Obama Makes Hospital Charge Masters Public

And the best article on the implications of this, surprisingly, comes from Huffington post authors Young and Kirkham:

The database released on Wednesday by the federal Centers for Medicare and Medicaid Services lays out for the first time and in voluminous detail how much the vast majority of American hospitals charge for the 100 most common inpatient procedures billed to Medicare. The database — which covers claims filed within fiscal year 2011 — spans 163,065 individual charges recorded at 3,337 hospitals located in 306 metropolitan areas.

Within the nation’s largest metropolitan area, the New York City area, a joint replacement runs anywhere between $15,000 and $155,000. At two hospitals in the Los Angeles area, the cost of the same treatment for pneumonia varies by $100,000, according to the database.

We discussed this issue before when it was brought to the public’s attention by Brill’s “Bitter Pill” piece in Time. Hospitals have a wildly-irrational billing scheme that represents a war they are in with payers. However, Brill was wrong to attribute excess costs of US healthcare to the charge master problem, while the HuffPo piece gets this issue right. It’s not a problem for insurance companies, or government, since they don’t pay these bills. It only screws payers without negotiating power or knowledge of how to navigate these bills – the uninsured:

“The charge masters are totally irrational,” Robert Laszewski, a former health insurance company executive who consults for health care companies as president of Alexandria, Va.-based Health Policy and Strategy Associates, wrote in an email to The Huffington Post.

Hospitals used to base prices on health care costs and on the need for profit that would, among other things, enable them to make investments in their facilities, Laszewski explained. “They became the baseline from which the hospitals started,” he wrote. But over time, hospitals raised charges in anticipation of negotiating discounts with private health insurance companies while maintaining their revenue streams, he said.

Prices have continued growing over decades to the point where there is no plausible justification for them, according to Laszewski: “Over the years, the charge masters have become more and more disconnected from reality.”

And since they haven’t been public or shared before now, I suspect each hospital probably has some set of services that appear to be priced excessively compared to their near neighbor. The costs haven’t grown so much from a response to the treatments they provide, so much as the perceived ability to force insurers to pay a larger portion. Each hospital has probably independently evolved a strategy to do this, hence the wide variability in pricing.

The charges are the prices hospitals establish themselves for the services they provide. Although Medicare and Medicaid don’t base their payment rates on these figures, private health insurance companies typically do, which means they usually pay more for the same health care than the government does. That translates into higher premiums for people with insurance. And uninsured people are expected to pay the full list price or a discount from that number, which tends to mean they pay more than anyone else.

When a hospital doesn’t get paid as much as it wants from one source, it tries to make up the difference in other ways, such as billing so-called self-pay patients — almost always the uninsured — for the full list price of a service, said Robert Huckman, a health care expert at Harvard Business School. Even when hospitals agree to huge discounts for patients who can’t pay the bill, those discounts are taken from inflated prices much higher than those the government or private insurance companies pay, he said.

“The charge master is complete nonsense that really doesn’t matter — unless you are an uninsured person and you’re getting these huge bills driving you toward bankruptcy,” Laszewski wrote. “The biggest irony of the U.S. health care system is that only the uninsured — often people who don’t have a lot of money — are the only ones the hospital expects to pay these incredibly inflated list prices!”

Hospitals also inflate charges to raise money for things that aren’t related to treatments, said former Sen. David Durenberger (R-Minn.), who is senior health policy fellow at the University of St. Thomas in Minneapolis.

“The biggest factor by far, in my experience, is what are you trying to cross-subsidize,” he said. Hospitals will increase charges to finance things like technology upgrades and education and research and to compensate for their operational efficiencies, Durenberger said.

We’ve discussed extensively the sources of excess costs in US healthcare. It’s not the chargemaster. It’s excessive administrative costs of private health insurance, excessive drug costs (everything from direct-to-consumer advertising, the fact US citizens are charged more and GWB made it so medicare can’t negotiate for lower drug prices), inefficient delivery (primary care in the ER), redundant delivery, lack of a government-implemented or regulated standardized electronic medical record (EMRs from private companies actually increase costs), defensive medicine, excessive end-of-life care, and excessive reimbursements of procedures and diagnostic testing.

What will this data release mean for health care costs? Probably not much as the hospitals will now just normalize excessive bills to each other, rather than just having their own individually-irrational billing scheme. The charge master is unjust, but it’s not why we pay more for healthcare overall.

There is a solution to the charge master problem though, and it was found in New Jersey. Force hospitals to charge the uninsured what they charge Medicare. It’s that simple. It’s that easy.

There Are Legitimate Criticisms of Obamacare – Hospitals Should not be Penalized for Readmissions

Crazy ranting about impending socialism/fascism aside, there are legitimate critiques to be made of Obamacare. One policy in particular that raises my ire is penalizing hospitals over performance metrics and penalizing readmissions in particular. The way it works is, patients are admitted to the hospital, treated, and eventually discharged, but a indicator of failure of adequate care is if that patient then bounces back, and is readmitted shortly after their hospitalization:

Under the new federal regulations, hospitals face hefty penalties for readmitting patients they have already treated, on the theory that many readmissions result from poor follow-up care.

It makes for cheaper and better care in the long run, the thinking goes, to help patients stay healthy than to be forced to readmit them for another costly hospital stay.

So hospitals call patients within 48 hours of discharge to find out how they are feeling. They arrange patients’ follow-up appointments with doctors even before a patient leaves. And they have redoubled their efforts to make sure patients understand what medicines to take at home.

Seems reasonable, right? These are things that are part of good medical care; good follow up, clarity with prescriptions, etc. It should be the responsibility of hospitals to get patients plugged into the safety net, assign social workers, and make sure patients won’t fail because they lack resources at home. However, the problem arises when the ideal of punishing readmissions as “failures” crashes into the reality of the general failure of our social safety net:

But hospitals have also taken on responsibilities far outside the medical realm: they are helping patients arrange transportation for follow-up doctor visits, get safe housing or even find a hot meal, all in an effort to keep them healthy.

“There’s a huge opportunity to reduce the cost of medical care by addressing these other things, the social aspects,” said Dr. Samuel Skootsky, chief medical officer of the U.C.L.A. Faculty Practice Group and Medical Group.

