Medical Robbery

A sad story came on the radio last night about a couple who fell on hard times during the Recession. With the family income down, they decided to drop their health insurance. With precision bad timing, the wife started developing debilitating headaches. Persisting for some time, her husband convinced her to get them checked out in order to rule out anything really serious. So she underwent a series of diagnostic tests at a hospital. They ruled out anything other than migraines and was billed some $20,000 for services rendered. That's $20,000 they didn't have.

The crux of the story is that creditors can now garnish wages for all sorts of reasons. What used to be a means of collection restricted to child support, fines, and the like, can now be employed for consumer debt. So the collectors for the hospital began to garnish the lady's wages. For someone already having trouble make ends meet, this was a rude surprise. Presumably at the rate of a few hundred dollars a month, these garnishments will continue for years: America's broken healthcare market is breaking individuals.

The story made me wonder if collectors are preparing garnishment of my own wages for my son's emergency room bills. They have been eerily quiet, with no response to my protest over the level of charges. Maybe their greetings are going to show up in my paycheck.

Medical Robbery

Previous posts have described the pernicious effects of having no transparency in medical pricing: no one knows what a procedure or service is going to cost. The patient is at the mercy of the billing clerk. Comparison shopping becomes impossible. Price gouging can hide behind a curtain.

A few states have made faint efforts to correct this situation. Some have passed laws requiring the creation of a public website where consumers can consult the prices for different services. However, follow-up and implementation has been pathetic. An organization called the Healthcare Incentives Improvement Institute has done a methodical comparison of efforts at transparency by different states. Following an explicit methodology, it gives each state a grade on transparency. The results in this year's report gives an A to no state, a B to only Maine and Massachusetts, a C to Colorado, Vermont, and Virginia, and an F to every other state! New Hampshire had the distinction of going from an A last year to an F this year because the website it developed to report medical pricing mysteriously ceased to function.

True healthcare reform will have occurred in this country when no state gets anything below a C. Until that happens all we can do is funnel more money from other purposes toward healthcare and fight over who will get how much of that money. But those other purposes, the other items in both personal and government budgets, cannot keep feeding the medical beast forever. The data in the last posting should convince us of that. The data in this posting should convince us our representatives are not taking the problem seriously (yet).

Medical Robbery


It's been quite a while since I've posted anything here, travel and other writing keeping me busy elsewhere. Also, there is nothing to report in my battle over my son's emergency room billing. The providers have been eerily quiet; I keep waiting for the other shoe to drop, perhaps with a mean-sounding demand from a collection agency. Or maybe they're already busy trying to notch down my credit score. For indeed protesting against the cost of a healthcare service can end up in higher costs in other areas such as getting a loan.

Today I wanted to touch on the future, distant to me but perhaps not to younger readers. The Congressional Budget Office (CBO) is a non-partisan research arm of Congress whose job is, among other things, to provide forecasts of government spending assuming no changes in current law. A study released by them earlier this year forecast the future role of healthcare in total government spending. As a basis, they report that for the period 1974-2013 healthcare was on average about 25% of all other government spending besides Social Security. However, under current law by 2038 healthcare will be 113% of all other government spending beyond Social Security. That is, healthcare will cost more than national defense, infrastructure, justice, diplomacy, and every other activity of government combined! This vast and impossible increase is due to a combination of factors such as the aging of the population, but fully 40% of the total increase can be blamed on the rising costs for services.

So rising medical costs not only threaten our individual budgets but that of the nation as a whole.  We can venture to say that these rising costs can come to threat even our own national security. Therefore we know that healthcare is never going to get to a point that it will swallow more spending that the rest of government combined. The only question is whether the current generation with the reins of power will do something about the problem. If it doesn't the generation that follows will have no choice but to address it, albeit at a much larger cost to the nation. The first option is one of the motivators for writing this blog.

Medical Robbery

So what about Obamacare?

Unfortunately this has become a litmus test issue from which people derive their political identification and affiliation. Wild claims and counterclaims have gone on now for years along with judicial procedures going all the way to the Supreme Court. And more cases are on their way.

Among those claims and counterclaims there has been very little said about the main topic of this blog, the cost of American healthcare. Yet one of the most potent criticisms that can be laid against Obamacare is precisely that it does very little about medical costs. Instead it has focused on widening the access to health services to the previously uninsured which numbered in the tens of millions of people. So it is really health insurance reform rather than a bona fide reform of the healthcare system. The same market-destroying shenanigans of hospitals and pharmaceuticals can continue under Obamacare as they did before. 

Obamacare increases access to healthcare services in two major ways: by not letting insurance companies deny coverage because of current or prior illness and by offering subsidies to lower wage earners in order to make insurance more affordable.  But by not seriously addressing the pricing problem, it is just changing the pockets hospitals and pharmaceuticals get to pick. Instead of patients' pockets, they get their collective claws in those of the general taxpayer and of healthy individuals. Healthy, usually younger individuals will be forced to pay premiums to cover the scandalous prices the sick incur and the taxpayer will cover the scandalous prices the poor under Medicaid run up. But in the end the system remains broken and unsustainable, for the reasons we have stated in prior posts.

Having said that, Obamacare does deal with pricing in three small ways. One, it forces hospitals that receive federal funds to make the charge master public. If anything this provision will force hospitals to explain their fees to the media and the public. Of course, they will plead indigent care, PPO discounts, and a variety of other excuses that can be dressed up real nicely. Two, hospitals that call themselves "non-profit" and are thus free of federal taxation, will not be able to bill charge master rates to private patients. They will have to offer them the same "discount" they offer insurance companies. Unfortunately--and for unknown reasons--four years after passage of the law, regulations for implementing these two provisions have not yet been issued.  

