Why medical bills are killing us.

[youbet]

I'm not sure you can believe them. You have to factor in the salaries that everyone is making. If the head of the hospital is making $1 million a year then it might appear that the net profits are not that high, but there may be a lot of people making a great deal of money. Read the article in Time about some of the salaries.

Excellent points.

While I want to believe that the Midpack chart points irrevocably to Big Pharma and the med equipment providers as the guilty culprits, because the chart is in percentages, it leaves the question open. It would be handy to know how the absolute quantity of profit dollars of Big Pharma compare to the total health care cost outlay in the USA today. The guilt may still be there, but we don't know from the percentage charts.

I also wonder how the non-profit status of many of the providers effects the numbers. Or how about tax supported providers? I wonder if perhaps a non-profit provider's revenue is nicely above costs, do they still count as "zero profit" for this set of data? That is, a hospital that would be making a nice profit as a private, for profit organization might have the same numbers counted as zero profit if they have non-profit status?

I'm not a fan of Big Pharma or of med equipment manufacturers, but I'm also not a fan of providers since their billing schemes seem arbitrary and aimed at bilking the system. It's doubtful readily obtainable numbers will ever point accurately to the real villians.

 

[bondi688]

Net profit margins of different industries

Industry Browser - Yahoo! Finance - Full Industry List

Those are data published in Yahoo finance on 2/15/13

Radio has the highest net profit margin at 63.6%
Hard to believe periodicals has a profit margin of 61% as number 2.
Drug manufacturers: 16.9%
Medical Instruments 14%
Perennial whipping boys like Money Center Banks and Major Integrated Oil and Gas are low on the list at 8.7% and 7.4%.
Hospitals are supposed to be at 4.8%
Major Airlines are at 2.9%

 

[devans0]

I have read a few articles in the past about people outsourcing their medical procedures, ie: flying to Rio to get a face lift, or to India for extensive medical care.
I am looking abroad for alternatives, but my face is past lifting.

One of the articles facts were that 69 percent of medically caused bankruptcies were from insured people. I don't want my DW to live in poverty if I should be hit with a catastrophic illness. However, I was brought up with a different ethos' that we let our pets die with more dignity than we give ourselves.

 

[youbet]

Drug manufacturers: 16.9%
Medical Instruments 14%

If we legislated new rules and brought these folks down to breakeven, would that materially affect total health care expenditures in the USA? That is, would the seizure of all their profit, in absolute dollars, be enough to cause the USA to be competitive with, say, Canada for health care costs?

Hospitals are supposed to be at 4.8%

As mentioned in my post above, I'm suspicious that average hospital profit margin calculations are impacted because many of them have non-profit status. Or some other similar tactic. My MIL is in hospital right now. Visiting her yesterday, I couldn't help but note that it's a real nice place, with lotsa fancy equipment, expensive looking cars in the doc's indoor parking area, a new addition being added, advertisements in the media trying to attract more business, etc., etc. My anecdotal observation could be totally off base. Still, it just doesn't seem like this hospital is "just barely getting by."

 

[bondi688]

You think that's bad. I once had a realtor charge me 90 thousand dollars to sell my house. Took her ten minutes tops to fill out the contract. Crazy world.

Were you trading up or down on your 1.8 million dollars house, assuming a commission of 5%?

 

[MichaelB]

If we legislated new rules and brought these folks down to breakeven, would that materially affect total health care expenditures in the USA? That is, would all their profit, in absolute dollars, be enough to cause the USA to be competitive with, say, Canada for health care costs?

Probably would help, but I suspect our health care cost crisis is much deeper than just this and will be much more difficult to deal with.

As mentioned in my post above, I'm suspicious that average hospital profit margin calculations are impacted because many of them have non-profit status. Or some other similar tactic. My MIL is in hospital right now. Visiting her yesterday, I couldn't help but note that it's a real nice place, with lotsa fancy equipment, expensive looking cars in the doc's indoor parking area, a new addition being added, advertisements in the media trying to attract more business, etc., etc. My anecdotal observation could be totally off base. Still, it just doesn't seem like this hospital is "just barely getting by."

