Fantastic (& fantastical) hospital charges: The industry + insurers + Pharma making money hand over fist!

On March 15, 2009, in “Bargaining down the medical bills”,

I told the story of my hernia surgery – outpatient, in at 7 am, home by noon – and the $10,000 hospital (not doctor) charge. My insurance company paid $1,600, told me to pay $400, and the hospital wrote off the $8,000 as “contractual adjustment”. But if I was uninsured I would have gotten a $10,000 bill!

That was outrageous. Not so much the amazingly high charge, rather the fact that they were willing to accept $2,000 from an insured person, while they would have dunned and bankrupted an uninsured one, someone more likely to have less money! Of course, that would only be true if they had agreed to do such an elective surgery on an uninsured person in the first place.

Things have, apparently, not gotten better. Maybe worse. I recently had another outpatient surgical procedure (different hospital, different town) and the hospital – again, not doctor’s – charge was over $69,000! I was there for a few hours! Now I have Medicare, and a Medicare supplement plan, so I paid none of it. Medicare paid $2400, 80% of their approved charge for that procedure, and the supplement plan paid the rest. But $69,000 as a charge? I thought that the old one, charging $10,000 for a procedure that the insurer would pay $2000 for, was bad, but charging $69,000 for a procedure that you know Medicare has approved for less that 4% of that? What is the point?

Maybe an billionaire, or a royal from another country, will show up at this hospital and be willing to pay $69,000 in cash. Dream on. But the vast majority of the people that you would bill this amount would be uninsured because they couldn’t afford insurance. And the hospitals do not expect to collect anywhere near that amount from them, but they will keep billing them, and ruin their credit, and eventually sell off the bill to a collection agency for about 10 cents on the dollar. That agency will increase the dunning.

So what is the point of having such a high charge on the “chargemaster” (the name for the pricelist no one sees) if the only people who are going to be billed that much are those who are least likely to be able to pay? There has to be a reason, and there are in fact several, which include hoping that some insurer will, if not pay the whole amount, pay a fixed percentage of the billed charge, and so the higher the charge, the higher the reimbursement. But, of course, this makes no sense with Medicare (which has fixed approved charges that it will pay for procedures regardless of what the institution charges) or with insurers for which they have already negotiated reimbursement; in fact, the latter is usually determined as a “multiple of Medicare”, e.g., 2 or 3 times what Medicare pays. There are other arcane reasons, many of which have to do with the complex interplay between the “providers” (hospitals) and the payors (insurance companies), and who has the most clout in a certain area in a given situation. Assuredly, the interest of the patient does not enter into this discussion.

[I was going to add the following paragraph as a comment, but I thought it belonged here...]

A colleague pointed out another important reason why the prices for services in “non-profit” hospitals are so high. They don’t pay taxes because they are (supposed to, but often don’t) deliver “community benefit”. One way this is measured is reducing the debt of those who can’t pay! So if you can take, say $3000 from an insurer for a procedure but your “official” charge is $10,000, then if you accept $3000 from an uninsured person you can call the $7000 “community benefit”! And if your charge is ostensibly $69,000, you can meet the requirements for your tax-free status without losing a dollar…

 

Trying to find a pricelist with any meaning is almost impossible, but it doesn’t have to be that way. I go to the dentist in Mexico (I don’t have, but it accepts, US dental insurance). They can tell you before they do anything exactly what it will cost. Cleaning, $60. Gum trimming, $160. Same for repairing cavities, making crowns (on site, in an hour) or implants. No surprises. In the US, not even the doctors or hospital administrators know what the actual price will be for the patient.

This absurd pricing is yet another example of a “healthcare” (or maybe “healthdon’tcare”) system that is predicated on making money for the power players, and the technical details about which of them benefits most (sometimes, in the case of inner-city and rural hospitals, suffers most) dominates the policy discussion and political rule making. Politicians like to talk about regulating health insurers (and sometimes hospitals), and for sure drug companies because of their exploitation of patients. They rarely, however, do anything much about it. When they do something, it almost always 1) is very watered down by “compromises” with the big-contribution lobbyists from the regulated industries, and 2) when it does help people by reducing their cost, it always continues to make money for the (maybe) regulated companies, just a little less exorbitant than before. 