Medicare, which monitors hospitals’ compliance with the new rules, says nearly two-thirds of hospitals receiving traditional Medicare payments are expected to pay penalties totaling about $300 million in 2013 because too many of their patients were readmitted within 30 days of discharge. Last month, the agency reported that readmissions had dropped to 17.8 percent by late last year from about 19 percent in 2011.

But increasingly, health policy experts and hospital executives say the penalties, which went into effect in October, unfairly target hospitals that treat the sickest patients or the patients facing the greatest socioeconomic challenges. They say a hospital’s readmission rate is not a clear measure of the quality of care it provides, noting that hospitals with higher mortality rates may also have fewer returning patients.

“Dead patients can’t be readmitted,” Dr. Henderson said.

This is a problem with the careless application of rewards and penalties tied to medical outcomes. While I think it’s a healthy response that hospitals are taking on more of the social work that formerly would have been the arena of government programs, there is another defense mechanism used when government creates perverse incentives in health care. When you create payment incentives for good outcomes, you run the risk of patient selection, discrimination, and fraud. My favorite paper on this topic comes from the British NHS, and their attempt to reward physicians based on better clinical outcomes. My advice with this paper (and with most papers frankly) is to ignore what the authors say about their data (and the amazing success of their program!) and just look at the data for yourself. What they found with rewarding physicians based on health metrics was that doctors that treated the young, healthy, and rich did well, those with more patients, poorer patients, and older patients did more poorly. Finally, physicians that filed lots of “exception reports” to eliminate all their poorly-performing patients did great (yay, fraud!).

Metrics are good for identifying problems, but the mistake is the assumption that poor performance at a metric has everything to do with the physicians or the hospitals, or that slapping a penalty on poor performance will fix the problem. Sometimes, you’re studying society, not medical care. Incentive structures that put the burden on hospitals to take care of the most basic needs of their patients are going to penalize those hospitals that take care of the neediest, sickest, oldest patients, and reward those who treat insured, wealthy, younger, and fewer patients. Worse, if you penalize hospitals for taking care of difficult patient populations, I can predict the outcome. More bogus (and occasionally dangerous) transfers, more patients dumped on public and university hospitals, and all the other tricks of patient selection private hospitals can engage in to avoid getting stuck with the economic losses. That is, patients who are really sick, really poor, really old, and most in need of care will get transferred, obstructed, and dumped. Hospitals that are referral centers, major university and public hospitals that can’t refuse or transfer problem patients, will end up with the disproportionate amount of the penalties because they are often the healthcare providers of last resort. Not surprisingly, the early data already shows this is happening:

The second important development was the release of data on who will be penalized: two thirds of eligible U.S. hospitals were found to have readmission rates higher than the CMS models predicted, and each of these hospitals will receive a penalty. The number of hospitals penalized is much higher than most observers would have anticipated on the basis of CMS’s previous public reports, which identified less than 5% of hospitals as outliers. In addition, there is now convincing evidence that safety-net institutions (see graphsProportion of Hospitals Facing No Readmissions Penalty (Panel A) and Median Amount of Penalty (Panel B), According to the Proportion of Hospital’s Patients Who Receive Supplemental Security Income.), as well large teaching hospitals, which provide a substantial proportion of the care for patients with complex medical problems, are far more likely to be penalized under the HRRP.3 Left unchecked, the HRRP has the potential to exacerbate disparities in care and create disincentives to providing care for patients who are particularly ill or who have complex health needs, particularly if the penalties are larger than hospitals’ margins for caring for these patients.

It would be unfortunate if in the course of creating incentives for better care, we fall into the same old trap of punishing those who take care of the neediest. What we need instead is to acknowledge one major source of bad outcomes is a broken social-safety net. We can’t just keep creating these unfunded mandates that put all the onus of taking care of the uninsured, the poor and elderly on hospitals, and punish the centers that already carry the largest social burdens with responsibility for the failure of our nation to take care of its own. Unfortunately, our answer to problems like these is always to create one more shell game that hides the real, unavoidable costs of taking care of people by shifting it around. This will just result in higher bills on the insured, more crazy chargemaster fees, overburdened public and university hospitals, and ultimately, a system of regressive taxation.

Fixing the Chargemaster Problem for the Uninsured

For those disturbed by the evils of the hospital chargemaster as exposed by Brill’s piece in time, Uwe E. Reinhardt’s proposed solution is a must read.

While the hospitals are never going to charge the uninsured the same rate as they charge medicare (and probably be less forgiving the more they think they can get out of you), that’s no reason we can’t force them to with state law. Apparently that’s what Reinhardt had them do in Jersey:

In the fall of 2007, Gov. Jon Corzine of New Jersey appointed me as chairman of his New Jersey Commission on Rationalizing Health Care Resources. On a ride to the airport at that time I learned that the driver and his family did not have health insurance. The driver’s 3-year-old boy had had pus coming out of a swollen eye the week before, and the bill for one test and the prescription of a cream at the emergency room of the local hospital came to more than $1,000.

By circuitous routes I managed to get that bill reduced to $80; but I did not leave it at that. As chairman of the commission, I put hospital pricing for the uninsured on the commission’s agenda.

After some deliberation, the commission recommended initially that the New Jersey government limit the maximum prices that hospitals can charge an uninsured state resident to what private insurers pay for the services in question. But because the price of any given service paid hospitals or doctors by a private insurer in New Jersey can vary by a factor of three or more across the state (see Chapter 6 of the commission’s final report), the commission eventually recommended as a more practical approach to peg the maximum allowable prices charged uninsured state residents to what Medicare pays (see Chapter 11 of the report).

Five months after the commission filed its final report, Governor Corzine introduced and New Jersey’s State Assembly passed Assembly Bill No. 2609. It limits the maximum allowable price that can be charged to uninsured New Jersey residents with incomes up to 500 percent of the federal poverty level to what Medicare pays plus 15 percent, terms the governor’s office had negotiated with New Jersey’s hospital industry.

Reinhardt also makes clear that the problem of excess cost is not the chargemaster or hospital profits, which are not so extraordinary, as did I in my original piece (at least compared to excess drug costs, insurance administration, inefficiently delivered service and unnecessary services etc). But the injustice of the uninsured facing these inflated bills that are designed to antagonize large payers like health insurance companies, should be addressed. You can’t bleed a radish, and hospitals should stop trying to when it comes to the uninsured. Since they won’t without government encouragement, such legislation should be considered at the state and national levels.