+1

 

[travelover]

Probably would help, but I suspect our health care cost crisis is much deeper than just this and will be much more difficult to deal with. ...

I've gotta believe that if you follow the money you get to real answers. And at $8,000 per American per year, that is one heck of a lot of money. That is a tremendous incentive to obfuscate, deny, bribe, lobby, intimidate, you-name-it, to maintain the status quo.

 

[Gatordoc50]

Were you trading up or down on your 1.8 million dollars house, assuming a commission of 5%?

I sold and banked the 1.2 million profit.

 

[DeborahB]

I did think of something to add to this. Hospital pharmacies have to have each pill in a blister-pack with a bar code on it. This is so the nurses or whoever can scan it and make sure the patient gets the right drug. It raises prices of - say - Tylenol to astronomical levels. The question is, HOW astronomical? How much is the overbilling and how much is the real cost? The jury is out.

 

[samclem]

I think the article is a powerful argument in favor of, well, extending Medicare (or single payer) to everyone... The other alternative would be price controls.

Or, maybe something as close as possible to a free market in medical care provision. That amazing innovation whereby we coax increasing improvements in the quality and cost of goods and services in virtually every other portion of our lives.
This doesn't (necessarily) mean shopping around for an MRI when you're bleeding. It might mean shopping for a total care package by price and quality.

 

[Buckeye]

What real evidence is there that Medicare pays less than the cost of care. From what I have read (including the recent article in Time) I am skeptical that Medicare pays less than cost of providing. I am quite sure that some physicians don't feel Medicare pays enough and as a result those physicians choose not to accept Medicare (which is their right). That is not the same thing as saying they are receiving less than cost.

I'm sure that physicians and other providers would like to be paid more than Medicare pays but that doesn't mean to receiving less that the preferred amount means that provider is losing money.

+1

 

[travelover]

What real evidence is there that Medicare pays less than the cost of care. From what I have read (including the recent article in Time) I am skeptical that Medicare pays less than cost of providing...... .

The author points to huge billboards in Florida vying for Medicare patients. Seems like a lot of effort to incur a loss.

 

[MichaelB]

Or, maybe something as close as possible to a free market in medical care provision. That amazing innovation whereby we coax increasing improvements in the quality and cost of goods and services in virtually every other portion of our lives.
This doesn't (necessarily) mean shopping around for an MRI when you're bleeding. It might mean shopping for a total care package by price and quality.

Kenneth Arrow wrote "Uncertainty and the Welfare Economics of Medical Care" where he showed convincingly that health care was not suitable to a free market process. His paper can be found here.

 

[scrinch]

Or, maybe something as close as possible to a free market in medical care provision. That amazing innovation whereby we coax increasing improvements in the quality and cost of goods and services in virtually every other portion of our lives.

We have learned over the years that the free market way is the efficient way to do business. So I was amazed to read that Medicare's average cost to administer each claim is $3.80, while Aetna's average cost is $30. And of course Medicare's line item costs are lower than Aetna's also. As MichaelB writes above, the health care process apparently does not behave like a typical free market, and I'm not sure it can (or we want it to). Well, the Aetna's (and their employees and their shareholders) perhaps want it to be treated as a free market.

If price controls limiting industry profits, or opening Medicare to all ages (charging for <65 years old) were implemented, I wonder how many Aetna and Medtronic and Genentech jobs would be lost?

 

[Buckeye]

We have learned over the years that the free market way is the efficient way to do business. So I was amazed to read that Medicare's average cost to administer each claim is $3.80, while Aetna's average cost is $30. And of course Medicare's line item costs are lower than Aetna's also. As MichaelB writes above, the health care process apparently does not behave like a typical free market, and I'm not sure it can (or we want it to). Well, the Aetna's (and their employees and their shareholders) perhaps want it to be treated as a free market.

If price controls limiting industry profits, or opening Medicare to all ages (charging for <65 years old) were implemented, I wonder how many Aetna and Medtronic and Genentech jobs would be lost?

Profit margins would be less but would the companies sell more drugs and equipment because of the increased access to healthcare?

