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By Scott Jacobs

If ever there was a reason to bemoan the decline of the weekly news magazine, it is Steven Brill’s brilliant cover story in Time Magazine this week titled “Bitter Pill” that does for the health care industry what Upton Sinclair’s “The Jungle” did to meatpacking.

In his 26,000-word story, the longest in Time history, Brill investigates the medical bills of eight patients to reveal who really benefits from our health care system. He finds a pattern of price gouging that is taken for granted in the hospitals, and extends out to medical labs and outpatient facilities, manufacturers of medical equipment and drug makers, everyone, he notes, except the doctors and patients.

A $7 cotton swab, a $995 ambulance ride

In his line-by-line examination of the bills, Brill finds a box of gauze that sells for a dollar at Walgreens being charged out for $77. Tylenol tablets that come in a 100-pill bottle that costs $1.49 on Amazon for going for $1.50 apiece (a 10,000 percent mark-up).  A four-mile ambulance ride that costs $995.  Nurses billed out at $1200/hour.  An “alcohol prep pad” (cotton square) that can be purchased in boxes of 200 for $1.91 per box billed at $7 and a $6 surgeon’s gown marked up to $39.

The list goes on, page after page of tests, services, drugs and procedures that go by incomprehensible names and wind up on our medical bills. But these incidentals are still small potatoes compared to the systemic way costs escalate at every step of the health care system.

“What really costs money is the $13,000 dose of a cancer drug that the hospital buys for $3,000 and the drugmaker makes for $200,” Brill says. “That is the kind of stuff that is driving the country bankrupt and is driving millions of families bankrupt every year.”

$60 billion a week

The invoices add up. A slip and accident leads to a $9,418 emergency room visit in Connecticut; An Oklahoma man spends $86,951 for a one-day procedure to install a back stimulator; and a California couple is charged $902, 452 to give a terminally-ill cancer patient 11 more months of life.

Americans this year will spend some $2.8 trillion on health care, which is about $750 billion more than we would spend if we spent the same per capita as other developed nations, Brill concludes. According to a McKinsey & Co. study, the United States spends more on health care than the next 10 biggest spenders combined: Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain and Australia.

We may be shocked at the $60 billion price tag for cleaning up after Hurricane Sandy. We spent almost that much last week on health care,” Brill writes. “We spend more every year on artificial knees and hips than what Hollywood collects at the box office. We spend two or three times that much on durable medical devices like canes and wheelchairs, in part because a heavily lobbied Congress forces Medicare to pay 25% to 75% more for this equipment than it would cost at Walmart.”

Non-Profit Money Machines

As he delves into the case histories, Brill discovers that non-profit hospitals––many of which are affiliated with universities like the University of Chicago Hospitals and Northwestern Memorial––are making boat loads of money. The largest, the University of Pittsburgh Medical Center, made $770 million last year. The second ranking Cleveland Clinic raked in $572 million. The 2,900 non-profit hospitals in America had an average profit of 11.7 percent, higher than the 1,000 for-profit hospitals (after taxes). Where does all the money go? To exorbitant salaries for hospital administrators and lavish plans to expand facilities so the hospitals can make even more money.

The MD Anderson Cancer Center in Houston, for instance, is part of the University of Texas. Last year, it made a profit of 26 percent profit and paid its CEO $1.8 million, three times the salary of the university president. The Yale New Haven Health System is the teaching hospital for Yale Medical School. Although they are separate entities, university representatives, including Yale president Richard Levin, sit on the health system board. The university and the hospitals have roughly the same budget, but the hospital CEO Marna Borgstrom earns $2.5 million a year, 58 percent more than the $1.6 million Levin makes as Yale president; and the CEO of the smallest hospital in the system, the 184-bed Greenwich Hospital, gets paid $112,000 more than Levin.

The Chargemaster

Behind all these charges, Brill discovered, is something you’ve probably never heard of: the chargemaster, an internal list of prices that every hospital keeps for its products and services. Once the size of a phone book, it is a now a massive computer file every hospital uses to set rates for thousands of items. (Medicare alone has payment codes for 7,000.) No two chargemaster systems are the same, and Brill says hospital administrators don’t know or can’t explain the underlying reasons for the fees.

“Officials treat it as if it were an eccentric uncle living in the attic,” he writes. Many hospital administrator argue that the rates set in the chargemaster are irrelevant because Congress sets a fixed rate that Medicare will pay for most procedures, health insurance companies use the weight of their thousands of clients to negotiate discounts amounting to 30, 40 or 50 percent. The only people who pay rate card are Saudi sheiks––or people who can least afford it, those too poor to have health insurance or with policies that set limits on annual payouts.

When there is no underlying logic for a rate card price, however, it doesn’t matter what discount you negotiate. Fees for lab services, tests, pacemakers, blood infusions, even hospital rooms are all over the map, and the discrepancies have spawned a cottage industry of consultants who are ready to challenge bills, and usually succeed. One study showed as many as 20 percent of hospital invoices have errors, and a persistent advocate who understands the health care codes can knock hundreds of thousands of dollars off some bills.

Tip of the Iceberg

Pumped up hospital bills are only the tip of the iceberg, however, and it does Brill a disservice to boil down his seven month investigation to a bunch of big numbers. The trail he follows from the medical bills to the cost of the root services is a fascinating exploration of price gouging for medical supplies, blood tests sent to in-house labs owned by doctor groups so they can get a piece of the mark-up, and drug companies arbitrarily setting prices that are 50 percent higher on average in the United States than in other developed countries (and cost us about $94 billion a year).

In the course of his investigation, he also finds that doctors worried about medical malpractice suits “over test” to protect themselves––raising health care costs another $74 billion. Republicans have long sought to set limits on malpractice awards, but trial lawyers are heavy Democratic contributors who scuttle every attempt. A better approach, Brill notes, would be to create a “safe harbor” defense for doctors that protects them from liability if they use generally-accepted medical procedures.

Obamacare Skirts The Issue

You might think the two-year debate over Obamacare would have brought out some of these issues. It did, but they were buried early on in the process. And there is a reason for that. The health care lobby in Washington is formidable, so well-financed that from 1998 to 2012, according to the Center for Responsive Politics, the pharmaceutical and health-care-product industries, combined with organizations representing doctors, hospitals, nursing homes, health services and HMOs, spent $5.36 billion on lobbying in Washington.

This dwarfs the $1.53 billion spent by the defense and aerospace industries and the $1.3 billion spent by oil and gas interests over the same period. That’s right: the health-care-industrial complex spends more than three times what the military-industrial complex spends in Washington. And the only reason Obamacare passed through Congress is that they were in on it, shifting the focus onto who gets covered by health insurance (and subsidizing those who aren’t) and doing little on the cost side of the problem.

“The reason that Obamacare passed was that it didn’t do anything to cut into the profits of the drug companies, or the hospitals,” Brill notes. By expanding the pool of insured patients and eliminating restrictions on pre-existing conditions and annual limits on payouts, Obamacare will, in fact, probably raise profits in all sectors of the health care industry. But it won’t allow Medicare of the Center for Disease Control to negotiate drug prices, use the patient outcome research in the bill “as mandates for practice guidelines, coverage recommendations, payment, or policy recommendations;” or drive down the cost of medical equipment (canes, wheelchairs, etc) through competitive bidding.

There aren’t that many MUST READS left in journalism, but this is one of them. (And the digital version, available on the iPad, is even better because of the added bonus videos and case studies.) So take one long read and call me in the morning. You’ll be glad you did.


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