Why medicine is so damn expensive

[MadImmortalMan]

A lot of the drug costs mentioned in the magazine story are hospital-administered. Charging a buck fifty for a tylenol or five grand for a single dose of a cancer drug.

[MadImmortalMan]

Excerpts:

There is nothing, for example, that addresses what may be the most surprising sinkhole — the seemingly routine blood, urine and other laboratory tests for which Scott was charged $132,000, or more than $4,000 a day.

On the second page of the bill, the markups got bolder. Recchi was charged $13,702 for "1 RITUXIMAB INJ 660 MG." That's an injection of 660 mg of a cancer wonder drug called Rituxan.

The expensive technology deployed on Janice S. was a bigger factor in her bill than the lab tests. An "NM MYO REST/SPEC EJCT MOT MUL" was billed at $7,997.54. That's a stress test using a radioactive dye that is tracked by an X-ray computed tomography, or CT, scan. Medicare would have paid Stamford $554 for that test.

In fact, Gilbert got three CT scans — of her head, her chest and her face. The last one showed a hairline fracture of her nose. The CT bills alone were $6,538. (Medicare would have paid about $825 for all three.) A doctor charged $261 to read the scans.

Gilbert got the same troponin blood test that Janice S. got — the one Medicare pays $13.94 for and for which Janice S. was billed $199.50 at Stamford. Gilbert got just one. Bridgeport Hospital charged 20% more than its downstate neighbor: $239.

Also on the bill were items that neither Medicare nor any insurance company would pay anything at all for: basic instruments and bandages and even the tubing for an IV setup. Under Medicare regulations and the terms of most insurance contracts, these are supposed to be part of the hospital's facility charge, which in this case was $908 for the emergency room.

Gilbert's total bill was $9,418.

The big-ticket item for Steve H.'s day at Mercy was the Medtronic stimulator, and that's where most of Mercy's profit was collected during his brief visit. The bill for that was $49,237.

According to the chief financial officer of another hospital, the wholesale list price of the Medtronic stimulator is "about $19,000."

The family's first bill — for $348,000 — which arrived when Steven got home from the Seton Medical Center in Daly City, Calif., was full of all the usual chargemaster profit grabs: $18 each for 88 diabetes-test strips that Amazon sells in boxes of 50 for $27.85; $24 each for 19 niacin pills that are sold in drugstores for about a nickel apiece. There were also four boxes of sterile gauze pads for $77 each. None of that was considered part of what was provided in return for Seton's facility charge for the intensive-care unit for two days at $13,225 a day, 12 days in the critical unit at $7,315 a day and one day in a standard room (all of which totaled $120,116 over 15 days). There was also $20,886 for CT scans and $24,251 for lab work.

Her insurance policy, from a company called Assurant Health, had an annual payout limit of $100,000. Because of some prior claims Assurant had processed, the S.'s were well on their way to exceeding the limit. Just the room-and-board charge at Southwestern was $2,293 a day. And that was before all the real charges were added. When Scott checked out, his 161-page bill was $474,064. Scott and Rebecca were told they owed $402,955 after the payment from their insurance policy was deducted. The top billing categories were $73,376 for Scott's room; $94,799 for "RESP SERVICES," which mostly meant supplying Scott with oxygen and testing his breathing and included multiple charges per day of $134 for supervising oxygen inhalation, for which Medicare would have paid $17.94; and $108,663 for "SPECIAL DRUGS," which included mostly not-so-special drugs such as "SODIUM CHLORIDE .9%." That's a standard saline solution probably used intravenously in this case to maintain Scott's water and salt levels. (It is also used to wet contact lenses.) You can buy a liter of the hospital version (bagged for intravenous use) online for $5.16. Scott was charged $84 to $134 for dozens of these saline solutions.

Then there was the $132,303 charge for "LABORATORY," which included hundreds of blood and urine tests ranging from $30 to $333 each, for which Medicare either pays nothing because it is part of the room fee or pays $7 to $30.

In fact, Palmer — echoing a constant and convincing refrain I heard from billing advocates across the country — alleged that the hospital triple-billed for some items used in Scott's care in the intensive-care unit. "First they charge more than $2,000 a day for the ICU, because it's an ICU and it has all this special equipment and personnel," she says. "Then they charge $1,000 for some kit used in the ICU to give someone a transfusion or oxygen ... And then they charge $50 or $100 for each tool or bandage or whatever that there is in the kit. That's triple billing."