 

[BigNick]

European healthcare saves a fortune on drugs compared to the US because the single-payer systems mean that the government goes to the drug companies and tells them what they're prepared to pay. That the US government is not using its leverage in this way (as someone pointed out, the US spends as much in public funds on healthcare as somewhere like France) is bordering on the criminal, but that's what $5 billion in lobbying gets you, I guess.

Any American with a chronic condition visiting Europe should bring a repeat prescription and get it filled over here. My local pharmacist confirmed to me that provided it's legible and intelligible, any Rx for non-trafficable drugs will be honoured. We get stuff like Claritin for about 1/4 of what Americans pay, even if we're paying for it (and in practice, we then get most of the cost reimbursed by the system as well).

 

[Texas Proud]

European healthcare saves a fortune on drugs compared to the US because the single-payer systems mean that the government goes to the drug companies and tells them what they're prepared to pay. That the US government is not using its leverage in this way (as someone pointed out, the US spends as much in public funds on healthcare as somewhere like France) is bordering on the criminal, but that's what $5 billion in lobbying gets you, I guess.

Any American with a chronic condition visiting Europe should bring a repeat prescription and get it filled over here. My local pharmacist confirmed to me that provided it's legible and intelligible, any Rx for non-trafficable drugs will be honoured. We get stuff like Claritin for about 1/4 of what Americans pay, even if we're paying for it (and in practice, we then get most of the cost reimbursed by the system as well).

I was watching one of the Sunday political shows today and the author was on a panel... he suggested that lowering the age of medicare would actually save the system money....

They also brought up the drug costs... and it was Rattner (sp?, the car czar) who said that it would be good, but would save 'only' about $120 billion over the next 10 years...


I would like to get those savings.... not that much easy ways to save and this is one....

 

[samclem]

We have learned over the years that the free market way is the efficient way to do business. So I was amazed to read that Medicare's average cost to administer each claim is $3.80, while Aetna's average cost is $30.

Ah, when you understand what is included in these respective administrative costs the mystery will be solved.
In a nutshell, Medicare's administrative costs are limited to just the cost of cutting the check to the health care provider. The other costs of administering the program (especially the back-office coding costs in the doctor's office) are just rolled into the service provider's bill, becoming part of the denominator and thereby appearing to lower the percentage costs of the Medicare administration fees.
Usually these Medicare vs. Private comparisons are stated on a percentage basis. This greatly overstates the efficiency of Medicare because Medicare patients tend to have chronic conditions that require expensive care but, by their repetitive nature, have relatively low admin costs when expressed as a percentage. Private insurers are dealing with a larger number of unique cases. When stated on a cost-per-beneficiary basis, private insurance has lower administrative costs than Medicare.

Finally, to the extent that Medicare has low administrative costs because they fail to adequately validate claims and search out abuse/fraud in the system, it certainly is a pound-foolish way to "save money."

 

[meierlde]

Finally, to the extent that Medicare has low administrative costs because they fail to adequately validate claims and search out abuse/fraud in the system, it certainly is a pound-foolish way to "save money."

Which does raise an interesting question, which costs more the fraud and abuse or the work to detect it. If it cost 1.20 to find 1.00 of fraud and abuse, then let it happen its cost effective. One has to make a business decision on how much to spend on the policing of claims. (just like police make a business decision on how much time to spend on a case, depending on the case, in a large city a breakin of a house that no one is home at, just means taking the report. In a small town it means more because it will make the front page of the local paper.

 

[samclem]

Kenneth Arrow wrote "Uncertainty and the Welfare Economics of Medical Care" where he showed convincingly that health care was not suitable to a free market process. His paper can be found here.

Thanks for the academic paper. Arrow's 1963 analysis lays out several failures of the health care "insurance" market, a case that hardly needs to be made anymore as the failures of our present (non) system are on full display. I don't find his paper to be a refutation of free market processes in medicine, but instead a description of how the fee-for-service model as implemented in the US fails to hew to these processes.