 Drug costs are a prime example of both. The legislation that created the Medicare drug plan (Medicare Part D) passed during the George W. Bush administration. The positive benefit to patients was that, prior to it, many Medicare patients did not have coverage for their prescription drugs and often went broke trying to buy them; it required all Medicare recipients to have a plan.  The obvious benefit to the corporations was that now all Medicare recipients had to buy drug coverage from an insurance company, and drug companies would now get paid for all these people’s medications. A less obvious, but incredibly important benefit to drug manufacturers was that the Part D legislation forbid Medicare from negotiating drug prices! So big bonus – everyone has to have drug coverage and they have to pay what we charge! Medicare is the only civilian purchaser of drugs (and other healthcare services) large enough to force prices down, as they do for hospital services (see the anecdotes at the start of this piece). But that they might do the same for drug prices really worried Big Pharma – after all, the VA and TriCare, the only other purchasers big enough to have real clout, did negotiate lower drug prices for their members, and this decreased their profits. Indeed, in most states Medicaid negotiates drug prices, and the manufacturers don’t like that at all. Luckily (for them), they have hundreds of highly paid lobbyists in DC, and make millions in contributions to politicians, so they were able to get this great deal. A great example is former Rep. Billy Tauzin (R, LA) who was chairman of the House Energy and Commerce Committee when Part D was passed, and, “On January 2005, the day after his term in Congress ended, he began work as the head of the Pharmaceutical Research and Manufacturers of America (PhRMA). a powerful trade group for pharmaceutical companies.” (Wikipedia)

Drug company profiteering is also a good example of the second point, that drug companies always continue to do fine and make big profits even after a reform has decreased them a little. A more current example is the push (including from the Biden administration) to lower the cost of insulin, a drug that is literally a daily necessity of life for those with Type 1 diabetes and very commonly needed for the much larger number of people with Type 2 diabetes. The 2020 Prescription Drug Pricing Report from the Office of the Assistant Secretary for Planning and Evaluation of the U.S. Department of Health & Human Services states that

The average gross manufacturer price for a standard unit of insulin in 2018 was more than ten times the price in a sample of 32 foreign countries:$98.70 in the U.S., compared with $8.81 in the 32 non-U.S. OECD countries for which we have prescription drug data. The U.S. prices for the mix of insulin used in the U.S. were 8.1 times prices paid in all non-U.S. OECD countries combined. !!

Verywell Health reports that “As of March 2022, the price for a vial of insulin ranges from $50 to over $1,000, and a pack of pens ranges from $45 to over $600.” News organizations such as the BBC have reported on the impact of this on actual people. No wonder limiting the price of this life-saving drug is something concerning to both Republicans and Democrats. President Trump talked about it a lot, and President Biden is actually moving to limit the cost. With the administration-backed Inflation Reduction Act, not only did the price get controlled, but Eli Lilly (one of the 3 major manufacturers of insulin for the US, along with Sanofi-Aventis and Novo Nordisk, and the company that was given the patent for insulin from Banting and Best for $1) announced a 70% reduction in their charges. The White House briefing fact sheet on this legislation’s effect is interesting, and contains some information on who in the US has diabetes. The answer is a lot of people, over 11% of the US population, and minority groups, the poor, and the poorly educated have an even greater burden of this disease.

                                                                  

But don’t cry for Eli Lilly, or the other insulin, or any drug, manufacturers. That they will be doing fine and continuing to make huge profits after the price restrictions go into effect is further evidence that before they were making outrageous, unjustifiable, and indeed (given that insulin is needed to keep many people alive) murderous profits.

It is hard to discuss rapacious profiteering in health(don’t)care without drug companies, but let us not lose sight of the fact that the insurance companies and the big hospital and “health systems” are also making out like bandits, ripping us off, and endangering our health.

