Decoding your Medical Bills….
A reader recently send me this graphic on the costs of healthcare, which is interesting in many ways.
Created by: Medical Billing and Coding Certification
Some of this diagram I agree with, and some I do not, or at least what is implied by the information contained therein. Overall, the diagram is correct – American’s can’t afford healthcare. At least not the kind we try to provide. However, I don’t feel that the diagram really addresses why Americans can’t afford healthcare in an accurate way.
The diagram starts with a comparison of health care costs, showing what we know, which is that we spend more on health care per capita than any other nation.
The diagram goes on to refute ideas that the high cost of healthcare are because of demographic issues – obesity, smoking, etc.. I completely agree.
Finally, we learn why healthcare costs are so high… and here is where I think the diagram gives only part of the story.
Hospitals are overcharging….. Well, hospitals in most cases are not terribly profitable organizations. They charge a lot, but their costs are enormous. Its true that American hospitals charge more than hospitals in other countries. They are also under a level of adminstrative pressure not felt in other countries. We have a healthcare system that does not provide care for the uninsured, which shifts the costs onto those who do have insurance, and creates obscene charges for those who had no or little insurance, yet have enough money to potentially be billed anyway. The diagram is correct that itemized bills from hospitals can list ridiculous charges for seemingly tiny items, but in truth the hospital is just finding a way to bill for the tremendous number of costs that they cannot recoup, such as staff, insurance, and free care.
Hospitals are wasteful…… I find this a little off. Hospitals spend a ridiculous amount of money on administration, but its hard to call compliance with government and legal regulation a wasteful expense. I’d rather say that the regulations that our country imposes on our healthcare system demands and enormous amount of resources, which in the end provides little to no benefit for patients. Our country chooses to tightly medicine for the benefit of patients, and to meet these regulations hospitals must spend a great deal of money.
For example, if one were to review a hospital chart from a patient hospitalized for 7 days, you would find over 1000 pieces of paper in that chart. If one wanted to know what happened medically, which is putatively the reason the chart exists, you would only need about 20 of those pieces of paper. The remaining 980 are composed of hyperdetailed records of nursing activities, medication administration, and protocol adherence. These records are there for two reasons – 1) to document that the hospital met all regulations regarding the care of the patient and 2) to document the care of the patient in an infinitely detailed way in case the hospital and/or physician is sued over the care of the patient, with questionable efficacy in that goal.
So are hospitals wasteful? Yes, but only in that they must spend a tremendous amount of money to meet ridiculous government edicts like HIPPA, and to pre-document every potential future court case. I’d call this a problem with government regulation and lack of a proper malpractice system more than an actual problem with hospitals.
Outpatient care costs are massive…. I don’t get this part at all. Is it better to treat a hernia in the inpatient setting? No. Our country has a strong system for outpatient surgery, which is a cost saving measure, not a cost growing one.
Doctors are overpaid…. I think you had an argument here in the 1980 when we have a fee for service system and doctors had a habit of billing tremendous amounts of money for their work. But not anymore. I can spend an entire hour of office time with a patient and get paid less than two hundred dollars from their insurer. After paying my greater than 50% overhead (partially because of ridiculous regulation), I’m getting paid less than a plumber. Furthermore, I live in the only country that does not heavily if not completely subsidize medical education. Current medical students are coming out of medical school with three hundred thousand dollars or more in debt. On pure economic theory, one should not spend more for an education than one can expect to make in a year practicing in that career. Put that way, we’re actually massively underpaid. The country needs more primary care physicians, but in many cases students graduate with so much debt that they are nearly forced into a higher paying specialty job. Either that, or train for eight years post-college and the live on Top Ramen. If doctors’ educations were routinely paid for by the government through a program of public service, we would see a startlingly different distribution of medical specialties.