What is the cause of excess costs in health care Part 4 – Time's "Bitter Pill", CEO compensation and the Kafkaesque chargemaster

Steven Brill’s extensive piece in Time has generated a good discussion once again on why Americans pay so much more for health care than other countries, and while I agree with most of his critiques, he seems to have gotten overly hung-up on the hospital chargemaster.

Readers of this blog know I’ve also discussed reform in health care, the diverse sources of excess cost including price gouging on pharmaceuticals, defensive medicine, expensive end-of-life care, the high cost of primary care in the ER etc, and both Brill and I appear to have relied on the same sources of data in the McKinsey report. We’ve also discussed the “hidden tax” of the uninsured, as well as some signs of reform (although of note, my belief that and EMR would reduce waste has proven wrong as the software designers have designed their programs to gouge medicare on behalf of the doctor – increasing costs!).

Brill has written a piece for Time that takes a different tactic, however. Rather than starting from the data on sources of excess costs (although he does reference them), he starts with the patients’ bills and then tries to figure out where all these expenses come from. This is a creative and innovative approach to the problem, except I cringed when I read it because I knew what he was going to find before the end of the first page. Medical bills are insane.

The total cost, in advance, for Sean to get his treatment plan and initial doses of chemotherapy was $83,900.

Why?

The first of the 344 lines printed out across eight pages of his hospital bill — filled with indecipherable numerical codes and acronyms — seemed innocuous. But it set the tone for all that followed. It read, “1 ACETAMINOPHE TABS 325 MG.” The charge was only $1.50, but it was for a generic version of a Tylenol pill. You can buy 100 of them on Amazon for $1.49 even without a hospital’s purchasing power.

Dozens of midpriced items were embedded with similarly aggressive markups, like $283.00 for a “CHEST, PA AND LAT 71020.” That’s a simple chest X-ray, for which MD Anderson is routinely paid $20.44 when it treats a patient on Medicare, the government health care program for the elderly.

Every time a nurse drew blood, a “ROUTINE VENIPUNCTURE” charge of $36.00 appeared, accompanied by charges of $23 to $78 for each of a dozen or more lab analyses performed on the blood sample. In all, the charges for blood and other lab tests done on Recchi amounted to more than $15,000. Had Recchi been old enough for Medicare, MD Anderson would have been paid a few hundred dollars for all those tests. By law, Medicare’s payments approximate a hospital’s cost of providing a service, including overhead, equipment and salaries.

This is the fascinating aspect of his article but also the tragedy. Because Brill becomes so highly focused on what hospitals charge, and the apparent horrifying mark-up of medicine, I worry that people will come away thinking that this is the cause of excess costs.

The problem Brill is describing is that the costs itemized by hospitals on their bills come from a mysterious document called the “chargemaster”. I’m pretty sure no one knows how the costs are calculated, and I know there is no rational basis for the prices on it. But as shocking as the bills that are generated by these documents are, they are largely irrelevant to the excess costs of healthcare. The chargemaster is a red herring, and despite Brill’s protestations that it is some central evil in health care expenditure, it really isn’t.

The tragic circumstances Brill describes, repeatedly, are what happens when someone who is uninsured, underinsured, or paying out of pocket for medical care experiences when they receive their bill. It is covered with charges that seem insane – because they are – and lacking the knowledge and tools to deal with these ridiculous charges, the uninsured, understandably, believe they need to pay this full, ridiculous bill. But they don’t, and shouldn’t. An uninsured person receiving one of these bills is a little like a tourist who has just been dropped in a foreign bazaar, with no understanding of the rules of the market, discounts, haggling, gouging, or any idea of what other actors in the same market are paying. The reality is that hospital bills, and many other bills in medical care are little more than an opening gambit in an irrational, and largely incomprehensible, cost war between providers and payers. Hospitals, knowing that insurers never pay a full hospital bill, and will haggle and discount charges away or pay a percentage of “chargemaster” costs, push back by artificially inflating costs – as demonstrated throughout Brill’s article. When someone who doesn’t have the power or expertise of the insurance company receives their bill (hospitals of course can’t send different bills to different kinds of customers right?) they end up paying more, or worse, think they have to actually pay the full bill, because they have fallen into this market without the tools or knowledge to navigate it.

The proof of this are the medical bill advocates Brill interviews for the article. For a fee, you can hire someone who has similar expertise as the payers to fight back, and often reduce these bills to a tiny fraction of their original amount.

Shocked by her bill from Stamford hospital and unable to pay it, Janice S. found a local woman on the Internet who is part of a growing cottage industry of people who call themselves medical-billing advocates. They help people read and understand their bills and try to reduce them. “The hospitals all know the bills are fiction, or at least only a place to start the discussion, so you bargain with them,” says Katalin Goencz, a former appeals coordinator in a hospital billing department who negotiated Janice S.’s bills from a home office in Stamford.

Goencz is part of a trade group called the Alliance of Claim Assistant Professionals, which has about 40 members across the country. Another group, Medical Billing Advocates of America, has about 50 members. Each advocate seems to handle 40 to 70 cases a year for the uninsured and those disputing insurance claims. That would be about 5,000 patients a year out of what must be tens of millions of Americans facing these issues — which may help explain why 60% of the personal bankruptcy filings each year are related to medical bills.

“I can pretty much always get it down 30% to 50% simply by saying the patient is ready to pay but will not pay $300 for a blood test or an X-ray,” says Goencz. “They hand out blood tests and X-rays in hospitals like bottled water, and they know it.”

After weeks of back-and-forth phone calls, for which Goencz charged Janice S. $97 an hour, Stamford Hospital cut its bill in half. Most of the doctors did about the same, reducing Janice S.’s overall tab from $21,000 to about $11,000.

