaning legislator saw to it that I was put on this task force. Here I learned first-hand the lengths to which these hospitals would go to avoid the competition that is present in every other sector of our economy.
All the while, the hospitals were lobbying for disproportionate funding from Medicare and Medicaid, compared to physician-owned facilities. They prevailed and today if you have your knee replaced at a “not show a profit” hospital in Oklahoma City, Medicare will pay them twice what the physician-owned (and far superior) orthopedic hospital will be paid. Those greedy doctors! Summing this up, big hospitals successfully lobbied to be paid more, lobbied to have physician-owned facilities be paid less, screamed they were going broke and accused the greedy doctors of cherry picking.
Let’s keep going. Unsatisfied with their tax-free status and disproportionate government payments, the hospitals pulled off their ultimate heist: the uncompensated care scam. Declaring any amount of their bill which they did not collect, “charitable care,” they managed to secure even higher Medicare and Medicaid funding based on this fiction. Uncle Sam provides DSH (disproportionate share hospital) payments to hospitals based on the amount they claim they didn’t collect. This incentivized the hospitals to produce the most outrageously fictitious bills they could, as this padded their DSH payments. This “uncollected” amount also helped maintain the fiction of their “not for profit” status. The more hospitals “lost”, the more they made, kind of a reverse-Enron, overstating losses instead of gains.
(Insurance companies discovered that they could “sell” their services to “re-price” these false bills and make billions in this way. I have discussed the mechanics of this in prior posts. Let’s stay on these hospitals, though.)
Still not satisfied and continuing the poor mouthing lie, hospitals justified their outrageous bills by saying that they were going broke from all of the “charity” care they were delivering. You can see now that they were being paid for this “charity” care by the taxpayer even if the patient wasn’t paying them. The hospitals began more aggressively “shifting the costs” to those who were paying their bills, even though there were no costs to shift.
(Insurance companies were drowning in their champagne as they saw this as this gave them justification for raising premiums and padded their “re-pricing” profits.)
Think I’m wrong? Look at the building cranes in front of these large hospitals. The largest crane I’ve ever seen is in front of St. Francis Hospital in Tulsa as I write this. The Catholic Hospital Association, of which they are a member, pushed hard for the Unaffordable Care Act, as they stand to make money like never before, getting paid by “insurance” while continuing their uncompensated care scam.
Look at the devastation of rural hospitals inflicted by the big hospitals. First the giant hospitals buy all of the doctors in town, turning them into referral tools, requiring that they transport every patient they can to the mother ship, then they buy the rural hospitals in a hostile takeover, having bankrupted them with this scheme.
One Catholic hospital system has made so much money with the above schemes that they simply can’t figure out what to do with all of it. So they set up a separate supply-purchasing company that after procuring goods for their hospitals, marks it up to themselves, allowing them to dump unlimited profits from their “not show a profit” mother ship.
I suppose I should mention that the administrators of these facilities make millions of dollars every year. The head of the Catholic Hospital Association (a nun) makes 1 million dollars a year! That’s a bunch of cash to cram in her habit.
That vulnerable and sick people have been bankrupted by these criminals, makes me mad. They couldn’t have done it without the willing assistance of our friends in Washington, D.C., however, the same folks who have brought us the Unaffordable Care Act. State governments bear much of the blame, as well, as powerful state hospital associations have showered local legislators with enough dough to shut out the hospitals’ would-be competitors.
Out of one side of the legislator’s mouth, we hear about “access issues” and the “high cost of health care.” Out of the other, they say to their hospital buds, “…thanks for the check. I’ll see to it that no other facilities open to make you price-competitive.” “I’ll tell the voters it’s for their safety and that we need to protect the integrity of our hospital systems so you’ll be there when we need you.”
G. Keith Smith, M.D.
I anesthetized a 208 pound, eleven-year-old female recently. Her parent’s combined weight was well over 700 pounds. Both parents were smokers. It occurred to me that the Unaffordable Care Act (UCA) guarantees that they will never be turned down for insurance. What does that mean for you and me?
If you think that including folks who engage in this level of self-abuse on your insurance plan will drive your premiums through the roof, you go to the head of the class. If you believe that health care is a right and that these folks have a right to health care, you may think differently when their “right” to health insurance causes your premiums to skyrocket and you can no longer afford or obtain care. What would happen to life insurance rates if skydiving and previous suicide attempts could not be considered for exclusion?
“But wait!” “These folks are going to get care anyway and the hospitals charge us more now (because they don’t have insurance) to cover them!” Right? If you believe that the hospitals plan to lower their charges after implementation of the UCA, you go to the back of the class.
Actually, community, not for profit hospitals made a deal years ago to deal with the charitable care issue. These hospitals, having been required to care for the indigent, were relieved of any tax liability. “Not for profit” really means “don’t pay tax.” The value of this “tax free” condition is never discussed as this excessive number would make Donald Trump blush. Not satisfied with this loot, the hospital lobby has successfully saddled us with the uncompensated care scam and convinced us all that “cost shifting” was necessary to avoid bankruptcy.
