Reactions: Time Magazine On The 10,000-Percent Hospital Tylenol Mark-Up

Time's "Bitter Pill' cover

Time’s “Bitter Pill’ cover

After Rachel and I put on a presentation about CommonHealth at an MIT conference recently, an older man came up to us and said something like, “It is a disgrace — a disgrace — that health care in America is a business that milks the sick for money. That’s what you should be writing about.”

I thought: “Everybody already knows that.” But also, “He’s right.” And this week’s media flurry around Time magazine’s recent cover story, “Bitter Pill: Why Medical Bills Are Killing Us,” shows that even if everyone does know it, we can never be reminded too often, or stop exposing the system’s concrete harms and discussing how they should be fixed.

The piece runs 24,105 words and was penned by uber-journalist and Court TV founder Steve Brill. If you don’t have a 24,000-word chunk of time, here’s a bit of Time managing editor Richard Stengel’s introduction:

“It’s a $5.8 trillion market, but it’s not a free one. Hospitals and health care providers offer services at prices that very often bear little relationship to costs. They charge what they want to and mostly – because it’s a life-and-death issue — we have to pay…[Brill] employs a classic journalistic practice: He follows the money, and he does it right down to the 10,000% mark-up that hospitals put on acetaminophen.”

…If the piece has a villain, it’s something you’ve probably never heard of: the chargemaster, the mysterious internal price list for products and services that every U.S. hospital keeps. If the piece has a hero, it’s an unlikely one: Medicare, the government program that by law can pay hospitals only the approximate costs of care. It’s Medicare, not Obamacare, that is bending the curve in terms of costs and efficiency.”

Indeed, one of Brill’s central takeaways is that it would save money to lower the age of Medicare eligibility, rather than cutting Medicare as some propose. That’s an entertainingly counter-intuitive idea, but commenters on his piece offer some far bolder thoughts.

In The New York Times today, the economist Uwe E. Reinhardt proposes, “Why not make it illegal for hospitals to charge uninsured people more than X percent of what Medicare pays for a procedure?”

On Wired.com, science writer David Dobbs responds with a health-cost horror story of his own under the grabby headline “Actually, Mr. Brill, Fixing Healthcare Is Kinda Simple.”

But mostly he gives credit to Slate’s Matt Yglesias for a superb response, and I second his vote. The full Slate piece is here. Yglesias points out that the “analytic core” of Brill’s opus is that “when it comes to hospital prices, who pays determines how high the price is.” Hospitals price-gouge, particularly when patients are uninsured, and insurance companies use their bargaining power to push back, though that’s hard when the hospitals have more power. Medicare, given its huge size, can bargain hardest against hospitals and thus keep costs lowest. Yglesias writes:

I can see two reasonable policy conclusions to draw from this, neither of which Brill embraces. One is that Medicare should cover everyone, just as Canadian Medicare does. Taxes would be higher, but overall health care spending would be much lower since universal Medicare could push the unit cost of services way down. The other would be to adopt all-payer rate setting rules—aka price controls—keeping the insurance market largely private, but simply pushing the prices down. Most European countries aren’t single-payer, but do use price controls. Even Singapore, which is often touted by U.S. conservatives as a market-oriented forced-savings alternative to a universal health insurance system, relies heavily on price controls to keep costs down.

For reasons I do not understand after having read the conclusion twice, Brill rejects both of these ideas in favor of meaningless tinkering around the edges. He wants to alter medical malpractice law, tax hospital operating profits, and try to mandate extra price transparency. That’s all fine, but it’s odd. His article could not be more clear about this—health care prices are high in America because, by law, we typically allow them to be high. When foreigners force prices to be lower, they get lower prices. When Americans force prices to be lower (via Medicare), we get lower prices. If we want lower prices through new legislation, the way to get them is to write laws mandating that the prices be lowered.

Readers, did anybody else have the feeling that when it came to solutions, Brill was just “tinkering around the edges”?

