An American Sickness

Neither the author nor I are providing medical or legal advice. The book also includes a glossary for medical bills and explanation of benefits, as well as templates for protest letters.

The Preliminaries

• The US spends more than $3 trillion a year on healthcare—nearly ⅕ of its GDP—but delivers worse health outcomes than other developed countries.
• Rosenthal’s ten rules of the medical market:
  • 1. More treatment is better, especially the most expensive option.
  • 2. A lifetime of treatment is preferable to a cure.
  • 3. Amenities and marketing matter more than good care.
  • 4. As technologies age, prices tend to rise rather than fall.
  • 5. There is no free choice; patients are stuck.
  • 6. More competition doesn’t mean better prices; prices can go up, not down.
  • 7. Economies of scale don’t lower prices; big providers just demand more money.
  • 8. There are no fixed prices for procedures or tests, and the uninsured pay the most.
  • 9. There are no billing standards; there’s money to be made in billing for everything.
  • 10. Prices will rise to whatever the market can bear.

Insurance

• Health insurance is fairly new; it began with Blue Cross, and the goal wasn’t profit, but to protect patient savings and keep hospitals afloat.
• Over the years, for-profit insurance companies proliferated and accepted only younger, healthier patients.
• The framers of the Affordable Care Act tried to require insurers to spend 80%-85% of every premium dollar on patient care, and insurers fought against it bitterly.
  • (In comparison, Medicare uses 98% of its funding for patient care.)
• Insurers usually don’t bargain for decent prices, and instead seek to cultivate loyalty from consumers. (“You saved 95%!”) It’s also less trouble for insurers to pay than to not pay; to cover loss, they increase premiums, thereby passing costs onto consumers.

Hospitals

• The cost of hospital services has grown incredibly fast.
  • From 1997 to 2012, the cost of services grew 149%. In 2013, the average hospital cost per day in the US was $4,300, more than 10x the cost in Spain.
  • There are virtually no market forces to curb their behavior, so they raise prices as much as they can. Financial concerns dominate patient concerns.
• Most insurers have hired care managers to determine what proportion of the bill to pay, and the gap between hospital bills and what an insurer actually pays became a chasm.
  • Some patients pay less and some pay more for the same care: Hospitals realized if a big insurer wouldn’t pay enough, they could require smaller insurers and the uninsured to pay more.
• Hospital consultants advise hospitals on how to bill to increase prices (forgoing billing “small item X” and increasing the amount billed for “medium item Y”), and the billed price could be completely decoupled from actual cost.
• Insurers have largely accepted facility fee charges for major outpatient care—literally an additional fee charged for using the facility/building where your care is dispensed.
  • Hospitals in other countries don’t have them, and US businesses don’t have them. Walgreens doesn’t bill a customer separately for its rent and electricity.
• Observation status is now lucrative and manipulated by hospitals, insurers, and nursing homes. The terms of out-patient insurance apply, so observation status typically means far larger co-payments.

Upcoding

• Some hospitals worried that doctors weren’t seeing enough patients. 
  • They decided that, instead of a fixed salary, doctors would be compensated in proportion to the relative value units (RVUs) of the care dispensed.
  • RVUs are a measure of productivity used to determine medical billing.

• Doctors are assigned RVUs according to exam complexity and treatment plans, which are coded on a scale of 1 to 5. A level 2 visit could be $60 and a level 4 could be $400. 
  • Some doctors coded expansively to make more money, and there were huge increases in level 4 and 5 coding.
• Places that have medical staff on salary still tie RVUs to productivity bonuses.

Certain hospital departments that aren’t as profitable (e.g., ER, labor and delivery, dialysis, drug treatment) are often let go.

• Hospitals enhance their most profitable sectors: orthopedics, cardiac care, stroke center, and cancer care.
• Hospitals started outsourcing their less profitable services, like dialysis, to for-profit chains where the care usually wasn’t as good.

Hospitals turned residents, who provide substantial medical services, into a profitable business.

• Senior supervising doctors, called “voluntary faculty,” are often not paid for their time.
• Residents also teach medical students, so hospital staff don’t have to do it.
• Researchers have estimated that the value of each resident is $230,000, but they’re usually paid between $50,000 – $80,000.

Hospital buildings have become more opulent and their executives earn millions.

• Not-for-profit hospitals are just as profitable as for-profit hospitals. And, they can avoid property taxes as well as federal, state, and local payroll taxes.
  • Most not-for-profits don’t provide anywhere near the amount of charity care that would justify the value of their tax exemption.
  • For example, the University of Pittsburgh Medical Center is its county’s largest property owner, and if it weren’t a nonprofit, it would owe the city $20 million in taxes every year.

Physicians

• Doctors deserve reasonable compensation, but what’s considered “reasonable” has escalated. 

For the first half of the 20th century, patients paid in proportion to their income.

• Now, physicians collect 98% of the charges they bill and insurers pay “usual and customary” fees by locality.
  • This means that if only six doctors in a zip code perform X surgery, “usual” is the mean charge and “customary” is the level that insurers would reimburse.
    • This creates incentives for doctors to increase rates.
  • For instance, in 2014, the “usual and customary” fee for gallbladder surgery in Queens, NY was $2,000 and 20 miles east, where there’s more private practice, it was $25,000.