Brill also seems very disturbed by two consistently capitalistic elements of hospitals, high compensation of hospital CEOs and non-physician administrators, and the ability of “non-profit” hospitals to actually make a profit. The difference, is, of course, “profits” in this case go back into the hospital, hiring staff, into equipment, buildings, etc., rather than shareholders pockets so one could argue the money largely goes back into the community (disclosure – I work for a non-profit hospital). But what about CEO pay? Brill seems largely offended that they make so much, even making the suggestion at the end of the article that hospital profits be taxed at 75% (insuring no one will ever invest in them again) and that CEO pay be limited to some multiple of a lower-level employee’s salary. Sounds wonderful, except it will only work if that model is applied to CEOs across the board. Brill cites hospital CEO compensations of between 1-4 million dollars. But the average CEO salary is about 13 million dollars as of 2011. Yes CEOs are paid too much, but it’s a global problem, not just in healthcare. If anything, healthcare CEOs are payed a great deal less than their counterparts in other industries, it seems strange to single out healthcare as the one service where CEO pay is somehow more sinful than in others, especially if you want hospitals and medical centers to be able to attract talented management. So am I bothered by CEO pay? Sure, but not as much in my industry as in say, finance, where CEOs who aren’t making profit, and are hurting shareholders get rewarded with bonuses and golden parachutes. Brill seems to be upset that the industry is profitable and are CEOs are well-compensated. But this isn’t so much a source of excess costs in healthcare as it is a source of excess costs in capitalism, and I don’t anticipate that changing any time soon, nor do I think it’s ultimately a good idea to nationalize or socialize the industry to make no profit.

This is too bad, because in an extensive, lengthy documentation of the absurdity of the hospital billing scheme, and anger at CEO pay, Brill’s final recommendations hit many of the true sources of excess cost.

So how can we fix it?

Changing Our Choices
We should tighten antitrust laws related to hospitals to keep them from becoming so dominant in a region that insurance companies are helpless in negotiating prices with them. The hospitals’ continuing consolidation of both lab work and doctors’ practices is one reason that trying to cut the deficit by simply lowering the fees Medicare and Medicaid pay to hospitals will not work. It will only cause the hospitals to shift the costs to non-Medicare patients in order to maintain profits — which they will be able to do because of their increasing leverage in their markets over insurers. Insurance premiums will therefore go up — which in turn will drive the deficit back up, because the subsidies on insurance premiums that Obamacare will soon offer to those who cannot afford them will have to go up.

Agreed. In particular I find the financial conflict of doctors owning labs and radiology equipment, that they then can profit from ordering tests on, is very disturbing. It’s been shown in the literature that this arrangement results in the physicians ordering more unnecessary tests, and demonstrates that it’s an unacceptable conflict of interest that only increases costs.

Similarly, we should tax hospital profits at 75% and have a tax surcharge on all nondoctor hospital salaries that exceed, say, $750,000. Why are high profits at hospitals regarded as a given that we have to work around? Why shouldn’t those who are profiting the most from a market whose costs are victimizing everyone else chip in to help? If we recouped 75% of all hospital profits (from nonprofit as well as for-profit institutions), that would save over $80 billion a year before counting what we would save on tests that hospitals might not perform if their profit incentives were shaved.

We could save lots of money if we forbade various industries from making profit and taxed their incomes at 75%. But I don’t think this is a viable suggestion in a capitalist society, and I believe that if we did increase competition in insurance, pharmaceutical, and other healthcare markets we could decrease costs. Socialism is not the answer, although Brill makes a compelling argument for a public-option as medicare’s administration and pricing is highlighted in the article as a model of efficiency compared to the private insurers. I’d have no problem with expanding medicare as a payer. Next:

We should outlaw the chargemaster. Everyone involved, except a patient who gets a bill based on one (or worse, gets sued on the basis of one), shrugs off chargemasters as a fiction. So why not require that they be rewritten to reflect a process that considers actual and thoroughly transparent costs? After all, hospitals are supposed to be government-sanctioned institutions accountable to the public. Hospitals love the chargemaster because it gives them a big number to put in front of rich uninsured patients (typically from outside the U.S.) or, as is more likely, to attach to lawsuits or give to bill collectors, establishing a place from which they can negotiate settlements. It’s also a great place from which to start negotiations with insurance companies, which also love the chargemaster because they can then make their customers feel good when they get an Explanation of Benefits that shows the terrific discounts their insurance company won for them.

While I agree outlawing the chargemaster should be considered, I’m not really sure it will work. For one, yes, it is a fiction, it’s not an actual source of excess costs like so many other problems described in the McKinsey report. And hospitals are in a bind. They can’t charge what things actually cost, because insurance companies will still try to pay less. Hospitals know what their costs are, but it’s nearly impossible to truly itemize a patient’s stay, and take into account the exact time every physician doctor and nurse spent with them versus another patient, exactly how many disposable materials were used, as well as factor in all the other costs hospitals need to balance such as covering uninsured patients (most of whom never pay their bills), profit-losing divisions of hospitals and “mission” costs, as well as having a adequate nest egg at the end of the year to ensure adequate capital to expand as needed to meet demand, buy new equipment, and hire new staff. My guess as to what the chargemaster is accomplishing (and it is just a guess), is that it’s a strategy that reliably returns a certain amount of profit on each hospitalization relative to patient utilization of specific services, while providing plausible deniability for what is ultimately overcharging the insured to subsidize the total costs of running their operation. It has to be inflated to cover all the costs of overhead, supplies, etc., that just can’t be reliably quantified, and the fact that insurance companies will only pay a fraction of the final bill. The alternative would be to “bundle” costs so that hospitalizations for specific services cost a set amount, and hospitals then have an incentive to come in under that reasonable fixed price for the service. But then, you run into the problem of penalizing the hospitals that treat needier, poorer, sicker, older populations that cost more to treat, and will have poorer outcomes, readmissions, and complications.

It’s a pickle. You want hospitals to have some measure of profitability – they provide a necessary service, employment, and pride to the community. But if you create profit incentives that put them in conflict with the community – like avoiding poorer, sicker, older patients, they won’t provide the very service for which they exist.

I don’t have a good solution to this problem. We need to own up to the costs of treating the difficult populations, rather than continuing to play the insurance shell-game. Hospitals have to treat people who are sick no matter what because of laws like EMTALA. EMTALA is an unfunded mandate, passed during the Reagan years, that doesn’t specify how hospitals shall recoup their losses when someone can’t pay, just that they have to provide care for sick people no matter what. The unwillingness to pay for the poor and the uninsured pushes even their primary care into the ER, and they present with more acute problems that earlier access to primary care could have managed more cheaply, raising the costs of their care, and foisting it on the hospitals – especially the non-profit, inner-city hospitals providing care to the most at-risk. They then have to figure out some way of spreading these costs back onto medicare and the insured and paying patients without attaching a rider to the bill that simply says, “paying for the sick and uninsured in your community — $1200” (then you actually only have to pay only $200 for this service in reality because everything is inflated). I suspect the chargemaster, in its irrational and frightening way, is accomplishing this task. It’s not pretty, but I’d love to hear suggestions to address the need of hospitals to provide universal health care without a funding source to do so.