"Non-profit" hospital systems behaving worse than for-profits: No end to the scams

I have often written about the greed of hospitals and “health systems”. In a competitive environment (especially in big metropolitan areas) they have combined and consolidated and become enormously powerful. This has been good for them, as they have made a lot of money. Now these large health systems and the insurance companies stand almost as warriors in the gladiatorial arena, each believing that the other is the problem; the hospitals complain that the insurers don’t pay enough and the insurance companies complain that the hospitals charge too much. Nowhere in this equation is the “consumer”, the “patient”, the “person” who is supposed to be the focus of this whole system. If the hospitals and insurers are the gladiators, people are the ants crushed under foot.

“For-profit” healthcare organizations -- incorporated tax-paying, investor-owned -- that run hospitals, nursing homes, and virtually any other kind of healthcare related operation (obviously including all pharmaceutical companies) have long been callously evil in their pursuit of profit, although they have never claimed they were not. Many university teaching hospitals, and even publicly-owned hospitals, were taken over by such companies when their former owners could not afford them (didn’t want to support with tax money, in the case of public hospitals, and were losing money from a combination of caring for people without insurance and overspending on administrators in the case of university hospitals). Predictably, this led to no improvement in the quantity or quality of care being delivered – the quantity, especially for the poor was always less. But it did bail out the former owners.

What has become more and more apparent over the years and decades is that “non-profit” hospitals (called “voluntary” in  New York) have become just as callous and evil, including those associated with religious orders that founded them on the basis of serving the ill and those in need. These hospital systems do not have owners or shareholders and are free from paying taxes, in acknowledgement of the community service that they – ostensibly -- provide. The problem is that they continue to receive the tax break, while cutting back and back on the community service, until in many cases it is not only negligible but even negative – actively hurting the community.

In recent days, the New York Times has featured an exposé on this situation, focusing on two systems, Providence (based in Washington state) and Bon Secours (in Virginia). Both have ravaged and ripped off the people who should be receiving their care, acting in at least as predatory a manner as any for-profit, while legally (so far, maybe) gaming the systems put in place by state and federal governments to regulate them and ensure that they deliver community service.

The article on the Providence system, one of the largest in the nation with 51 hospitals, originally founded by a caring order of nuns, is called 'They Were Entitled to Free Care. Hospitals Hounded Them to Pay.’ It is enough to make you throw up if you are at all a caring person, or one who might ever need healthcare. The gist of the piece is that their prior level of “community service”, the justification for paying no tax, was providing 1.29% “charity care” (well below the already-pitiful national average of 2%), and that this was slashed to below 1% by a new campaign by management to wring every nickel out of every patient, especially those with no or terrible insurance and no money. The article details the methods utilized (such as never offering people, regardless of poverty, the option of not paying, but only how they would pay). These details are sufficient to ensure that, if the perpetrators are religious, they know where they are headed after this life. Even the people who ended up not paying (essentially because they had no money) were subjected to terrible oppression and dunning not only by the hospital itself but by the collection agencies they hired, including garnishing wages from those who were lucky enough to even have jobs. The federal government does not prescribe a specific percent of charitable care that must be done to stay tax-free, but squeezing the poorest is clearly not the intention.

Providence avoids more than $1 billion a year in taxes. In exchange, the Internal Revenue Service requires them to provide services, such as free care for the poor, that benefit the communities in which they operate.

They’re not doing much of that! Meanwhile,

Providence is one of the largest nonprofit health systems in the country, with 51 hospitals and more than 900 clinics. Its revenue last year exceeded $27 billion.

Providence is sitting on $10 billion that it invests, Wall Street-style, alongside top private equity firms. It even runs its own venture capital fund.

What they are doing contravenes any conception of why a hospital (or system) should be tax-free; indeed, it makes the for-profits look good, because while they act no better, at least they pay taxes!

The next day’s article, about Bon Secours Mercy Health, ‘How a Hospital Chain Used a Poor Neighborhood to Turn Huge Profits’, describes

‘Richmond Community Hospital … consists of little more than a strapped emergency room and a psychiatric ward. It does not have kidney or lung specialists, or a maternity ward,’

and how it is the most profitable hospital in Virginia, making over $100M a year profit.  The scam here is just as reprehensible as Providence’s, but is a little more difficult to understand. It involves gaming  a federal program called 340B. This program was developed to allow people who were poor but not on Medicaid to get reduced costs for their drugs. This is a good thing, but this example also shows how evil corporations can misuse even well-intended programs.