Handcuffs On Medicare
Our laws do more than prevent the government from restraining prices for drugs the way other countries do. Federal law also restricts the biggest single buyer — Medicare — from even trying to negotiate drug prices. As a perpetual gift to the pharmaceutical companies (and an acceptance of their argument that completely unrestrained prices and profit are necessary to fund the risk taking of research and development), Congress has continually prohibited the Centers for Medicare and Medicaid Services (CMS) of the Department of Health and Human Services from negotiating prices with drugmakers. Instead, Medicare simply has to determine that average sales price and add 6% to it.

The one huge advantage Medicare would have otherwise had...

"We use the CT scan because it's a great defense," says the CEO of another hospital not far from Stamford. "For example, if anyone has fallen or done anything around their head — hell, if they even say the word head — we do it to be safe. We can't be sued for doing too much."

[Berkut]

The question is: What do we do about it?

This should not come as any surprise - this is entirely predictable given the basic setup that exists in the system. Barring changing the fundamentals of the system, what can be done to manage this?

[merithyn]

The question is: What do we do about it?

This should not come as any surprise - this is entirely predictable given the basic setup that exists in the system. Barring changing the fundamentals of the system, what can be done to manage this?

I was just going to say that everyone knows why it's expensive. What we don't know is what to do about it. It's not like we can barter lower prices like insurance companies or the feds. Basically, either you pay what they ask, or you suffer/die. We have zero options, and zero way to force them to charge less.

[mongers]

The question is: What do we do about it?

This should not come as any surprise - this is entirely predictable given the basic setup that exists in the system. Barring changing the fundamentals of the system, what can be done to manage this?

I was just going to say that everyone knows why it's expensive. What we don't know is what to do about it. It's not like we can barter lower prices like insurance companies or the feds. Basically, either you pay what they ask, or you suffer/die. We have zero options, and zero way to force them to charge less.

Revolution, insurrection, emigration ?

Hell put a few hospital administrators, CEOs and Insurance company CFOs up againt the wall and see prices tumble.  :pitchfork:   

One things for certain a political establishment awash with medical lobby money won't do anything, substantial to change these rotten boroughs.

[merithyn]

Revolution, insurrection, emigration ?

I've been trying!

Hell put a few hospital administrators, CEOs and Insurance company CFOs up againt the wall and see prices tumble.  :pitchfork:   

One things for certain a political establishment awash with medical lobby money won't do anything, substantial to change these rotten boroughs.

Exactly. And that's the problem. I firmly believe that lobbyists are the biggest problem our country faces. Get rid of them, and we stand a chance at moving into the 21st century.

[MadImmortalMan]

We can't force them to charge less because the demand for their services far outstrips the supply and there are a bunch of geographical monopolies out there.

We can make medical and nursing schools cheaper, faster and more numerous, trustbust the AMA, lower credential requirements, give all patients a reason to care about their health expenses, allow medicare to negotiate prices for every single thing it pays for and find some way to get malpractice insurance costs down. Maybe some version of the Samaritan Law modified for responders and care providers would be good.

My brother in law is an EMT, and gets elderly people and drunks call for ambulance rides because they're lonely and want a free meal at the hospital. Medicare pays for that BS. They need an incentive to quit that somehow.

Maybe set up some loan guarantees for startup clinics and other hospital alternatives to get the patients with the less intensive needs met more cheaply.

Just brainstorming here.

[Tonitrus]

Lobbyists are merely representing the legitimate political views of concerned citizens, and transmit those views to their elected representatives. 

[Ed Anger]

She sounds communist. BURN HER!

[Razgovory]

Lobbyists are merely representing the legitimate political views of concerned citizens, and transmit those views to their elected representatives.

Getting rid of lobbyists would accomplish nothing by itself.  It's a neat a populist battle cry, but after get rid of the lobbyists what would you actually do?  What sort of law are they blocking?  It would seem to me that the market mechanism that keep prices competitive don't work here.  The costs are opaque, the hospitals often have a monopoly, and people rarely have the chance or ability to compare prices.

[Admiral Yi]

Damn Raz, I was going to post more or less the same thing.

[katmai]

well we are all yi.

[Martim Silva]

The question is: What do we do about it?

Get rid of the capitalist system or accept a more comprehensive solution of Obamacare (he's one of the few US presidents in recent History that actually cares about you, believe it or not), or move to Mexico. What you should *never* do is leave health in the hands of the private sector.

In continental Europe, the State covers most of the Health costs, so the vast majority of people don't have to worry much about that. And the poorest pay nothing.

Of course, this does not prevent greedy pharmaceuticals or doctors from trying to abuse the system, but then they mess with the State, and sometimes things don't turn out very well for them (we have going an investigation on abusive price-gouging and fraudulent medical prescriptions).