Then Brill gets to the things which I agree the McKinsey report shows are our real sources of excess costs:

We should amend patent laws so that makers of wonder drugs would be limited in how they can exploit the monopoly our patent laws give them. Or we could simply set price limits or profit-margin caps on these drugs. Why are the drug profit margins treated as another given that we have to work around to get out of the $750 billion annual overspend, rather than a problem to be solved?

Just bringing these overall profits down to those of the software industry would save billions of dollars. Reducing drugmakers’ prices to what they get in other developed countries would save over $90 billion a year. It could save Medicare — meaning the taxpayers — more than $25 billion a year, or $250 billion over 10 years. Depending on whether that $250 billion is compared with the Republican or Democratic deficit-cutting proposals, that’s a third or a half of the Medicare cuts now being talked about.

We pay twice as much for our drugs as any other country, R&D is a BS excuse, and the inability of medicare to collectively bargain is anti-capitalistic and anti-market. How is it possible that in a capitalistic society a buyer isn’t allowed to bargain for bulk purchase? It’s just a wealth-redistribution scheme! And the proof is systems like the Veterans Administration, which is allowed to negotiate for lower prices, and does, typically paying about half as much for the same drugs.

Similarly, we should tighten what Medicare pays for CT or MRI tests a lot more and even cap what insurance companies can pay for them. This is a huge contributor to our massive overspending on outpatient costs. And we should cap profits on lab tests done in-house by hospitals or doctors.

I think that particular conflict of interest should be banned, but one must remember again that differing CT and MRI costs are largely a reflection of which hospitals have higher “mission” costs. It’s not the CT in the suburb that costs medicare more, it’s the CT in the inner-city.

Finally, we should embarrass Democrats into stopping their fight against medical-malpractice reform and instead provide safe-harbor defenses for doctors so they don’t have to order a CT scan whenever, as one hospital administrator put it, someone in the emergency room says the word head. Trial lawyers who make their bread and butter from civil suits have been the Democrats’ biggest financial backer for decades. Republicans are right when they argue that tort reform is overdue. Eliminating the rationale or excuse for all the extra doctor exams, lab tests and use of CT scans and MRIs could cut tens of billions of dollars a year while drastically cutting what hospitals and doctors spend on malpractice insurance and pass along to patients.

Tort reform may benefit but it’s effects will take decades to see. It’s almost impossible to adequately quantitate the cost of “defensive” medicine, and how it has inculcated generations of physicians to overtest, overtreat, and overspend on patients. Even if such changes were made, the paranoia runs deep within us. I agree it’s costly, but it will take more than just removing the threat of lawsuits to generate more responsible cost-practices for physicians.

Over the past few decades, we’ve enriched the labs, drug companies, medical device makers, hospital administrators and purveyors of CT scans, MRIs, canes and wheelchairs. Meanwhile, we’ve squeezed the doctors who don’t own their own clinics, don’t work as drug or device consultants or don’t otherwise game a system that is so gameable. And of course, we’ve squeezed everyone outside the system who gets stuck with the bills.

We’ve created a secure, prosperous island in an economy that is suffering under the weight of the riches those on the island extract.

And we’ve allowed those on the island and their lobbyists and allies to control the debate, diverting us from what Gerard Anderson, a health care economist at the Johns Hopkins Bloomberg School of Public Health, says is the obvious and only issue: “All the prices are too damn high.”

If you throw in a ban on Direct To Consumer Advertising on Drugs, implementation of CPRS or a universal record standard for the EMR (not these medicare-gauging EMRs that for-profit companies are designing), and better end-of-life planning, data, and management, I think we’d go a long way to reducing costs. Brill’s final recommendations hit the mark, but I’m concerned his obsession with the admittedly Kafkaesque chargemaster is a distraction. That’s not the true source of the excess costs. Rather I suspect it’s a way for hospitals to try to rationalize the redistribution of resources from medicare and the insured to cover their broader mission.

And one final petty complaint which as a surgeon I couldn’t resist:

Steve H.’s bill for his day at Mercy contained all the usual and customary overcharges. One item was “MARKER SKIN REG TIP RULER” for $3. That’s the marking pen, presumably reusable, that marked the place on Steve H.’s back where the incision was to go.

No! The pen is sterile! We have to mark the skin after prep – the alcohol based preps we use will wash away most markings placed before sterile preparation, and iodine preps hide them pretty well too. Complaining about a lot of potentially “reusable” items is also just not going to fly in this modern world of MRSA and nosocomial infections.

Mitt Romney is the wrong choice for healthcare

It seems every day brings a new, glaring falsehood about medical care from Romney, who has bizarrely decided to run against his own healthcare plan in order to appease right wing voters. Now he’s claiming Americans don’t die from lack of healthcare coverage. His reasoning? The unfunded mandate and healthcare-of-last resort stopgap that is EMTALA. For those of you who don’t know the function of the Emergency Medical Treatment and Active Labor Act, it’s law passed in the Reagan era to stop hospitals from dumping patients who were acutely ill and needed emergency care. It prevents hospitals from refusing or delaying treatment of an emergency condition if the patient is uninsured or their ability to pay is unknown. It only obligates hospitals to provide enough care to stabilize the patient, and then the patient is discharged or transferred to another center if a higher level of care is needed. Despite the mandate that such patients be cared for, the federal government did not prescribe a method of reimbursement for such patients, making it an unfunded mandate, and as a result, some 55% of emergency room care goes uncompensated. EMTALA also doesn’t protect you from hospitals attempts to recoup their losses, and those that can pay often receive a surprisingly large bill that can easily bankrupt those living on the edge of solvency. But besides being a cruel and stupid thing to say for someone who proposes to lead our country, it’s also wildly false. Not only does the Institute of Medicine estimate these deaths at about 20,000 a year, but we also see it in admissions that aren’t due to prolonged illness or chronic medical conditions, for example we see a 40% higher trauma mortality among uninsured patients even after accounting for age, race, sex, and severity or mechanism of injury. If you are injured in a car accident, you are 40% more likely to die just by virtue of being uninsured, because the fact is, many hospitals will treat you differently if you can’t pay for your care.