Here’s basically how it works: an eligible entity buys outpatient drugs from pharmaceutical companies and then gets a rebate from them, which can be tens of millions of dollars. The federal government likes this because, unlike money for Medicaid drugs, it doesn’t come out of their coffers but from the drug companies (and thus, of course, the drug companies hate it). What is an eligible entity? Some are categorical, like Federally-Qualified Health Centers (FQHCs). Hospitals become eligible if more than a designated percent of their inpatients are on Medicaid. This is ironic on two counts, since Medicaid patients are not eligible for 340B drugs (because their drugs are already purchased at a discounted rate, and must be separated from 340B drugs) and the drugs are not for use on inpatients. The qualification is an on/off threshold;  you either qualify with a certain % of Medicaid inpatient days or you don’t. Once you do qualify, any outpatient medications you dispense are eligible for rebates; there is no income restriction on who you can sell these drugs to.

 

Maybe you see where this is going. Bon Secours Mercy qualifies for 340B at Richmond Community Hospital since it is an inner-city hospital serving almost entirely poor people. And the outpatient pharmacy there would surely be entitled to use 340B drugs, and that would be the intent of the program. But…here’s the genius: Bon Secours set up a network of clinics in high-income communities that were legally tied to the “mother” hospital of Richmond, and thus received its 340B designation. So now they could sell drugs on which they got huge rebates to people with money and insurance! Cool! Great idea if you are an MBA student! You might get a good mark for coming up with such a project, provided you can demonstrate that it was not illegal and the management won’t go to jail or pay a huge fine. In this case, I hope that they do. What is wrong with it? Well, for starters they’re not investing any of that money back into Richmond Community, the source of their 340B designation, the hospital that is miserably inadequate to care for its patients…

Of course, not all hospitals and hospital systems are Bon Secours or Providence. Some, especially in small towns and rural areas, and inner cities, are barely surviving. Of course: the rich get richer, even on the backs of the poor, as in the Richmond case. But the ones that are successful (i.e., making money) are almost all doing similar things, gaming the system, and providing as little charitable care as possible, while paying no tax and, if they can, maximizing income from programs such as 340B.

There is a solution. A national health insurance system, Improved and Enhanced Medicare for All, in which everyone’s medical bills are paid by the federal government and hospital budgets are negotiated annually, and there is little or no opportunity for such scams.

Why poor people choose ERs: we need a system designed to meet everyone’s needs

“Understanding Why Patients Of Low Socioeconomic Status Prefer Hospitals Over Ambulatory Care”[1], by Shreya Kangovi and her colleagues in the July, 2013 issue of Health Affairs, tries to help us answer that question in order, presumably, to help re-design ambulatory care in order to change that preference. A general assumption of health policy is that use of hospital emergency rooms for “routine care” is expensive, inappropriate, provides worse patient outcomes, distracts emergency room staff from caring for the true emergencies that they are presumably there for, and is a significant cause of the overall high health care spending in the US. Although the whole article is available on-line only to Health Affairs subscribers, a summary is presented on the Robert Wood Johnson Foundation (RJWF) website, because Dr. Kangovi was an RJWF Clinical Scholar.

The authors conducted a qualitative study interviewing 64 people who frequently used the emergency room as their source of medical care, using trained community members to engender greater trust on the part of the patients, mostly lower income African-Americans, to conduct the interviews, in two hospitals in the Philadelphia area.  “Study respondents (both the insured and uninsured) explained that they consciously chose the ER because the care was cheaper, the quality of care was seemingly better, transportation options were more readily accessible, and, in some cases, the hospital offered more respite than a physician’s office.”