Insurance companies are charging too much…. Its nice to beat up on the insurers, but ultimately they base charges on what it costs to provide care for their enrollees. And that cost is enormous. Most insurers actually lose money on medical care, paying out more than they actually collect. The way they make money is through investment on the money they keep in float. That’s actually how all types of insurance works in most situations.
So now that I have argued against many of these points, I must make my case for why healthcare is actually so expensive, and here it is.
We spend too much on healthcare because we have no incentives not to.
That’s it in a nutshell.
We have a capitalist health care system, which means that each party involved ultimately has a financial stake in providing a service. Drug companies develop wonderful new drugs because they can charge a lot for them. Equipment manufacturers develop amazing new surgical technologies because they can charge a lot for them. Hospitals acquire and operate expensive MRI machines because they can profit from doing that. And patients want all of these services at an unlimited level of access because they don’t have to pay for any of it. And that’s ultimately it.
The people pushing the product make money, but the money being made doesn’t come from the people consuming it. This situation will lead to unlimited consumption, pure and simple. Its doesn’t matter what we are talking about. If gasoline were entirely free, the appropriate economic behavior would be to run your blender on the stuff. But because it isn’t, we find a more efficient way to run the blender. But not with healthcare. Despite the graphics claims of medical bankruptcies, by and large healthcare decisions in this country are made entirely independent of the costs of that care. As long as healthcare benefits people, this system will lead to infinite cost healthcare.
Politicians like to talk about rationing healthcare as if it were some kind of evil plot, when actually its exactly what we need. In order to control healthcare costs, one has to start with the acceptance that we cannot afford to spend an infinite amount of money on any quanta of medical benefit. We have to decide what we’re willing to spend, and then figure out some just way to distribute the costs and benefits to the citizens of the country. We have to find a way to control the costs of new medical developments, while still promoting its development.
Personally, I support a hybrid socialist/private model of healthcare delivery. But for any of it to work, America is going to have to stop feeling entitled to every possible treatment for every possible disease. And we’re not there right now.
Academic OB/GYN 
Nice piece — one thing I would say, though, is that we really don’t have a pure capitalistic healthcare system right now. All those regulations (which require layers of administration to comply with) were government mandated, sometimes because of patient pressure, but sometimes from pressure from big companies who are benefiting from laws that make it easier for them to have monopolies.
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I agree with most of this post, except for your support of a socialist model. I do strongly agree that Americans will have to stop feeling entitled to every possible treatment, but I think the main reason it has happened is because of third parties (both government and private insurance). The point of insurance should not be to use it as much as possible. People don’t walk around saying, “I hope I get in a wreck today, so I can use my car insurance”; or “I hope my house burns down…”; and certainly not, “I hope I die soon, so my survivors can get my life insurance”. These kinds of insurance are really fairly cheap, but they also cover only the big things — catastrophes. Car insurance doesn’t pay for balancing your tires or changing your oil; home insurance doesn’t replace water heaters.
There are many reasons that health insurance is so expensive, as you listed above, but one of the main reasons which you didn’t quite spell out, is that for some reason, we expect health insurance to cover **everything**, and we *want* to use our health insurance and we *do* use our insurance for everything, rather than it just covering the big things.
When we pay directly for things we use, we tend to think about things more, and weigh the value of things. When other people pay for something, we tend to use more of it. [How many of us have been at a restaurant when some generous person offers to buy everybody’s drinks or desserts, and suddenly we decide that we will have a drink/dessert after all, when before we had declined? Or, just simply going out to eat instead of staying at home? — we’re more likely to have dinner at a restaurant if someone else pays for it than if we have to pay for it ourselves.] This is where the third party comes in.