As someone who has done almost all of my medical training at medical centers that are the highest level of care in the region, I’ve seen many of these patients and transfers. Often at such centers you hear griping that a patient’s condition had been exaggerated to suggest that the patient was sicker than they actually were, in order to initiate the transfer of a patient that would be costly to treat, but perfectly within their means to care for. Sometimes you hear complaints the referring hospitals could have done a better job stabilizing a patient before transferring them, it’s impossible to know the motivations of the referrers in any given instance, and I generally believe that the physicians are acting in their patient’s best interests, but we can’t ignore the fact that EMTALA creates a conflict of interest between physician and patient interests by creating a financial incentive for transfer. I suspect such patterns are the reason why you find such a huge disparity in medicare reimbursements and imaging and procedure costs between hospitals. In order to recover the costs of their “mission” expenditures, hospitals that care for more uninsured have to charge medicare and insurers more to reflect their “cost of doing business”, whereas smaller private hospitals that manage to deflect more of these patients can offer elective services cheaper.

In the end, it’s all one big stupid cost-shifting game that ignores the central problem. No matter what, we end up paying for people’s medical care! There is no avoiding it. You can either pay for it prospectively, thoughtfully, and humanely by giving people care in primary care offices, or you can wait for them to get really sick, not to mention really expensive to care for, and pay for it then. But there’s no avoiding the bill. The type of care advocated by Romney here is also just plain stupid. For example, what is the point of stabilizing a patient with COPD and asthma as they come in the hospital in crisis every month, rather than just paying for their medications as an outpatient? ICU admissions, intubation, medications, doctors fees and nursing are all far more expensive (not to mention hard on the patient) than a couple of inhalers a month. Or how about the uninsured patient with a mental illness that requires constant stabilization with inpatient admissions because no one will pay for their anti-psychotic medications? You see it happen like clockwork, a patient is discharged “plugged in” with a month of medications, plans for follow up etc., and then as they can’t pay for medications after that time is up they start missing appointments, losing their job or their housing arrangement, then they’re back in the ER in crisis. Or think about the risk involved in all those transfers, which the current system encourages referring hospitals to engage in even if the patient might not benefit, because it allows them to unload a patient that will just create uncompensated costs for the hospital?

This is leadership on healthcare? I don’t think so.

AEI writes an honest article about ObamaCare

This article from the Sunday Times by AEI fellow J.D. Kleinke is exceptional for two reasons. For one, it’s an excellent explanation for why conservatives should agree with Obamacare. Second, despite coming from the American Enterprise Institute, an organization that regularly contributes global warming and other conspiratorial nonsense to the WSJ editorial page, it appears to contain nothing but factual information. It’s a good reminder of why liberals have been weak in their defense of the law – it’s really just Federal Romney/Bob Dole care, but also provides a very striking critique of the justifications of conservatives opposing it. Including my favorite argument for why the supposedly free-market system we enjoy now is bogus:

Chief among these obstacles are market limitations imposed by the problematic nature of health insurance, which requires that younger, healthier people subsidize older, sicker ones. Because such participation is often expensive and always voluntary, millions have simply opted out, a risky bet emboldened by the 24/7 presence of the heavily subsidized emergency room down the street. The health care law forcibly repatriates these gamblers, along with those who cannot afford to participate in a market that ultimately cross-subsidizes their medical misfortunes anyway, when they get sick and show up in that E.R. And it outlaws discrimination against those who want to participate but cannot because of their medical histories. Put aside the considerable legislative detritus of the act, and its aim is clear: to rationalize a dysfunctional health insurance marketplace.

This is spot on. The analysis of the possible true motivations for the bile and invective levied at what is essentially a conservative piece of legislation are also stunning coming from a conservative:

Clear away all the demagogy and scare tactics, and Obamacare is, at its core, Romneycare across state lines. But today’s Republicans dare not own anything built on principles of economic conservatism, if it also protects one of the four horsemen of the social conservatives’ apocalypse: coverage for the full spectrum of women’s reproductive health, from birth control to abortion.

Social conservatives’ hostility to the health care act is a natural corollary to their broader agenda of controlling women’s bodies. These are not the objections of traditional “conservatives,” but of agitators for prying, invasive government — the very things they project, erroneously, onto the workings of the president’s plan. Decrying the legislation for interfering in the doctor-patient relationship, while seeking to pass grossly intrusive laws involving the OB-GYN-patient relationship, is one of the more bizarre disconnects in American politics.

This is a rare, clear-eyed, honest, and insightful piece of writing from AEI. Have they turned a corner?

Atul Gawande on Resisting Health Care Reform – He Misses a Tactic, Lying!

Atul Gawande, thoughtful as always, writes about the “wicked problem” of healthcare reform and the historical similarity between this battle and previous battles to expand fairness to all of our citizens. Opening with the kind of experiences all physicians have had with tragically-uninsured patients, he emphasizes why this was a needed change:

A few days ago, while awaiting the Supreme Court ruling on the Obama health-care law, I called a few doctor friends around the country. I asked them if they could tell me about current patients whose health had been affected by a lack of insurance.

“This falls under the ‘too numerous to count’ section,” a New Jersey internist said. A vascular surgeon in Indianapolis told me about a man in his fifties who’d had a large abdominal aortic aneurysm. Doctors knew for months that it was in danger of rupturing, but, since he wasn’t insured, his local private hospital wouldn’t fix it. Finally, it indeed began to rupture. Rupture is an often fatal development, but the man—in pain, with the blood flow to his legs gone— made it to an emergency room. Then the hospital put him in an ambulance to Indiana University, arguing the patient’s condition was “too complex.” My friend got him through, but he’s very lucky to be alive.

Another friend, an oncologist in Marietta, Ohio, told me about three women in their forties and fifties he was treating for advanced cervical cancer. A pap smear would have caught their cancers far sooner. But since they didn’t have insurance, their cancers were only recognized when they caused profuse bleeding. Now they required radiation and chemotherapy if they were to have a chance of surviving.