These findings should be surprising to many students of public policy, but they were the legitimate perspectives of the people who were using these services, those Kangovi correctly notes, whose “…voices are seldom heard in policy discussions.”  Understanding their concerns is critical, not because they are always “right”, or represent everyone, but because those concerns reflect their experiences, and the degree to which our current strategies are not working, and the degree to which our future strategies are unlikely to work if they do not take into consideration these issues. Three themes generated by the researchers, with supporting quotes from the folks who were interviewed:

• Convenience. “You must call on the same day to set up a [primary] care appointment … whenever they can fit you in.” This open-access scheduling resulted in people taking days off from work and still being unable to see a doctor. It also made it impossible for many to access transportation covered by Medicaid because the transport arrangements had to made 72 hours in advance. Late hospital hours also made care more available.  
• Cost. “I don’t have a co-pay in the ER, but my primary [physician] may send me to two or three specialists and sometimes there is a co-pay for them. Plus there’s time off from work to go to several appointments.”
• Quality. “The [primary care doctor] never treated me or my husband aggressively to get blood pressure under control. I went to the hospital and they had it under control in four days. The [physician] had three years.”

Any health care provider who has worked in an ER or in ambulatory care can validate these concerns, and also respond to them. The most obvious is Cost. Obviously care in an ER is not free; indeed the cost is a major driver of efforts to get people to not use it. But the patient, at the time of service, doesn’t have to put down cash, put down a co-payment, put down real money now. There will be a bill, but that will be something that goes on their (likely existing and mounting) debt burden.

Convenience is, perhaps, a poor choice of words; it suggests something purely volitional, as if people were choosing to have their hair done during the day rather than go to the doctor. Convenience in the way that a middle class person understands it is not what these folks are talking about. They may not have a car or a family member with one (or perhaps it is being used by a family member to get to work), public transportation may be unavailable, unreliable or inaccessible to them given their medical problems, and if they have jobs, they are often not those that just allow you to take a sick day to go to the doctor, but mean they lose pay. Despite efforts to have “extended hours”, most ambulatory care offices are open mainly during regular business hours, during the day weekdays, when the folks who work there want to work, not when it is necessarily most “convenient” for patients. Let’s get this straight, it is not “convenient” to wait 6 hours in an ER to be seen; if this is better than the alternative, the alternative is seriously flawed!

Quality is another issue, and the quotation chosen is very open to criticism. The hospital had 4 days of complete control of the person’s life, giving them their medicines and minimizing any external issues, while the doctor had 3 years in which the person was responsible for taking their medicine, choosing their diet, and deciding where to rank health among the many competing priorities in their lives. As any of us who have worked in medicine know, the control that was achieved in the hospital may well evaporate once someone is back in their regular environment.

Really, this is largely an issue of money, of resources. The authors emphasize that not all the patients were uninsured, but those who had insurance almost all had Medicaid. Not only is Medicaid not equivalent to private insurance (it pays less and lots of doctors do not take it) but it is only available to really poor people. People who are poor enough to have Medicaid have all those issues listed above under “Convenience” and “Cost” that go beyond the direct cost of medical care, but inform every decision that they make in their lives.

Policy is made, in almost every area, by the “haves”, those with money and political power. At the rawest, it is a blatant example of “let’s do for us, and screw those without power”, as for example the farm bill that cuts food stamps for the neediest while continuing support for giant agribusiness (well discussed by Paul Krugman in  “Hunger Games, USA”, NY Times July , 2013[2]). More subtly, and with much less intentionality, not to mention hostility, it is made from the perspective of people who have a lot, who cannot even imagine the lives, decisions, and trade-offs made every day by “have-nots”. The “haves” may identify a lot that is wrong with the health care system, but they do not even think of things like not having transportation, or not being able to take off from work to go to clinics open during working hours, or not having childcare. They are not mean people, but they do not see.

In her comments, Kangovi looks at plans to develop Accountable Care Organizations (ACOs). “Our findings suggest that these efforts could backfire by making hospitals even more attractive to these patients. We also debunk the notion that people from these groups abuse the emergency room for no reason and need to be taught how to use it properly.”  The real issue is that there are not the financial incentives to provide high-quality care that is accessible in terms of both cost and the other obstacles people face (e.g., transportation, childcare, office hours). The financial incentives are to try to avoid these patients all together, keep them out of the ER, keep them out of your office; to develop “Patient-Centered Medical Homes” that are centered around the kinds of patients you want to have, and not those you would rather not have show up (and go to the ER!).