Naturally, Liberal criminals keep trying to privatize Health (many public-private partnerships to run hospitals were made in the early 2000s over here), and the end result was that those hospitals started to lose a ton of cash - as private managers lined their own pockets - and then demanded the State to cover their losses; in fact, a rather sizeable chunk of our debt problem comes from the wonders of 'private management' - both hospitals and banks.

[Phillip V]

The solution is to join the medical-industrial complex, make a lot of money, and then retire early.

[OttoVonBismarck]

No country has found a solution to healthcare costs. Most of the rest of the world, at least the countries people worth anything live in, have some form of either government provided or government paid-for care and that obviously reduces total societal spending on medical care. However, it just reduces it relative to the United States.

Medical care is so much more expensive here because we have private consumers who use an intermediary to negotiate pricing and such, and thus the costs of treatment are opaque. No cost benefit is given in regard to tests and etc. Doctor's have little incentive to not load patients up with a huge number of very expensive tests. The U.S. and Japan have by far the largest per capita number of expensive, multimillion dollar diagnostic machines. All those machines represent massive capital outlays by hospitals and medical practices that have to be recouped in a reasonable amount of time for those outfits to keep running. Note we have far more diagnostic machines per capita than Canada or Europe but our national health isn't better to show for it.

That's not the entire problem, but it is an example. Since the costs are opaque to the user, we don't care about the excessive spending on diagnostic machines. When the entity paying is the government operating without a profit motive they have a stronger incentive to question unnecessary testing.  All the claims administration and etc that is involved in dealing with the insurance middle man is also estimated to take 8-10% of total healthcare spending that wouldn't exist in a different type of system.

All that being said, if we just changed to the system the Canadians and the UK used would our healthcare problem be fixed overnight? Nope, not at all. Every modernized country on earth is facing rising medical costs, that are rising significantly faster than inflation. Anytime the cost of something is consistently rising faster than inflation it is a long run problem, because it means it will take up ever more of societal spending and start squeezing other things--especially when that "something" is the kind of thing people will forego spending on just about everything else (other than food) to purchase.

So there are two issues, one is specific to the U.S., and that is why when you combine government and private outlays do we pay more per capita than any country in the world for medical care. The answer is tied up in excessive billing behaviors by physicians who have a profit motive to push for as many optional procedures, diagnostic tests and etc as humanly possible and an inefficient insurance system operating as the middle man. We might get close to other OECD countries in total spending if we eliminated that, but the problem would still remain that all OECD countries are seeing the cost of medical care increase faster than inflation. That's a much tougher problem, and one that doesn't have easy answers.

[I will quickly note with the global recession medical care proved itself to not be totally recession proof, I believe some of the past few years actually had medical care costs drop in the OECD for the first time since basically 1980, but the long run average increase greater than inflation appears to be back and not likely to go away, so it is a fundamental problem all societies are going to have to address going forward.]

Some key questions globally on medical costs rising faster than inflation we have to answer:

1. World population has grown substantially since the 1970s. Likewise, medical subspecialties have expanded dramatically. In 1970 many specialists were very niche parts of the workforce and most people only regularly interacted with a GP. Now, many people deal with multiple specialists a year, and the growth in demand for all physicians has grown faster than the population. Yet, in the West very few new medical schools have opened since the 1970s. In the U.S. in particular I believe none have opened since then, and the existing ones have only marginally increased their student class sizes. Why isn't more being done to expand the supply at least so that it matches population growth? Note that with the growth in specialization and demand for specialists since 1970, we actually need more doctors overall since 1970 because of a larger population, but we also need more per capita, and the production of new doctors has not kept up at all.

2. In pretty much every other industry I can think of technology has done one of two things. One, is make stuff just plain cheaper in absolute terms. Food is a good example of this, it is a much smaller share of household budgets now than ever before, and is by and large much cheaper than it was 100 years ago. The other alternative is technology will create a better product for around the same cost. Cars inflation-adjusted are about as expensive now as they were in the 1980s. Part of that is because the car makers don't want them to get cheaper year-to-year, but at the same time technological growth and public demands (as well as government regulations) has meant car makers have to deliver "more car" for the same price. In 1980 only the nicest cars had safety features that are 15 years out of date now, many were sold without power windows, without air conditioning etc. Now, even sub-$20k cars are very safe, with side-curtain airbags, antilock brakes, etc. They have more creature comforts too, with Bluetooth, in car navigation, climate control, power windows etc. Cars may not be cheaper than they were in 1980, but we get a much better, safer car than we did in 1980 for the same inflation-adjusted dollars.

Medical care hasn't worked that way at all. Every new technological innovation has straight-line increased costs, period. Technology doesn't make care cheaper or give us more for the same money--it gives us more for more money. An unsustainable trajectory.