Even inexperienced physicians like me, still in my residency, have these kinds of stories to tell. They’re tragic. But worse, they’re just so stupid. Notice how, in each instance, the problem still ends up being taken care of, only now it’s emergent, farther along, more risky, and of course, more expensive to treat. This is part of the ludicrous nature of the opposition to health care reform. There is no way to get out of paying for these things. All we do by denying people coverage for necessary medical treatment is guarantee that in a few days, months, or years, they’ll be in the emergency room, only now it will cost ten times as much to fix, at greater risk to the patient. This is also backed up by the international experience of health care. Every other industrialized country has universal coverage, many have far superior care, not to mention superior service (France anyone?) to the United States. Yet every one of the countries pays far less per capita (most less than half) than we do on health care. Data from studies within our own country show it’s cheaper for the state to cover the uninsured than to let them stay uninsured. Because of EMTALA, passed by that notorious socialist Ronald Reagan, everybody gets emergency care whether they are insured or not, and fully 50% of emergency care is uncompensated, costs which get transferred to the insured and the tax payers.

For most of us in the healthcare system we see that universal coverage is necessary (unless you reverse EMTALA which will never happen), although we may disagree on how to accomplish it. If anything, the ACA/Obamacare is more of a free-market reform than many physicians would like. Many in my generation (though certainly not in the older generation) would have preferred single-payer, but for reasons I discussed yesterday this is actually not as important as merely guaranteeing universality. Mixed private/public and government payer/private insurance schemes are, if anything, the norm around the world and they work well while still costing less than 50% of what we pay per capita.

So why so much resistance to what should be obvious? There is no way to avoid paying for this stuff, so why don’t we do it more sensibly? Why don’t we move primary care out of the ER? Why not pay for problems when they’re cheap and not emergent?

Gawande suggests the problem is that healthcare is a “wicked problem” and such problems that don’t have simple, crisp answers generate more controversy and resistance to change.

In 1973, two social scientists, Horst Rittel and Melvin Webber, defined a class of problems they called “wicked problems.” Wicked problems are messy, ill-defined, more complex than we fully grasp, and open to multiple interpretations based on one’s point of view. They are problems such as poverty, obesity, where to put a new highway—or how to make sure that people have adequate health care.

Solutions to wicked problems, by contrast, are only better or worse. Trade-offs are unavoidable. Unanticipated complications and benefits are both common. And opportunities to learn by trial and error are limited. You can’t try a new highway over here and over there; you put it where you put it. But new issues will arise. Adjustments will be required. No solution to a wicked problem is ever permanent or wholly satisfying, which leaves every solution open to easy polemical attack.

This sounds awfully familiar, and I think it’s a good explanation for much of the controversy. I’ve been emphasizing from the beginning, there is more than one answer to the problem of the uninsured. The only really wrong answer is, “doing nothing”. We’ve been doing that for long enough and it actually costs us more to do nothing than to expand coverage! Gawande then discusses Albert O. Hirschman’s studies of the polemical forms of resistance to solving these wicked problems, and how they rely on arguments of perversity, jeopardy and futility. However, I find that a critique of these debates isn’t particularly satisfying. Just because one argues that a reform is perverse, or risky, or futile, doesn’t necessarily make one wrong, even if it is a frequent pattern of obstinance. Gawande also leaves out the 4th tactic of the current opponents of reform. That is, of course, mendacity.

In order to oppose a reform so obviously needed, so completely supported by the data from international experience and studies from within our own country, and in the face of the obvious gob-smacking experience of every physician in the country, one ultimately must rely on just lying. Politifact, both before and after the Supreme Court decision, has demonstrated this phenomenon. Many of the claims against the ACA have been so rabidly false as to deserve their “pants-on-fire” designation, including the fully debunked death panels nonsense (2009 lie of the year!), that it’s the largest tax increase ever, it’s rationing, or that it is some kind of Obama socialist plot. See the top five lies here. Immediately after the ruling Romney was apparently tripping over his own feet in order to be the first to lie about his own reform package saying it would increase the deficit by trillions, another lie, and Limbaugh reiterated the lie that it was the largest tax increase ever.

I think that’s what’s most disappointing to me about this current debate, but these days it is no surprise. The outrageous mendacity of the opponents of reform, and the unwillingness of the right to engage in honest debate on this topic, are beyond anything I’ve seen in my lifetime. But a few facts are undeniable. We spend more on health care than any other country. For that cost we can’t even cover all of our citizens. Universal healthcare systems are also universally less expensive than ours. When we refuse to cover people, and allow them to be uninsured, they still receive care, it just costs us more to deliver. Why do people oppose universality when these are the facts?

The simple, sad answer, is they’re being lied to.

Healthcare Upheld!

It’s good news that the Supreme Court split 5-4 with Roberts (and not Kennedy?!?) as the deciding vote, to uphold the affordable care act. It’s interesting that this was controversial, and certainly Roberts led the court to a very safe middle ground making the issue about taxation and saying the commerce clause could not apply. If anything, I wonder if this weakens the previous commerce powers of Congress as defined by Wickard v. Filburn, I’d love to hear what a lawyer thinks.

What does this mean?

Well in the short term not a whole lot, this healthcare bill requires a very slow roll-out of provisions. This was never a revolutionary law, which is why it was so surprising that people treated what was essentially a free-market giveaway as if it were some act of revolutionary socialism. But it will mean that states will have to go ahead and start implementing exchanges, it means that lots of other cost-control provisions are going ahead, coverage for pre-existing conditions will remain (victory!), and most importantly, we can start a great cultural shift from using emergency rooms or just plain avoidance to deal with necessary health maintenance and primary care needs.

Now, I know many that think single payer is the only way that healthcare can be provided might have been hoping this hodgepodge mix of free-market and social reforms would fail in favor of a truly government-administered system. I would say to them, don’t worry! It’s possible to have highly efficacious universal healthcare based on insurance for all and subsidization for those who can not afford it. Most systems not inherited from the Soviets came to universal healthcare from different angles, and only really the UK, Canada, and New Zealand represent totally government-administered healthcare systems in such countries. In between would be Sweden, Japan, France, or Australia with government-administered payment or mixtures of public and private hospitals with government sponsored insurance options. Even Russia now has a mixture of public and private healthcare spending. Then there are the systems which look a bit more like what the ACA will be. For instance Germany, which has had universal health care since Otto von Bismarck, has health coverage through employer-subsidized sickness funds, a mixture of public and private hospitals and clinics. Finally, the Netherlands system probably is most like the system proposed by the ACA. They describe it as “private insurance with social conscience”, and the Netherlands enjoys metrics of patient satisfaction, short wait times, and access to procedures far superior to that of other systems including ours (which performs quite poorly on almost all metrics including access). On the extreme free-market side of universal health care is Singapore, which relies on universal governmental catastrophic insurance coverage, but an individual mandate on citizens to contribute to personal health savings funds which cover primary care and most expenditures until you go over a yearly limit. The only thing all of these systems have in common is that they spend half of what we spend yearly per capita on healthcare.

