An American Sickness: How Healthcare Became Big Business and How You Can Take It Back

by Elisabeth Rosenthal

After endless compromises with the medical industry to enable its passage, the ACA was mostly a bill to make sure that every American could have access to health insurance. But it didn’t directly do much, if anything, to control runaway spending or unsavory business practices.

The original purpose of health insurance was to mitigate financial disasters brought about by a serious illness, such as losing your home or your job, but it was never intended to make healthcare cheap or serve as a tool for cost control. Our expectations about what insurance should do have grown.

In 1993, before the Blues went for-profit, insurers spent 95 cents out of every dollar of premiums on medical care, which is called their “medical loss ratio.” To increase profits, all insurers, regardless of their tax status, have been spending less on care in recent years and more on activities like marketing, lobbying, administration, and the paying out of dividends. The average medical loss ratio is now closer to 80 percent.

The framers of the Affordable Care Act tried to curb insurers’ profits and their executives’ salaries, which were some of the highest in the U.S. healthcare industry, by requiring them to spend 80 to 85 percent of every premium dollar on patient care. Insurers fought bitterly against this provision. Its inclusion in the ACA was hailed as a victory for consumers. But even that apparent “demand” was actually quite a generous gift when you consider that Medicare uses 98 percent of its funding for healthcare and only 2 percent for administration.

Dissolves the myth that "government is inefficient", at least in regard to healthcare

From 1997 to 2012, the cost of hospital services grew 149 percent, while the cost of physician services grew 55 percent.

The top of the doctors’ totem pole had traditionally been occupied by the physician in chief and surgeon in chief, older, respected practitioners who ran rounds and were called in to review difficult cases. The CMO was also a physician, but his primary allegiance was to the executive suite, and his mission was to use his professional influence to make the ad hoc practice of medicine by the army of doctors at the hospital function as a profitable business.

The good times were rolling for hospitals between 1967 and 1983, when hospitals set their rates and the patient or his insurer was expected to pay up. Medicare payments to hospitals increased more than tenfold from $3 billion to $37 billion nationwide

The hospital would make money on patients who healed more quickly and efficiently—and lose money on those who did not.

Restructuring a hospital as if it were a steel mill or a chicken processing plant seemed uncouth to some boards, but second-tier hospitals and those straining under financial pressures opened their doors wide to consultants.

In 2015, 71 percent of physician practices supplemented salary with productivity bonuses. Bonuses can motivate doctors, just as they do bond traders.

Facility fees are a unique construct of American healthcare and its business model.

When you buy anything—a watch, a car, even groceries—you pay a single price for the goods. The Walgreens down the street doesn’t add a separate charge to cover its rent, utilities, or the cost of refrigeration units.”

by the early 2000s, every department had to carry its own weight. The chief medical officer and his advisers were expected to find new profitable lines of treatment and to reevaluate the old money-losing departments to see if they could be “turned around.” If not, the department or the service often had to go.

Cutting necessary medical costs to increase profits is a prime example of why healthcare should have never been commodified to begin with

Residents have long been the worker bees that keep hospitals going, and debates about who should pay for their training and how much have evolved in tandem with our profitable medical system.

By 2014 hospitals received about $15 billion a year in government subsidies to support graduate medical education, a number that had been “increasing for decades.”

there is much to suggest that hospitals have turned residencies into another profitable business.

The residents are the primary teachers of the medical students assigned to their wards, relieving hospital staff of that burden.

They are learning, yes, but are also effectively low-wage labor.

The median cost to a hospital for each full-time resident in 2013 was $134,803. That includes a salary of between $50,000 and $80,000. Federal support translates into about $100,000 per resident per year. Researchers have calculated that the value of the work each resident performs annually is $232,726.

.....yet they get federal money to "subsidize" the residents

Some hospitals responded by reducing educational activities, such as elective rotations and seminars, so they could have more hours of cheap labor. Many also hired moonlighters. In some instances, the doctors whom hospitals pay at a rate of $10 per hour as residents or fellows (more senior doctors in specialty training) can receive $100 per hour to do the exact same job after hours.

Customer satisfaction is important and predicts repeat business, but it does not necessarily indicate medical quality.

