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

by Elisabeth Rosenthal

the United States spends nearly 20 percent of its gross domestic product on healthcare—more than twice the average of developed countries.

In no other industry do prices for a product vary by a factor of ten depending on where it is purchased, as is the case for bills I’ve seen for echocardiograms, MRI scans, and blood tests to gauge thyroid function or vitamin D levels.

ECONOMIC RULES OF THE DYSFUNCTIONAL MEDICAL MARKET More treatment is always better. Default to the most expensive option. A lifetime of treatment is preferable to a cure. Amenities and marketing matter more than good care. As technologies age, prices can rise rather than fall. There is no free choice. Patients are stuck. And they’re stuck buying American. More competitors vying for business doesn’t mean better prices; it can drive prices up, not down. Economies of scale don’t translate to lower prices. With their market power, big providers can simply demand more. There is no such thing as a fixed price for a procedure or test. And the uninsured pay the highest prices of all. There are no standards for billing. There’s money to be made in billing for anything and everything. Prices will rise to whatever the market will bear.

Instead of bargaining for decent prices, insurers refine their messaging to cultivate loyalty, whether or not it is deserved. Explanation of benefits statements tout how much an insurer “saved” you.

Market economists I’ve spoken with variously refer to hospitals as “sharks” or “spending machines.” With few if any market forces to effectively curb their behavior, they raise prices as much as they can. Because most hospitals are nonprofit institutions, they have no shareholders to answer to and cannot legally show a “profit”; therefore, they spend excess income on executive compensation and building Zen gardens and marble lobbies.

By the late 1990s the hospital said it no longer wanted to pay a salary to doctors in the ER and clinics; instead, it would treat them as independent contractors.

All hospitals have a master price list—a chargemaster—and adjusting it to maximize income was the focus of Deloitte’s strategy. To squeeze more money from the purse, Deloitte advised hospitals to stop billing for items like gauze rolls, which insurers rarely or never reimbursed, and to boost charges for services like OR time, oxygen therapy, and prescription drugs. It was all about optimizing payment by raising prices on certain items.

Deloitte is ranked number one by revenue in all areas of healthcare consulting—life sciences, payer, provider, and government health. In 2014 it announced record revenues of $34.2 billion, fueled by more than 17 percent growth in the sector.

“with good insurance and money are kept in, conditioned with fear, upsold on questionable procedures in a hurry, in order to create undisclosed, and unconsented, exorbitant ‘emergency’ bills.”

A dermatologist can do biopsies in two or three offices at once. An anesthesiologist can supervise four to six operating rooms at a time.

Multitask for doctors!?

Next, for a time, it determined that paying for the services of both an extender and an anesthesiologist was worth at most 140 percent of the rate it would pay to the doctor alone—“split 50-50 between the two parties”; the percentage was ratcheted down in the following years. (Many bills still include full freight charges for both the anesthesiologist and the extender because doctors know that commercial insurers aren’t as vigilant or as parsimonious as Medicare.)

The anesthesia food chain became even longer in 2008 when nurse-anesthetists, themselves extenders, obtained the right to bill for extenders working under them, according to a provision of the Medicare Improvements for Patients and Providers Act.

In the last few years the concept of billing for extenders seems to have spread like a chain reaction to surgeons as well, who began billing for assistants during operations like joint replacements. Medicare again tried to curtail the practice, having long said that if surgeons were going to bill in their own names, they had to be present for the “key parts” of an operation. If a physician assistant was helping with surgery, his or her services could be billed at about 15 percent of the surgeon’s rate. But providers parsed each such restriction for loopholes to use to their advantage, and they proved difficult to police in thousands of operating rooms and offices.

“I’ve often asked why couldn’t we make hip implants in China. The answer gets into regulatory policy and patents, and companies defend these ferociously.”

Suddenly, a half-hour office visit could prompt a mechanized blood test that cost three times as much as the consultation with the doctor. It was as if the baggage fees cost more than the plane ticket from New York to Paris.

The government invested heavily in EMRs as a tool to enable good patient care, with the idea that they would allow the sharing of medical records between a sick person’s physicians. But competing health systems have little financial incentive to do so. Instead, they have frequently become tools for conglomerates to protect market share or dominate their market.

In the past decades, emergency room care has been quickly commercialized, governed often not by patient needs but by finances. Many states—notably Texas and Colorado—have permitted the opening of freestanding ERs often owned by entrepreneurial physicians. If a patient arrives via ambulance and is seriously injured or really sick or has had a heart attack, a doctor checks him out and sends him to the nearest real emergency department connected to a hospital with facilities like operating rooms and a cardiac laboratory. Aside from the risk of delays in treatment, the sequence results in bills for two separate high-level ER visits and a charge for emergency transport.

Most states that allow freestanding ERs at least insist they stay open 24/7 and take all emergencies regardless of the ability of customers to pay—though they cannot accept Medicare or Medicaid, since government insurers insist that to qualify as an ER and bill ER rates, an emergency room must be physically connected to a hospital.

1. Fee schedules and national price negotiations: Many countries—Germany, Japan, Belgium, and more—set national fee schedules for some combination of medical encounters or supplies and medicines. Those fees are negotiated by some combination of doctors, hospitals, governments, and academics; they can’t be gamed or changed.

1. Is the practice owned by a hospital or licensed as a surgery center? If the answer is yes, you (or your insurer) may find yourself paying those outrageous facility fees—or caught in a battle about whether they’re justified. You can ask specifically if such a fee will be added and how much it will be;

2. Will you refer me only to other physicians in my insurance network, or explain why in advance if you can’t?

3. If I need blood work or radiology testing, can you send me to an in-network lab? Blood processing is highly mechanized, so it doesn’t matter where the tests are performed, but the prices at hospital labs can be one hundred times higher than at commercial labs like LabCorp and Quest.

4. Will there be charges for phone advice or filling out forms? Is there an annual practice fee?

5. If I’m hospitalized, will you be seeing me in the hospital? What is your coverage on weekends?

1. How much will this test/surgery/exam cost? “I don’t know” or “It depends on your insurance” is not an answer. The doctor should give you a ballpark range or the cash price at the center where he or she refers.

2. How will this test/surgery/exam change my treatment? If the answer is “It won’t, but it might be good to know,” take a pass. Doctors likely feel the need to do something or order something if you have a complaint, especially at a time when office visits can cost over $500. When a doctor begins a suggestion with “Why don’t we just . . .” there’s often no compelling reason for the test at all.

3. Which blood test are you ordering? What X-ray? Why? When doctors order blood work, they are frequently just ticking off boxes on a long electronic checklist, with no awareness of how much any might cost. Your questions alone will make them more discerning.

4. Are there cheaper alternatives that are equally good, or nearly so? If you go to a pharmacy or a lab and encounter a high price, call your doctor’s office and tell him or her about it. Force...

5. Where will this test/surgery/exam be performed—at the hospital, at a surgery center, or in the office—and how does the place impact the price? Doctors often practice and do procedures in different places on different days of the week. If you go on a Thursday and that happens to be your doctor’s day at the hospital, it could double the price of your biopsy or colonoscopy.

6. Who else will be involved in my treatment? Will I be getting a separate bill from another provider? Can you recommend someone in my insurance network?