So, to those who oppose it because you either don’t want healthcare or because you don’t think it was enough, don’t despair! For those who think it’s the worst thing ever to pay for other’s health insurance, don’t worry! You already are! You have been since Reagan passed EMTALA. That won’t change, the cost might actually get cheaper (or at least stop increasing at such a violent pace). For those who think that anything but single-payer is awful, don’t complain! What’s most important is that we have universal coverage that encourages primary care usage, getting patients out of the ER and subsidization for the poorest among us. The international experience shows that truly single-payer systems are the minority, and most systems are a mixture of public and private hospitals, insurance and personal expenditure. Further, one of the best systems in the world, the Netherlands system closely resembles what the ACA will accomplish and has resulted in excellent outcomes and patient satisfaction in that country. In fact, most single-payer systems perform worse in terms of access, wait times, and satisfaction than the mixed systems, with the possible exception of Sweden (probably because they put so much money into it).

This is a victory for healthcare and the country. Even if it’s not “perfect”, or even if you think people being treated for their medical problems is some kind of sin against capitalism, too bad. It will accomplish a great deal, there is international precedent that such systems work (and may work better than single-payer), and there is no escape from the fact that we have to pay for people’s healthcare. We can do it expensively, wastefully, and emergently in the ER, or we can do it like thoughtful, decent citizens who care about each other’s welfare and provide a baseline of access for all.

Three reasons the Supreme Court should uphold ACA

With the Supreme Court hearing arguments for the next three days on the Affordable Care Act, many commentators, including Dahlia Lithwick appear to have so much contempt for the Roberts court that they believe the issue will likely be settled on politics rather than law.

The first proposition is that the health care law is constitutional. The second is that the court could strike it down anyway.

The law is a completely valid exercise of Congress’ Commerce Clause power, and all the conservative longing for the good old days of the pre-New Deal courts won’t put us back in those days as if by magic. Nor does it amount to much of an argument.

Despite the fact that reading the entrails of those opinions suggest that they’d contribute to an easy fifth, sixth, and seventh vote to uphold the individual mandate as a legitimate exercise of Congressional power, the real question isn’t whether those Justices will be bound by 70 years of precedent or their own prior writings on federal power. The only question is whether they will ignore it all to deprive the Obama of one of his signature accomplishments.

Professor Randy Barnett, the intellectual power behind the entire health care challenge, wrote recently that Justice Scalia could break from his previous opinions–freeing him to strike down the Affordable Care Act–“without breaking a sweat.” I suspect that’s right.

If that’s true, we should stop fussing about old precedents. These old milestones of jurisprudence aren’t what will give Scalia pause. What matters is whether the five conservative justices are so intent in striking down Obama’shealthcare law that they would risk a chilly and divisive 5-4 dip back into the waters of Bush v. Gore and Citizens United.

It disturbs me when legal commentators as experienced and knowledgeable as Lithwick have essentially given up on the notion that the court is non-partisan or above the political fray. Instead, they seem to think it’s just another political body, making decisions based on partisan point-scoring over legitimate constitutional analysis. With the tea party rallying to keep us uninsured under the false notion that the bill will increase costs (it will actually reduce the deficit according to the CBO) and impinge their freedoms. These are the false arguments that people like Nick Gillespie (or libertarian Fonzie) are using, quite successfully, to convince the American people to oppose their own interest. Gillespie argues in his three point essay that (1) it’s unconstitutionally intrusive legislation (2) it’s price tag is ballooning, and (3) it won’t make us healthier. The first claim is debatable since it’s ultimately up to the courts. However good arguments suggest congress does have the power to pass such regulation.

For one previous case like Wickard and Raich suggest extensive powers for congress to regulate commerce. Second, if one of every seven dollars is spent on healthcare, it represents a significant portion of the economy. Third, and most importantly, the uninsured inflict an economic penalty on taxpayers and the insured, so rather than claiming they have a right not to buy, I would argue we have a right to address the cost the uninsured inflict on society. The penalty for not carrying insurance I believe makes complete sense in this regard.

The second claim is blatantly false and his description of the costs as “ballooning” is unsupportable based on the CBO reports. This talking point is an outright lie being spread far and wide by right wingers. The CBO director had to issue a comment to correct this widespread deception.

The third claim is a bit of a red herring. The health benefits of people being insured may eventually result in a healthier population but probably not by much and it’s besides the point. We’re not arguing the law will make us healthier. We’re arguing that the reform law will reduce healthcare expenditures, and protect people economically from the often devastating costs of illness.

But rather than just knocking down their arguments I think it’s important to remind people of the positive reasons we should support this bill. So I have my own list of 3 reasons this bill should be upheld and we should all support it.
Continue reading “Three reasons the Supreme Court should uphold ACA”

What is the cause of excess costs in US healthcare? Take three – signs of reform

We’ve already extensively discussed why it costs twice as much for the US to provide healthcare for it’s citizens all the while failing to cover health care for all. Most recently, we discussed the hidden tax of the uninsured and the perverse incentive structure of US healthcare which encourage costlier care, more utilization, and more procedures.

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To summarize, the US spends more on healthcare compared to other industrialized nations because

  1. We deliver it inefficiently
  2. Without universality problems present when critical and in the ER
  3. Fee-for-service incentives in the form of excessive reimbursement for procedures and hospitals ramp up costs by encouraging doctors to overuse expensive tests and perform more procedures
  4. Direct-to-consumer advertising (we are one of two countries that allow advertisement of prescription drugs) and medicare part D encourage overuse of pharmaceuticals while tying providers hands when it comes to bargaining for lower drug prices
  5. Defensive medicine
  6. Poor management of end-of-life decisions and excessive and futile overuse of resources at the end of life
  7. Absence of a universal electronic medical record (or record format) to prevent redundancy and waste.

Now, what about the new Affordable Care Act? Are there going to be measures to address these sources of excess cost while creating universal coverage? The WaPo has an article outlining reforms addressing many of these specific problems.

First off, fee-for-service is going to be discouraged with increased use of “bundling” of costs:
Continue reading “What is the cause of excess costs in US healthcare? Take three – signs of reform”