When a patient has health insurance, he does not pay directly for his health care. Most of his cost is the insurance premium (and his employer may pay most or all of this cost, though it may show up on his paycheck as a deduction) which he pays to the insurer rather than the doctor. When he consumes health care (has a doctor visit, a test, etc.), he pays little or nothing for it. Thus, there is a disconnect between what he pays and what he gets, so there is little impetus for him to keep his personal costs low — and in fact, there is every impetus for him to *maximize* his costs, since it doesn’t directly affect him, and “he pays for health insurance, so he’s gonna use it, by golly!” [In fact, this is why I think a socialist plan will ultimately fail — no personal reason for individuals not to consume as much as possible, since there is no direct cost to them. Government can impose rules and regulations in an attempt to keep costs low, but that’s bulky and expensive.] When my sister was pregnant this last time, she had an ultrasound every prenatal, even though she was low-risk by any standard. Why? Her insurance covered it. If she had had to pay for it, she might have had only one or even none at all, but since it was free, why not?
I’ve had several discussions on this topic through the years, and I’ve read and heard numerous comments from people in that similar vein — of doctors suggesting tests that were not really necessary, but when the patients protested, they were told, “Why are you complaining? it doesn’t cost you anything!” So, neither doctors nor patients (the ones primarily involved in the decision-making process) have much impetus at providing the best care at the best price nor avoiding unnecessary tests and procedures; and while patients may balk at intrusive tests, most of them are glad to go along with unnecessary tests because they believe them to be necessary or beneficial simply because the doctor suggests it, or just because they’re not paying for it, or perhaps even a form of “sticking it to the insurance company” or “getting my money’s worth”. And doctors may have an impetus to order unnecessary tests, as you mentioned above with the exorbitant hospital billing, to pay for other care they’ve given but can’t bill for, or just because they’re scamming the system.
There is little inherent self-regulation of such a system, but take out the third parties and make people pay for their own care at the time of service, and I bet you’d see a huge reduction in health care costs. [Insurance could be reserved for paying for big things (cancer, etc.) just like other forms of insurance pay for the big catastrophes.]
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Kathy – Thanks for your comments. We agree almost completely on all points.
I favor an insurance model where people buy only insurance that kicks in after $5,000 out of pocket expenses, combined with medical health savings accounts. We have this now, but I would like to augment it with a system where physicians and other service providers could negotiate rates directly with patients, while having most of payments still count towards the $5,000 cap. Such a system could be funded via employers or government subsidies based on income, or entirely by the patient for people with greater resources.
I’d very much like to be able to charge my patients for my time in the operating room at a reasonable rate, rather than accept a negotiated charge from an insurer. I have a skill set that I think is worth a certain amount of money for an hour of my time, and I think patients would agree. If I didn’t have to deal with insurance overhead, I could provide very high quality services for a reasonable amount of money.
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I’ve heard of several doctors who don’t take insurance and work on a cash-only basis. One doctor thought that he’d be pretty slow, and serve only people who didn’t have insurance; he was surprised when he found that many of his patients had insurance, but chose him even though they had to pay out of pocket. Then he found that his total cash prices were similar to the insurance copay that his patients would have had to pay anyway. He found (like you suggest) that he was able to keep his prices low once he didn’t have to deal with insurance. For instance, he was able to have just one secretary to make appointments and take the payment (due at the time of service), and he didn’t have to have a whole office full of staff to process insurance requests and rejections. [John Stossel, formerly with ABC and now with Fox News has written about or made a video segment about such doctors.]
Are you familiar with the Association of American Physicians and Surgeons [AAPS]? They have videos on YouTube and a facebook page on which they frequently share articles which deal with topics such as this. In one of them, they mention a doctor (in Tulsa?) that publishes his prices for services (including performing surgery) on his website. People were able to comparison shop; some of them started calling the other doctors and hospitals asking how much X surgery would cost, and many of them couldn’t quote a price, or quoted a price that was double this doctor’s quote. When the people told them the doctor’s prices, many of them magically discovered that they could in fact do the surgery cheaper. Transparency and competition lowered prices.
In short, I agree with you that the HSA should be the model of insurance, and that you should be able to negotiate prices just you and the patient; and if the insurance company does kick in and reimburse, that it would be between them and the patient.