We need a system that, first of all, ensures that taking care of everyone is (at least financially) desirable. That means a system in which everyone has the same insurance coverage (a single-payer system), and one that is designed to pay more when providing care for people with greater needs, both medical and social. We need a wrap-around system that enables the most needy to have access to the transportation, childcare and other issues that they need to be able to utilize their medical coverage, and to the education, jobs, food, and housing that they need to be able to have a reasonable chance at health. We don’t need a patchwork system of “good ideas” that do not, in themselves or together, create a real safety net for people.

If we have one that is so full of holes that gaming it for profit is the main activity of hospitals, doctors, and other providers, we have no reason to be critical of the least powerful finding the ways around it that work best for them.

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[1] Kangovi S, et al., “Understanding Why Patients Of Low Socioeconomic Status Prefer Hospitals Over Ambulatory Care” , Health Aff July 2013   vol. 32  no. 7  1196-1203; doi: 10.1377/hlthaff.2012.0825  

[2] Krugman indicates the logic “…goes something like this: ‘You’re personally free to help the poor. But the government has no right to take people’s money’ — frequently, at this point, they add the words ‘at the point of a gun” — “and force them to give it to the poor.’  It is, however, apparently perfectly O.K. to take people’s money at the point of a gun and force them to give it to agribusinesses and the wealthy.”

Hospital charge variation and Medicare equipment fraud: two forms of gaming the "non-system"

There has been extensive coverage of the recently published report from the Center for Medicare and Medicaid Services (CMS) that revealed dramatic differences in the prices charged for medical services between hospitals, not only between regions but also within the same city. “Hospital Billing Varies Wildly, Government Data Shows”, in the NY Times May 8, 2013, reports that “A hospital in Livingston, N.J., charged $70,712 on average to implant a pacemaker, while a hospital in nearby Rahway, N.J., charged $101,945…In Saint Augustine, Fla., one hospital typically billed nearly $40,000 to remove a gallbladder using minimally invasive surgery, while one in Orange Park, Fla., charged $91,00. …In one hospital in Dallas, the average bill for treating simple pneumonia was $14,610, while another there charged over $38,000.” 

Bloomberg News notes that treatment of psychoses ‘showed the greatest price discrepancies, with the most expensive hospital charging $144,523, more than 52 times its cheapest peer,’ and the ‘most common procedure in the data, treatment of simple pneumonia and lung inflammation with complications, had prices ranging from $5,093 to as much as $124,051.’” The Kansas City Star reports, in “New data reveal puzzling differences in hospital charges”, that “… the hip replacement surgery that one hospital in Ada, Okla., charges at $5,304 cost $223,373 at a hospital in Monterey Park, Calif.,” and giving a local example, “In Kansas City, charges for that surgery range from $24,874 at Truman Medical Center Lakewood to $66,268 at the University of Kansas Hospital.”  Among the many other news sources covering this are Wall Street Journal (“Data shine light on hospital bills”), USA Today, AP,  Los Angeles Times, Washington Post, and others.  The LA Times article notes that the data call “into question medical billing practices just as U.S. officials try to rein in rising costs.”

But, of course, this information should come as no surprise; it confirms something not only well-known by hospitals and physicians for a very long time, but repeated reports by investigative journalists over the last several years. These have included  Atul Gawande’s article, “The Cost Conundrum” in The New Yorker June 1, 2009 (my blog coverage in Medicare Costs: "All Politics are Local", June 11, 2009) and Steven Brill’s February 2013 Time magazine piece “Bitter Pill: Why Medical Bills are Killing Us”, which I discussed in Squeezing the needy: a truly flawed financing system for healthcare, March 2, 2013. Hospitals’ “charge masters” list “list prices” for any number of procedures and equipment which, as noted above, vary wildly. Although Medicare performed the study, in fact Medicare does not pay those prices or anything close to them; it sets its own payment schedule for these procedures which does not vary much between hospitals. However, as Gawande makes clear in “The Cost Conundrum”, there is a second problem arising from the fact that some hospitals seem to do – and bill Medicare for – a far larger number of procedures than are done by other hospitals caring for similar populations.