The government is also moving toward a "bundled payment" system for Medicare patients. Since Medicare pays rates much lower than what hospitals charge everybody else, the hospitals get back by piling on the services they provide, often to the dying. A bundled payment is one sum for a given procedure, say a knee replacement. If the doctors and hospitals do everything right and efficiently, the payment can be generous. But if things don't go right, say a readmission becomes necessary, the hospital gets to charge no more, unlike at present. This may lead to better and lower cost medicine, if it ever becomes general practice. As stated in a prior post, some surgical centers are already using a "bundled" or an "all inclusive" payment.

The key question to both supporters and opponents of Obamacare is, how do you propose to keep medical costs down? Without a good answer to that question, the controversy becomes mere political theater.

Medical Robbery

So, like hospitals and prescription drugs, are American doctors overpriced as well? The answer seems to be yes and no.

There are indications that the number of doctors are kept artificially low so as to keep competition at bay. This is clear in medical schools who don't accept many an otherwise qualified student, not even counting qualified foreign students. The OECD statistics show that whereas there are 3.2 doctors per 1,000 people on average in rich countries, in the United States there are only 2.5. As we've said before, we'd need to have some 230,000 more doctors in the country just to come up with that rich country average. One would think that with that many more doctors, their fees would go down.

But things are not so simple. Doctor's pay varies tremendously by type of medicine practiced and even within the same type of practice. Uwe Reinhardt, a health economist at Princeton, reports that whereas the median income for a family doctor is $219,000, a neurosurgeon's median income is $656,000--almost three times as much. But the range for a family doctor is between $175,000 and $317,000 and for a neurosurgeon from $492,000 to over $1,000,000. So it is possible for a doctor within a given specialty to make twice as much as another.

You might say, these are all pretty high salaries compared to what regular people make. But folks who qualify for medical school don't belong in the average labor pool either. To be fair, they need to be compared to other high earners. In this sense American doctors don't seem to be overpaid in relation to doctors in other countries. In a study by David Cutler, another health economist cited in Forbes, looked at doctor's pay in relation to other high earners. General practitioners earned 92% of wages by other American high earners while specialists earned 137%. But specialists earn higher wages in all countries, not just the US. Looking at a group of 13 rich countries Cutler calculated that American specialists earned 94% of the average of specialists in the country group in relation to high earners in each country. General practitioners earned 98%. So by this measure, American doctors are paid just about average of what they should be earning.

I can cite other data, but the general gist is that doctors' wages are higher than what would prevail in a free market where every qualified individual could get a medical degree. But doctors' wages aren't patently out of line like hospital and prescription costs seem to be by any reasonable measure.

Maybe I'm now brave enough and start tackling Obamacare. Coming soon.

Medical Robbery

Well, the bill from the hospital finally showed up. So off goes a letter to them:

The bill in reference pertains to services provided to my son for dehydration on April 10. The entire bill amounts to $3,051 but excludes physician’s and pathologist’s services which were billed separately.

Considering the simple services provided, this billing is unreasonable and even scandalous! How can administering two bags of saline solution cost over $3,000? On what basis are your billed charges determined? I have priced the total bill to Medicare, and that sum is only $371.77 plus a co-pay of $74.35 for a total of $446.12. How do you justify charging me 684% of the Medicare rate?

I am prepared to pay for the services my son received, but I also expect to be billed a reasonable and fair amount. I don’t think six to seven times what a Medicare patient would pay is either reasonable or fair, nor would most citizens of this country. I respectfully request that you reconsider this amount.

Our previous discussions have brought up costs for hospitals and prescription drugs. But are doctors in the United States also overpaid? That's the discussion for the next installment.

Medical Robbery

Well, my son's billing issues started arriving. The way doctors and hospitals frequently work is that they hire billing agencies to take care of all invoicing issues. They also hire collection agencies to collect on unpaid invoices. Their large profit margins allow for all this downstream outsourcing.

In June I received a bill from Alcoa Billing Center in Tennessee for my son's ER doctor's services in Georgia. Despite the foreknown uselessness of doing so, I wrote a letter to the billing center:

  

I am in receipt of your invoice_____ for $992.00. This was for an emergency room consultation with Dr. ____ on April 10 when my son was dehydrated. He reports that he saw the doctor for maybe a minute.

I find this billing egregious, especially in light of the fact that the Medicare reimbursement rate for the diagnosis code (99285) is in the neighborhood of $175. On what basis or justification do I have to pay over four times as much as a Medicare patient receiving the very same services from Dr. _____? This is patently unfair. I know of no other instance where a professional would charge one customer at a rate four times the other.

I know Alcoa Billing Center is precisely that, just a billing service, but I request that this matter be referred back to Dr. _____ for review. I request that either the billed amount be readjusted or that an explanation be offered as to why it is fair and appropriate in light of the Medicare reimbursement rate.

Their response, as expected, was to simply send another bill for $992. I will send the same letter again, this time in a certified envelope to see if it gets someone's attention. Eventually I plan to offer them 150% of Medicare which I've had an outside party estimate to be $249.03.

Meantime I've gotten no bills from the hospital. I wondered why it was taking so long until my son got a call from a collection agency. Apparently invoices had already been sent but to another address, perhaps his school address. The school he's already graduated from.