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Kathy – You touch on something I think is key in this issue. The expectation that health insurance pays for everything! My husband loves to use an analogy about car insurance. I have great car insurance but they do not pay for oil changes. And if car insurance did pay for oil changes, the cash price would probably go up very quickly. To me, it seems like it might be best for consumers to be responsible for paying for their basic health care needs. However, this would require creating an environment where I can call up two or three physician’s offices and find out what a physical or vaccination costs, and make an informed decision about where to spend my money.
I think the point you make about some physicians ordering tests with little regard to cost is noteworthy. My husband recently made an appointment to discuss a minor problem with the doctor and ask if a certain blood test might be useful. She agreed, and along with it ordered a chem panel, CBC, and two other things which escape me now. My husband, who is not a scientist or medical professional, did not think to question the doctor about how necessary those other tests were. I personally thought all of them where a giant waste (though I’m not a physician). The extra tests cost us 68 bucks! I’m happy to pay that money towards needed tests or care, but as I said I suspect it was money wasted.
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Most of my life I’ve been uninsured, and every time I’ve called a doctor or nurse (which hasn’t been often), they were able to give me the “cash price” for their services. It gets a little more difficult when you’re talking about something like surgery, but even then it can be done — much like a house builder can give you an estimate, though your cost may be higher than what he thought it would be. I agree with you that it should be easier to do this — competition always brings prices down and improves services.
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I agree with you on this.
There are doctors who work on a cash-only basis, and refuse to deal with insurance companies. [John Stossel has written articles or made video segments about some of them.] One doctor in particular I remember found that his overhead dropped so significantly when he didn’t need to have personnel filing claims and dealing with rejections and hassling to get paid, that his cash prices were competitive with copays that people with insurance would have paid. He thought his clients would be entirely people without insurance, and was surprised that people with health insurance were coming to see him because he actually had time to listen to their problems and complaints (since he wasn’t forced by insurance and economic issues to squeeze too many patients into too few time slots), and not only that, but that he was charging them about what they would have paid as a copay — so they were getting better care while paying the same amount.
Check out the AAPS (Association of American Physicians and Surgeons) — they would probably agree with you on almost everything you’ve written here. They’re completely against Obamacare, so wouldn’t favor moving to a socialist system as you originally said, but I think they’d agree with this last comment.
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I think there is room for a national insurance program that pays for catastrophic care and hospitalization, as well as providing a medical stipend support on a income adjusted level.
Cash pay practices would work into this model quite well, and would be open to accept or not accept government rates for payment.
I think though, that if the US implements a national insurance policy, that most likely they will be able to push through legislation that requires participation as a requirement of licensure, at least for a certain number of years into practice.
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I have heard that end-of-life care is enormously costly and represents a disproportionate share of medical care and costs. My sister has been an ICU nurse for over 20 years in a variety of facilities and tells me about the families that “hang on” when all signs point to a quick demise if “heroic measures” aren’t attempted. I am certainly not advocating euthanasia, and much controversy surrounds these issues. But I can’t help but think that if families had to pay for a share of the extreme measures they were taking with their loved one, they might make different choices. What ethical approach can be taken in these situations?
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This is unquestionably a huge problem.
My mother died of pancreatic cancer, but before she died expended at least 30k of expenses in absolutely futile chemotherapy treatments. Her oncologist promoted the treatment as ‘for quality of life’ despite clear evidence that they would not impact the length of her life in any way.
Our country has an extreme fascination with life, both preserving it and the end and defending it to the death before it even begins. I think some moderation would be helpful on both fronts.
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“Our country has an extreme fascination with life, both preserving it and the end and defending it to the death before it even begins. I think some moderation would be helpful on both fronts.” Care to elaborate? I get the futility of preserving life when all signs point to imminent death as well as heroic, costly measures to save very sick,fragile babies. And this is where the controversy comes in, huh?
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