“So if a patient asks for a test and it won’t hurt, they’ll get it,” one doctor told me. “It’s good for Press Ganey scores. It takes more time and trouble to explain why they don’t need the X-ray.”

In most cities the highest-paid nonprofit executive by far runs the local hospital.

Those bonuses are typically linked to criteria such as “finance,” “quality,” “profit,” “admissions growth,” and “increase in net funds,” not medical goalposts like reducing blood infections or bedsores and avoiding unneeded procedures.

BS metrics that incentivize cutting by those at the top, which hurts everyone below them

Not-for-profit hospitals are now just as profitable as capitalist corporations, but the excess money flowing in isn’t called “profit”—it’s “operating surplus.”

A survey of the forms conducted by the California Nurses Association concluded that 196 hospitals received “$3.3 billion state and federal tax exemptions and spent only $1.4 billion on charity care—a gap of $1.9 billion.” Three-quarters of the hospitals got more dollars in tax breaks than they spent on benefiting the communities they serve.

All in all, California Pacific Medical Center was willing to spend $1.1 billion to hang on to its tax-exempt status.

Medicare penalizes hospitals if patients bounce back thirty days after discharge—the “readmission penalty.” But if they were never officially admitted but were merely under “observation” they couldn’t bounce back!

Since the terms of outpatient insurance apply, observation status typically means far larger co-payments.

U.S. doctors who are best compensated are often not the ones who undertake the longest training or work the hardest. They are the ones who are best at the business of healthcare.

“There is a bizarre martyr complex that permeates medicine—people think they are working harder and longer for less money than everyone else in America.”

Dr. Hsiao’s team calculated a work value in a new currency called relative value units (RVUs), based on (1) the work/time spent by a doctor for the visit or intervention, (2) the overhead incurred in rendering the service, (3) the cost of training required to learn to perform the service, and (4) the malpractice expenses involved.

Unlike payments to hospitals, however, overall payments to physicians under Medicare would have a legal cap to more or less maintain budget neutrality. If Medicare’s valuation for one procedure went up or a new highly valued procedure was approved, other costs had to decrease.

Because Dr. Hsiao’s algorithm tied the amount of time it took to perform a medical intervention and how long it took to learn a new skill to reimbursement, it tended to reward procedures more than visits that relied on a physician’s “cognitive skills.”

But the RUC determines the time it takes to perform a service by polling several dozen specialists who actually do the procedure, which is essentially asking them whether or not they want to be paid more.

One study demonstrated that the 2014 estimates were longer than actual times in twenty of twenty-four procedures, sometimes by as much as double.

But EMTALA doesn’t apply to physicians, who are free to pick and choose which patients to accept.

By law, hospitals had to offer the service, but high-paid specialists could just sleep.

Oncologists prospered buying chemotherapy drugs from manufacturers and infusing them in the office, generally with a hefty markup, a practice known as “buy and bill.”

Medicare ruled that doctors couldn’t simply slow down the infusion to clock up the minutes. But when the agency announced there would be one payment for the first hour and a half (many chemotherapy medicines can be easily administered in this time), with a second for any part of each hour thereafter, it started receiving bills for lots of infusions that lasted ninety-one minutes.

patients generally had little idea about markups, what was reasonable, or what their lifesaving drugs actually cost.

Studies have shown that the rates of cataract surgery are highly dependent on how much doctors are paid to do the procedure. In one study in St. Louis, the number of cataract surgeries performed dropped 45 percent six months after a group of doctors went on salary and were no longer paid per surgery.

This is very sus

But the Medicare data dump indicated that Dr. Gadalean was making $2 million from actually seeing patients. Curious, I took a cab out to see his office. His $2 million kidney practice was in a small, half-empty one-story yellow stucco building at the back of a parking lot near a highway crossover. Inside was an empty waiting room with linoleum floors and brown plastic chairs. The only person present was a receptionist in scrubs behind a sign offering flu shots.

Instead, Nephrology Associates has apparently found a lucrative niche: performing procedures related to “vascular access.”

If medicine continues on its current trajectory, the kinds of doctors whom Americans say they value and want could very well become, in his words, like “dinosaurs.”