What does the UCA do to address this? Pour gas on the fire. Anticipating the unmanageable increase in demand for the now “free” medical services, the authors of the UCA birthed the IPAB (independent payment advisory board), which puts price controls on….ready?….physicians. In this stealthy way, physicians will become the de facto ration police of health care by avoiding patients whose care is intentionally “underpriced” by the IPAB.
$15 payment to the physician for an evaluation of a morbidly obese, hypertensive diabetic with obstructive sleep apnea and coronary artery disease with a history of foot ulcers, is a price that will cause lines to form and doors to close. If $15 dollars doesn’t close the doors, the IPAB will try $10. These unfortunate patients will be armed with a worthless insurance card, one that ironically denies them access, like never before when they were uninsured. Premiums will skyrocket to allow for inclusion of these patients who will be denied care, and more and more people will surrender to the ultimate goal of the state: to control your health care with a single payer system. To control your health is to control your life. While the current system is a government-created mess, most people I know would rather be bankrupt than dead.
G. Keith Smith, M.D.
I anesthetized a man with laryngeal cancer the other day. Nice guy, no insurance. He will soon be bankrupt, but not because of any bill we sent him. Not because of any bill that his surgeon will send him.
He will be bankrupt because the system is corrupt. He ultimately will require chemotherapy and radiation, neither one of which is available to him without going to a big hospital. His radiologist (even though working at a hospital) will not send him huge bills. His oncologist (unless they are a hospital employee) will not send him huge bills. The hospital will bankrupt him. The drugs he will receive are unnecessarily expensive for a number of reasons, all but one of which are due to government interference. The FDA, whose purpose is to limit new competing manufacturers by enforcing rules and regs which only the big boys can comply with, drives the price of new drugs through the roof (you didn’t think the FDA was there for your safety did you?). This occurs due to the rules and regs themselves and also due to the lack of real competition that results from enforcement of the rules and regs. The hospital adds the final blow by adding a markup to these drugs of up to three thousand percent. That’s right..no typo.
If he needs to actually enter a hospital or requires a tracheostomy, his bills will easily overwhelm his finances. Merciless hospitals will gladly keep adding to his tab as their take from the uncompensated care scam (where they get rebates from taxpayers for the amounts they bill for which they aren’t paid) depends on generating large and un-payable bills. All the while these hospitals will “poor mouth” it talking as if they are going broke from patients like this man. They will also make a point to educate all of us about their value to the community, as if bankrupting this man qualifies.
This man’s bankruptcy will be the work of the American Hospital Association. It will be the work of the big insurance lobby and that of big pharma. It will be the product of their greed and that of those in government all too willing to accept their bribes to make their bankrupting way of doing business the law.
These corporate suits have now written a health care bill that will completely finish off their small competitors, paving the way for the abuses that only companies without competition can get away with. This is corporatism. This is fascism. This is what Frederick Hayek warned us about in his “Road to Serfdom.” The only thing worse than government, is government in bed with big business. We don’t need to make sure everyone has insurance so these companies can make even more money. We need to talk honestly about the costs, as very few of the costs in the health care marketplace can be justified, let alone even discovered.
Unless we wake up to the government-enabled scams of the health cartel, we will find ourselves on “kill” lists to spare their stock prices. I don’t think our soon-to-be bankrupt laryngeal cancer patient will survive to see the kill lists, but you and I will, unless a bold and fresh market-driven approach is adopted.
G. Keith Smith, M.D.
The socialist editorialist Clarence Page has called the GOP out, Mitch McConnell, in particular, for not having a replacement plan for Obamacare if they can manage to repeal it. This very short-lived interlude, void of any more health care ideas from Washington, is kind of nice. I’m sure the GOP will spoil the silence, though. Seriously, what on earth would lead someone to believe that any answer coming from Washington wouldn’t be designed to line the pockets of the special interests at the table writing the bill?
I’m all about repeal. But let’s not stop with Obamacare. Let’s move on to many disastrous legislative interventions brought to us from the other side of the aisle. How about Medicare Part D, brought to us by a GOP-led executive? Why didn’t the GOP change the tax code to end the discrimination against individual purchases of health insurance during the time they had all the power? Hint: see paragraph one of this blog. This tax reform isn’t likely as the shift away from employer-purchased plans will gut the scam of PPO repricing, a devastating blow to the big insurance companies.