So why do they have these charges and why do they vary so widely? They vary because different amounts of “fixed costs”, the expenses that hospitals have that are not for the individual patient (staff, building maintenance, equipment, etc.) are loaded into these charges, as are more or less profit. They are high because there are occasional payers (fewer all the time) who do link their payments to charges, such as Worker’s Compensation. While Reuters quotes HHS Secretary Kathleen Sebelius as saying "When consumers easily compare the prices of goods and services, (providers) have strong incentives to keep those prices low. But even basic information about health premiums and hospital charges has long been hidden from consumers. These rates can vary dramatically in ways that can't be easily explained," it is not clear that posting the prices, or having smaller differences, would be of much help to most people. 

Large health insurers, like CMS, do not pay the posted “charges”; although they pay more than Medicare or Medicaid, their payments to hospitals are usually tied to Medicare charges as a multiple (e.g., they might pay 2 times Medicare). Of course, the group that most clearly gets screwed are people with no insurance at all, who are in fact billed for the entire list charge. They are, also of course, very unlikely to be able to pay any significant portion of those charges (minus the rare sheik or hedge fund manager who might show up). Therefore, the difference between owing $24,874 to Truman Medical Center Lakewood or $66,268 to the University of Kansas Hospital for hip replacement surgery may be largely theoretical to them, but in the meantime, it can, and frequently does, absorb their life savings, ruin their credit, and throw them into bankruptcy. And there are “middle class” uninsured families who might be able to pay off $24,874 over a few years, but for whom $66,268 is more than they could pay in a lifetime. (Fortunately, most hospitals, including I know the University of Kansas Hospital, do develop payment plans for patients, which, if they make payments that are agreed on can preserve their credit.)

Meanwhile, in “Medicare anti-fraud effort has Missouri roots” (Kansas City Star May 7, 2013), Lindsey Wise, the paper’s Washington correspondent, describes how the concerns of a St. Louis physician that she was receiving requests from medical device sellers for approval of medical equipment that she hadn’t ordered, and that it turns out her patients hadn’t requested, led her senator, Claire McCaskill, to hold federal hearings. As noted by Sen. McCaskill, “Most Americans have seen ads on TV or received calls or letters promising medical equipment ‘at little or no cost to you,’”  but, as she adds, “there is always a cost to you, because it is paid for by federal tax dollars.”  Both Dr. Kennedy’s patients and others testifying before McCaskill’s committee said they often receive several calls per day from device retailers. Investigations of two companies that had faxed unsolicited requests to Dr. Kennedy discovered, respectively, a 68% and 92% “error rate”, a euphemism for what may well be fraud.

Why mention these two separate issues, Medicare fraud by medical device companies and huge charge disparities among hospitals for the same procedures, in the same blog post? While definitely different – the device sellers, at least those who are guilty of such practices (“Please don’t convict the entire industry,” says the executive director a trade association that represents medical equipment companies), are unscrupulous and perhaps committing fraud, while the hospitals are not – they share they key characteristic of seeking profit by “gaming” the system. Medicare pays for medically necessary equipment (including scooters, oxygen, diabetes monitors, etc.) for patients who need them, and some companies selling them do aggressive direct-to-consumer marketing (as do pharmaceutical companies), to try to increase their sales. Hospitals post exorbitant “prices” for their services that bear little relationship to the cost of providing them (as proven by the wide variation) in hopes that the occasional payer will pay them, or at least pay a percentage of them (unlike Medicare’s fixed reimbursement). What they have in common is the exploitation of a nonsensical non-system of health care in which profit is pursued by taking advantage of its intrinsic disorganization.

For medical supplies, while Sen. McCaskill’s committee discovered many cases where patients did not want the equipment physicians were asked to approve, there are many others cases in which the patient is convinced that it would be good to have, say, a scooter that they don’t have to pay for --  even when the doctor thinks it is not necessary or might even be harmful (for example, when a person who doesn’t exercise because of their weight gets a scooter and does even less activity and thus gains more weight). Fraud is fraud, should be investigated, and it appears that it is being done.

For hospital charges, however, the solution is different. It would be to have a national payment system that, possibly with regional differences based on the cost of labor and other variables, pays a fixed amount for services, as does Medicare – a single payer system. It probably needs fixes (Medicare may currently pay too little, requiring private insurers to subsidize that care; certainly the law should allow the uninsured to be billed at no more than Medicare would pay), but a little rationality would go a long way.