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  • DoctorDoctor

    What I have yet to read or hear is an in depth perspective on health systems and hospitals that are traded on the stock exchange. I have some trepidation with regard to being a patient or receiving health care from an organization driven by corporate motives to enhance share price on the stock exchange. Enormous CEO salaries and bonuses are directly linked to profit making. Stock performance linked to quarterly financial performance and not quality of care.Reduce expenses and maintain or increase profits while ” guiding” to next quarter estimates is ” good business. Is that synonymous with “good healthcare”? Having worked in hospitals employing this model I can say “no”. If one is not familiar with the concept of “low bid” goods utilized in health care then it’s possible one could also believe in the tooth fairy. There is much to be undone and the hospital business model is the Gordian Knot.

  • jbate

    As a Medicare recipient, I can tell you that after a short hospital stay, Medicare sent a ball rolling down the hill that I could not stop. It (Medicare) required me to have at-home therapists and devices I didn’t even order. No ones going to do anything about this anyway. My son who has no insurance paid double at an emergency care center. The rich get richer and who cares?

  • http://www.facebook.com/crystaljoypepin Crystal Joy Pepin

    I read Yglesias’s article first, this one second, and am working through Brill’s now. What Yglesias fails to understand (and so far in the Brill article) is how the healthcare system came to be so upside down.

    When HMOs first showed up, they promised doctors more patients and, in theory, more revenue. As more and more doctors and hospitals signed contracts with these insurance companies, the reality set in. Insurance companies would send them patients, lots of patients, but they wouldn’t fully reimburse the doctors and hospitals for those visits. So what did doctors and hospitals do? They increased their prices. Let’s say an average visit to a doctor was $100. Insurance decided that they didn’t want to pay $100, so they’d reimburse the doctor 70%. The contract between doctor and insurance company often had a clause that wouldn’t allow doctors to collect the remainder of that bill from the patient. The doctor is faced with a 30% pay cut. In order to keep their practice going (or their hospital running), they have to increase their cost. Let’s say they up that cost to $130. They now bill everyone that amount, hoping to get back at least $100 (their original cost) back from the insurance companies.
    Now, if all patients were insured, this wouldn’t be a big problem. This would be an internal struggle between doctor and insurance, and the hyper-inflation would go unnoticed. But the hyper-inflation is felt by everyone uninsured. No amount of negotiating power from Medicare (who has contributed to this inflation), HMOs, etc. will lower hospital and doctor costs. What needs to happen is a even, competitive market where insurance companies can’t pick and choose what percentage to cover (or what to cover for that matter). These insurance companies are profit-makers. They make medical decisions for patients every single day by telling you (the patient) what is covered and what is not. When we can fix that, we can get the hospitals and doctors to lower their costs.

    • http://www.facebook.com/profile.php?id=703527977 Charles Dayton

      I think you might have missed the part that talks about the $740 BILLION in profits the ‘non-profit’ hospitals are making. That’s a far cry from making up for a 30% pay cut.

  • http://www.facebook.com/crystaljoypepin Crystal Joy Pepin

    I read Yglesias’s article first, this one second, and am working through Brill’s now. What Yglesias fails to understand (and so far in the Brill article) is how the healthcare system came to be so upside down.
    When HMOs first showed up, they promised doctors more patients and, in theory, more revenue. As more and more doctors and hospitals signed contracts with these insurance companies, the reality set in. Insurance companies would send them patients, lots of patients, but they wouldn’t fully reimburse the doctors and hospitals for those visits. So what did doctors and hospitals do? They increased their prices. Let’s say an average visit to a doctor was $100. Insurance decided that they didn’t want to pay $100, so they’d reimburse the doctor 70%. The contract between doctor and insurance company often had a clause that wouldn’t allow doctors to collect the remainder of that bill from the patient. The doctor is faced with a 30% pay cut. In order to keep their practice going (or their hospital running), they have to increase their cost. Let’s say they up that cost to $130. They now bill everyone that amount, hoping to get back at least $100 (their original cost) back from the insurance companies.
    Now, if all patients were insured, this wouldn’t be a big problem. This would be an internal struggle between doctor and insurance, and the hyper-inflation would go unnoticed. But the hyper-inflation is felt by everyone uninsured. No amount of negotiating power from Medicare (who has contributed to this inflation), HMOs, etc. will lower hospital and doctor costs. What needs to happen is a even, competitive market where insurance companies can’t pick and choose what percentage to cover (or what to cover for that matter). These insurance companies are profit-makers. They make medical decisions for patients every single day by telling you (the patient) what is covered and what is not. When we can fix that, we can get the hospitals and doctors to lower their costs.