Remember how “repricing” works. My apologies to loyal followers of this blog for repeating this, but it is important…I’ll have something new at the end. Insurance companies are perversely rewarded by seeking out the most expensive “providers” they can find. They subsequently “reprice” a bill of $100,000 to perhaps $28,000 and charge the employer plan a fee percentage to the extent that they have “saved” them this $72,000. Hospitals gladly produce these bills for their pals, as they can write the fictitious loss off as “uncompensated care” and bill Uncle Sam for a percentage of this number. Insurance companies agree to lock out certain competitors to garner the hospitals’ participation in this little scam.
Insurance companies make more money doing this than they do from premium collection! This money isn’t included in the calculation of the new MLR (medical loss ratio) requirements of the UCA (Unaffordable Care Act). This MLR only applies to premiums collected. Beginning to see why the big insurance companies wrote the bill this way? Administrative fees and PPO access fees are also not included in the MLR calculations.
Changing the tax code ends this scam. Individual policies (as opposed to group or employer-sponsored policies) are not subjected to “repricing” fees. You will know that the GOP is furious with the insurance companies when this tax reform passes. If the GOP threatens to pass it, then doesn’t, you will know that they did this to raise money from the insurance companies as extortion.
What would the reaction of the average working person be to the following from the GOP: “We aren’t advocating a replacement plan because this government is so completely compromised, corrupt and incompetent that something as important as health care can’t be trusted to it. We are going to fade back and punt this to the states and let them unwind the insanity we have thrust on everyone in the country. Our gift to you is to remove ourselves from this issue entirely, rather than continue to sell our influence at your expense.”
I know. It will never happen. Fun to think about, though.
G. Keith Smith, M.D.
Check this out. $182,000 for an appendectomy in California. Someone told me the other day that having received a bill for $20,000 for their hernia surgery, also done in California, they were going to use our online pricing to leverage a better deal. What is going on in California? The same thing that’s going on everywhere. That the authors of the study never mention the uncompensated care scam or the crime of PPO repricing is telling, I think. The hospital that charged $182,000 for an appendectomy will receive very little of this bill from the insurance company. They will receive quite a bit of it from the taxpayers after they claim that they “lost” that amount they didn’t collect and factor that in to their uncompensated care claim to the feds. The insurance company will claim to the employer who sponsors this insurance plan that they “saved” them, let’s say, $150,000 (assuming they only pay the hospital $32,000!), and will charge the employer a fee for this “savings, ” a percentage of $150,000.
The authors of the study linked to above say that the price for services depends on whether a facility is for profit, not for profit or a teaching facility. On this point, they are correct. The not-for-profits are almost always the most expensive, as they need incredibly large and fictitious write-downs to conceal all the money they are making.
But the authors of the study are incredibly wrong about the most important thing. They suggest that health facilities “get together” and come to a consensus about the price for various services. What part of anti-trust do these people not understand? Why can’t they let this cartel-lust go? What is wrong with letting the market determine prices the way it does for everything else?
Our prices are causing a deflationary price war here locally and there is evidence that this effect has spread outside of our area, particularly if folks in California are using our website fees to leverage better prices. This price transparency will bring prices down. The free market will determine the market clearing price for health services as it does for everything else. Those who advocate (as the authors of the above study) “cooperation” amongst health facilities will get more of the price fixing, cartel-like insanity that produces $182,000 appendectomy bills.
G. Keith Smith, M.D.
This article in the L.A. Times reports on the basic refusal of California hospitals and physicians to reveal their prices for common procedures in spite of a state law requiring them to. Some hospitals comply by listing their prices on a state website, but not on their own. Some simply refuse to comply.
Followers of this blog are aware that revealing prices to inquiries is a start but is probably not sufficient when it comes to price transparency in the medical marketplace. Revealing prices is one thing. Displaying them is quite another. We display our prices for virtually all of the procedures we do at our facility. If we are wrong, we eat the loss.
I enjoy reading articles like this that list the excuses for not displaying prices. If you were to believe these “experts” quoted in the article, you would come to the conclusion that it’s just not possible to do this. “People are not cars,” one person said. If this display of prices is not possible, how are we doing it?
Want the real answer? Lots of folks are making loads and loads of money that are lurking in the shadows of this dysfunctional medical marketplace, and their reaction to the light of day would be like that of a blood-sucking vampire. The uncompensated care scam, the PPO repricing scam, the high and uncollectable bills used to justify the fiction of the not-for-profit status of some of these outfits…I could go on. Price transparency reveals all of these scams for what they are.
I am personally against mandating or legislating price transparency. I think that the market will be cruel and unforgiving to those who do not embrace this free market approach. Those displaying their prices will get busier and busier and those clinging to the old deceitful model will wither away.
How can I be so sure? I run a facility where we display our prices. We are getting busier all the time because of that. As a physician and medical director and owner of a medical facility I am in a unique position to appreciate the beauty and power of the free market in connection with the delivery of health care. We hope that many others will join us in this move toward price transparency. Breaking the back of the current health cartel, the result of which will be lower prices and higher quality of care, depends on it.
G. Keith Smith, M.D.