So, some actual data: There area few instances where patients still pay for medical services directly, cosmetic surgery is one of these. Because these particular services are generally not covered by medical insurance, patients are able to compare costs and make their own decisions on medical procedures. This paper is one of many that clearly shows the impact on costs:
Cost change: 1992 - 2005
General Inflation (CPI): 40%
Health Care: 70%
Medical Services: 80%
Cosmetic Surgery: 20%

Surgery to correct vision problems (PRK, LASIK, etc) is another specific health-care area unsullied by the effects of health insurance. These procedures have among the highest patient satisfaction rates and real costs are actually dropping over time.

These are encouraging cases of a decrease in direct health care costs, but they don't in themselves demonstrate the even bigger benefits of allowing consumers to shop not just for medical services but for medical insurance. When they can do that we'll see decreases in the even more important factors that drive up the cost of medical care in the US (e.g. failure to coordinate care, rewarding excessive procedures rather than improvements to patient health, etc)

 

[samclem]

Which does raise an interesting question, which costs more the fraud and abuse or the work to detect it.

Aetna and other private insurers have to make this business case every day--you can bet they are spending only an amount that saves them more than they spend.
Medicare administrators have no such direct financial interest in reducing fraud or abuse.
We can all make our own assessments of which system is likely spending the appropriate amount needed to detect fraud and abuse.

 

[scrinch]

These are encouraging cases of a decrease in direct health care costs, but they don't in themselves demonstrate the even bigger benefits of allowing consumers to shop not just for medical services but for medical insurance.

If only all medical procedures were elective and one could take one's time to shop around for them. If only there were lots of alternative chemo drugs for every type of cancer, and the drug companies competed on price for cancer patient business. If only hospitals made cost-competitive invoices to their uninsured patients instead of trying to charge ridiculously, immorally high rates 5x to 10x as high as patients with Medicare or private insurance. Then I might believe we could leave heath care to the free market.

History seems to teach that the corporate responsibility to earn profits for shareholders is in contrast with being strictly competitive in the marketplace (and with protecting the environment and with worker safety and with consumer protection, etc) unless there are a few regulations set forth to remind those corporations how to behave and how not to behave.

 

[Katsmeow]

So, some actual data: There area few instances where patients still pay for medical services directly, cosmetic surgery is one of these.....
.....
Surgery to correct vision problems (PRK, LASIK, etc) is another specific health-care area unsullied by the effects of health insurance. These procedures have among the highest patient satisfaction rates and real costs are actually dropping over time.

Without belaboring the point unduly, I think it is clear that those areas don't really compare to the many factors that make the healthcare market different from other markets.

Cosmetic surgery and vision surgery can be planned for in advance and are elective. They are also relatively simple.

I have had LASIK surgery. I could (and did) spend months researching it. I researched the surgeon and the surgeon. This was some years ago when it was still a newer surgery. In point of fact, I didn't choose the least expensive option. I actually chose the most expensive option as there were factors that were more important to me than cost.

The point is that I could spend a lot of time learning about LASIK, learning about surgeons, visiting online message boards, etc.

I would also point out that all the time I was doing this. I was, well, healthy. Contrast that with someone who is in the middle of a heart attack (great time to research costs) or has just been diagnosed with cancer or even when I broke my ankle (I was just barely able to choose a hospital for the ambulance to take me too but wasn't in a position to compare costs).

Also when I had LASIK or if I was having cosmetic surgery - those are elective surgeries. Had LASIK been too expensive I would have simply not had the surgery.

Also, in having LASIK I spent months researching and learned a lot about LASIK (I learned so much that at one time I had a web site on LASIK that was one of the most visited sites on the web). But I'm not a physician. I can't do that kind of research on every medical problem I might have. And, LASIK is relatively simple. Compare that with deciding what is the best cancer care and how to compare costs. I don't think it is practical to expect the individual to be able to navigate that and compare costs.

I do think it should be easier for people to compare costs. I think that would be useful.

But I don't that the healthcare system can be solved by simply telling everyone - go figure it out on your own and no insurance for you (and if you can't afford care, then tough - skipping LASIK due to cost is one thing, skipping chemotherapy due to cost is something else entirely).

 

[jambo101]

Why healthcare is killing us? greed would be on the short list.
Infuriating Paragraph About The Health Care System - Business Insider

As a Canadian i'll never understand why America tolerates such an outrageous health care system..

 

[bUU]

America isn't a of a single mind.