  • Brian Rosman

    The Brill article is a serious indictment of the failures of the medical payment system.

    Brill focuses on the “chargemaster,” the inflated list prices that no one is supposed to pay. Except, as he points out, the uninsured and underinsured are billed at these prices. Those who can least afford it are charged the most.

    We support a bill (H. 1051) introduce by Rep. Sanchez, chair of the Public Health Committee. The law requires hospitals to charge moderate and low income patients no more than the MassHealth rate, which would provide steep discounts. It also restricts many egregious bill collection practices that providers use.

    Brill’s solutions also leave out an obvious fix, one that is being pursued in Massachusetts and elsewhere — to reduce the use of fee for service billing. Under global and bundled payment systems (like the system that Medicare uses for hospitals), providers don’t charge for each gauze pad or aspirin, because the total price is negotiated for all the services included as part of the care.

    Health Care For All would encourage readers to join us in building a movement to protect consumers in the health care system.

    Brian Rosman
    Health Care For All
    rosman@hcfama.org

  • jefe68

    What the article did show was that our health care system is broken.

    Mr. Brill’s solutions were paltry in my view. He wrote about one awful experience after another of obvious price gouging and what I would call legal extortion. The reason hospitals charge absurd prices for gauze is because they can. The huge salaries of the CEO’s is a problem but that is more of a reflection of how all CEO’s and other higher management are grossly overpaid in this country. But that’s a different article.

    Tinkering around the edges wont work. In my view we need to rebuild our healthcare system from the ground up. I doubt any overhaul of our healthcare system will ever happen. Not with the dysfunctional Congress that can’t seem to do anything. the irony is the Congressional dysfunction seems to be a chronic condition .

    I suspect there will be more articles like Mr. Brill’s that exposes the extortion racket that our health care system has become. People will become outraged and point fingers, but nothing will be done.

  • riverwaif

    Agree with Byron that Medicare “coverage” is pathetic in terms of acually covering what is considered “standard” heath insurance. Its payment and coverage rules are convoluted, archaic, and, in my opinion, dysfunctional and contribute to, rather than alleviate, the waste in our so-called health care system. That said, there is room within the basic concept of Medicare to build a delivery and payment system that actually works for people and that does not bankrupt people and our public coffers. But it takes total rethinking about whom the “system” should serve…providers or people…and a total shake-up of the bureacratic mentality at CMS that clings to formulaic mouse-speak. Ye, Brill was just nibbling aound the edges. We need something much bolder…and freed from the heavy, suffocaing cloak of 1950′s, 1960′s thought, concepts and approaches…in what other realm of our lives would we still accept such an out-dated way of “doing business?” Not in communication, banking, entertainment, travel, and on and on….

  • Dennis Byron

    Whomever said:

    “It’s Medicare… that is bending the curve in terms of costs and efficiency.”

    simply has no understanding of what Medicare provides in terms of benefits or current knowledge of how the U.S. Medicare system delivers on the little bit of help to seniors that it promises (in return for 50 years of paying into it and a continued $105 a month after joining Medicare).

    Efficient? Recent research (by the GAO I believe) said Medicare wasted $44 billion a year, which is about 15% of the amount administered by the insurance companies in charge of the Fee for Service (FFS) part of Medicare. (The capitated, accountable-care part of Medicare does not waste money by definition except to the extent that the capitation is a factor of the FFS insurers’ spending in your county.) And Medicare’s former director, Dr. Berwick, said that Medicare (and Medicaid I think) wastes 20-30% of what it spends, twice the GAO estimate.

    But more important is the fact that Medicare is terrible insurance. It covers less than 50% of beneficiaries’ healthcare costs on average (and therefore does not contribute at all to bending any curve). Worse, it does not provide what any sane person would expect of insurance of any kind: protection against the worst case. Except for the newer C and D Parts of Medicare, Original LBJ-era Medicare totally lacks catastrophic coverage and exposes seniors to financial ruin.

    Any thought that the rest of the country should be subjected to that lack of value and poor performance is insane.