You should be outraged at this story because it proves in very concrete terms just how screwed up healthcare is in this country and what the government’s role in this mess already is.
My mother was in and out of the hospital for a very long time with a devastating infection – the worst case of MRSA that her infectious disease specialist had ever seen. During her last hospital stay she was in the hospital for 48 days and ran up a $110,000 hospital bill. I’ve included a copy of the important part of the hospital bill below.
Now look carefully at what happened in the payment of the bill. She was covered by Medicare for all but 9 days of her stay so guess how much they paid? A little over $2300. The decimal point is in the right place.
So what happened to the rest of the bill? Medicare forced the hospital to write off over $75,000 of charges. I called the hospital’s billing department to confirm my understanding. Yes, Medicare only paid $2300 because that’s all they allow for treatment of Sepsis, the official diagnosis. Huh? 39 days in the hospital and $67,000 worth of pharmaceuticals (they had to use the really super duper antibiotics on her) and they only allow $2300 in charges?
So then I asked the billing person if Medicare was forcing hospitals to provide service below their cost. And I asked the question twice to clarify that I was talking about costs as opposed to charges. And the billing person explained unequivocally that this was standard practice with Medicare and it was getting worse all the time.
Now, as you can see from the bill, our secondary insurance paid out an additional $22,000 (it’s called MGD Care for reasons that escape me) and we had to pick up the balance ourselves but there is no way the hospital covered their costs on my mother and this whole mess begs a few questions.
How do hospitals break even or make a profit under these conditions?
Simple. They have to shift the costs to private insurers and patients, raising their prices so that on average they come out even. This is not something you hear much about but you can Google Medicare cost shifting and find a few articles on this subject. They tend to be fairly hypothetical but there’s nothing hypothetical about our experience.
So this explains why healthcare costs (not total spending but the price of specific services) are so high. If you are under 65 you and your insurance company do not get the Medicare discount. The government is forcing the private sector to subsidize socialized medicine through the back door. Get outraged.
Suppose you don’t have Medicare or insurance?
You’re screwed. Good luck trying to get the Medicare discount. You might be able to get some discount from the hospital but nothing like Medicare gets. My mother would have been liable for $110,000. Of course, if I’m ever in this predicament I’m going to demand the Medicare discount just to see what kind of reaction I get.
So how would The Patient Protection and Affordable Care Act impact this situation?
Well, as I was listening to these politicians talk during all the discussions leading up to the vote (and they are quite clever with their language) I kept coming back to the conclusion that the entire Act is a massive shell game of shifting costs around. I came to that conclusion because, despite claiming that they were going to reduce health care costs, they never actually provided any specifics as to where the savings were going to come from. Oh…they talked quite a bit about how they were going to negotiate better deals and reduce Medicare payments but that doesn’t actually reduce costs, just like forcing the hospital to eat $75,000 didn’t reduce the hospital’s cost of taking care of my mother. So the Act is going to just reduce payments and drive profits down and losses up for all the providers – i.e. things will get worse.
Why don’t we hear more about Medicare cost shifting?
Good question. I have no idea.
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I think I want to know why it costs $2K a day in the first place. I’ve always suspected medical costs were high because of subsidizing malpractice insurance and litigation costs.
Well, if you look at the bill the vast majority of the charges are for medicine. They had to take her up to the 3rd level of antibiotic and it’s pretty expensive. The drug companies spend billions developing these drugs and in general don’t have a lot to show for the effort. When they get a winner they have to try to recoup their investment. So in this case the hospital had to spend a lot more buying drugs than they got in return.
You’re letting the pharmaceutical companies off too easily. First, a fairly large portion of their research costs are subsidized by the US govt. Second, half of their operating expenses are marketing costs, i.e. all those branded pens and notepads floating around your doctor’s office, not to mention lunches, dinners, and vacations disguised as “training seminars”, and, of course, the ubiquitous TV advertising. They sell drugs at a lower cost in practically every country in the world because those countries and their citizens demand lower prices, while we’ve been sold the line about billions in research. Go cry me a river. Not one major pharmaceutical company even came close to teetering during the financial crisis. They’ve got an entire nation brainwashed to pay excessive amounts for both optional and required drug treatments, and, as soon as it looks like their profits might tail off, they restrict production too the point where people are dying due to critical drug shortages.
Gary, your analysis is very incomplete.
You state that the hospitals are shifting costs to corporate health care – but in fact corporate health care bills look very similar to the ones you posted. My wifes shoulder surgery cost somewhere in the neighborhood of $34,000, but by the time $BIG INSURANCE COMPANY$ paid the bill, the number was reduced to $5k. Rest assured that this 5K was split between all the relevant parties. Everyone got paid – about 1/5th of what the initial bill claimed.
What you’re seeing isn’t the cost being “shifted”, so much as you’re seeing billing inflation in the first place. Those expensive meds you were talking about were marked up 5 times by the hospital, for example. The people asking “does it really cost $2000/night to stay in thie hospital” are bang on. Of course it doesn’t. NOBODY PAYS THESE RATES.
If you’re on medicare, negotiated rates reduce the bill.
If you’re on corporate insurance, negotiated rates reduce the bill.
If you have no insurance, you’re also having these bills reduced through various means – either negotiating on your own, seeking charity care, or ultimately having them reduced or eliminated in bankruptcy filings.
Billed rates are pure fiction.
It’s true that the state of health care in the USA is a national embarrassment – but “cost shifting” from medicare isn’t the issue you think it is. The truth is that those costs aren’t getting shifted anywhere – they’re just getting negotiated downwards.
_Am
Didn’t really intend for this to be an in-depth analysis but that’s interesting about your wife’s shoulder surgery. I’ve never seen that much of a cut on private pay. So the question is whether or not anyone is paying the non-negotiated rate because if they are that’s cost shifting. I know if you don’t have insurance and you have the money you are probably going to end up paying that. If the hospital is marking up all the charges only to then knock them down by 80% for almost everyone then what’s the point? Someone must be paying the full bill.
Regarding the cost structure of the pharmaceutical companies…I’d like to see the data on that. I just pulled up the financials for Eli Lilly which owns the Vancomycin franchise I believe. That’s the 1st line of defense for MRSA. Based upon their 2010 financials marketing, sales, and administrative costs comprise 43% of their cost structure but marketing and sales are not broken out so we can’t really say how much is marketing and sales. I would imagine that their administrative costs would be pretty high. Furthermore, it’s a competitive business and like it or not competitive businesses need to market. If Coca Cola didn’t need to market Coke would cost $.05.
As for what the drug company’s charge in this country…I wonder how much of that has to do with trying to cover the cost of FDA approval and all the litigation.
Great cogent dialog/byplay…Kudos to all participants. Medicare is not going away so rest easy. It may be tweaked a tad, especially those Medicare Advantage Bush Pork Plans which are restrictive, limiting and confusing, not to mention over-funded last year, to the tune of $9 Billion Dollars more (paid out to plan providers by the government) than if those same senior enrollees simply had medicare and a supplement or medicare and medicaid (if indigent).
10,000 people a day turn 65 and will now be paying in to the system (Part B Premium at the very least along with secondary insurance, co-pays and/or deductibles…excess charges etc etc) These people are taking better care of themselves. They are not malingerers..The house will take in alot more than they will have to pay out. Gary, what your mom went through was a RARE RARE occurrence. You can’t paint everyone with the same brush that mom had to be painted with. There are CPT codes that are routinely updated. Certain procedures/tests/surgeries etc etc call for a certain approved amount to be paid. Mom’s situation fell through the grates, a once in a blue moon situation to be sure. It was dealt with. Doctors enrolled in the medicare program are allowed to bill up to 15% above the approved amount. (Excess charges, meaning they did not take medicare assignment.) Perfectly legal. But that’s the max they can go. The law of large numbers will prevail in medicare’s future with so many having paid in for over 4 decades (employers too) and now at age 65, 10,000 day will pay into the system, many for Part D as well, since they are penalyzed if they don’t. Medicare will be fine with fresh money coming in and hopefully a stronger focus on provider fraud.
Thanks for the additional information. However, according to the CBO Medicare is expected to be one of the major contributors to the budget deficit over the next few decades – i.e. this takes into account everything that you are saying and the thing will still lose money: http://www.chicagonow.com/getting-real/2011/07/the-us-budget-problem-explained-in-one-chart/
Of course, my concern is whether or not it will be in medical providers’ best interests to just refuse Medicare patients. Already certain doctors won’t take them.