Hidden doctors and their bills

• There are many doctors that provide “hidden” care, like pathologists, anesthesiologists, radiologists, and emergency medicine doctors. That is, they can provide out-of-network services in an in-network hospital, and you would not know until receiving the bill.
• They used to be hospital employees, but many are now corporate contractors.
  • These contractors typically don’t contract with an insurer, so their services are charged out-of-network.

Physician extenders

• A term that refers to the professionals who help doctors, including nurses, surgical technicians, physician assistants, and midwives.
• Some doctors bill for work done by the extenders as if the doctors themselves were personally dispensing the care.

Pharmaceuticals

• Medicine in the US is much more expensive than in other developed countries. (For example, an asthma inhaler costs around $8 in Australia and $100 in the US.)
  • Pharmaceuticals are the US’s most competitive industry, and it’s not about making a better drug, but getting people to use their particular medication.
  • The notion of “one drug, one patent” is gone. The average number of patents per drug rose to 3.5 in 2005, and is increasing.
• For much of medical history and into the 1980s, drugs were cheap.
  • But, successful drug therapy in response to HIV/AIDS shifted drug approval, pricing, and value—it made companies focus on continuous treatment, as opposed to a cure.
  • Drug advertising rose by over $3 billion from the 1990s to the 2000s.
• Pharmaceutical companies claim it takes over $1 billion to bring a new drug to market.
  • But, studies found that the actual average scientific research and development costs for a new drug costs between $43.4 million and $125 million.

There are many ways to extend a drug’s patent through twisting FDA policies and patent law:

• File a lawsuit. To receive a secondary patent, drugmakers only have to show that any new modification to a drug was “non-obvious” and “useful” (loosely interpreted).
  • For example, Pill A’s patent is about to expire. The creator can tweak it very slightly and file a secondary patent for Pill A.2, even though Pill A.2 and Pill A have the same medical effect.
  • Sometimes, to get a little more time with patent protections, companies sue the maker of the generic version, which triggers a 30-month “waiting period” for both parties to spend time litigating (so the patent is extended for 30 months).
• Modify the delivery by adding gel coating, making pills chewable, etc.
• “Pay for delay.” A drugmaker offers financial incentives to a generic producer to delay application so the only available drug will be the brand-name drug. It’s good for manufacturers, bad for patients.
  • Every six month delay in the release of generics means billions in profits.
  • The number of pay-for-delays has increased, and the result is no generic drug competition, which results in $3.5 billion in higher drug costs every year.
• Product hopping. Manufacturers switch medication from one form to another to prevent the launch of a generic (switching a capsule for a tablet, etc.). 
  • Generics must be identical in dosage and form to the brand-name for a pharmacist to substitute, so product hopping delays competition for years.

Pharmacy benefit manager (PBM). 

• There are only a handful of huge PBMs (Express Scripts, CVS, OptumRx).
• Insurers hire them to negotiate drug purchases with pharmacies. Insurers can’t compare medicine prices, but PBMs know all the deals and have huge negotiating power.
• The covered drugs and devices aren’t always the ones patients need most, but are the ones where the PBM has wrangled the best deal.

Losing generic drugs

• By the 2000s, many hospitals had hired group purchasing organizations (GPO) to bargain with drugmakers.
• GPO fees are based on a percentage of sales, so they have little incentive to promote cheaper drugs. As such, generic drugs are typically not chosen.

Medical devices

• The medical device sector devises new financial models and methods that are not heavily scrutinized; medical devices are frequently the biggest item on a medical bill.
• Most patients and insurance companies are billed ludicrous amounts for many medical devices, even though the devices themselves cost only a few hundred dollars.
• There are several classes of products, and manufacturers don’t have to prove that class 1 and class 2 products are “safe and effective.”
  • One doctor described how she used a new surgical clip to close off a blood vessel during a kidney transplant, but it came loose and the patient bled out.
    • She didn’t know that others also died because the device failed.
    • The clip required, but didn’t receive, appropriate testing.
• In 2011, Dr. Daniel Elliott, a urologist at the Mayo Clinic, often used a special type of sphincter, made by American Medical Systems. In 2008, the company came out with a new sphincter which would allegedly stave off infection.
  • Dr. Elliott didn’t notice a decrease in infection rates, and discovered the company had no good data. 
  • He urged his colleagues to use the older, cheaper valve. American Medical Systems responded by raising the price of the older valve so it was no longer cost-effective to use.

Testing and ancillary services

• Testing, medical equipment, and ancillary services (like physical therapy) are like booze in restaurants: high-profit-margin items billed for nearly any amount.
  • For instance, a 30-minute visit could prompt a blood test that costs three times as much as the doctor’s consultation.
  • Many insurers require no co-pay for these items once patients have met their deductible, so patients usually don’t care how much they cost.
  • In Japan, where a panel of doctors, economists, and policy makers determines the price for tests, an MRI costs $160 (as opposed to around $3,000 in the US).
• Preoperative testing is especially lucrative because they are often done on an outpatient basis, so they can be billed separately.

Contractors – billing, coding, and collections

• Many medical centers have turned their billing and debt collection to third-party contractors who are paid a percentage of what’s owed.
• Hospitals charge uninsured patients 2.5x more than they charge those covered by health insurance, and 3x more than what’s allowed by Medicare. Uninsured patients, unlike insurance companies, do not have the ability to negotiate prices for these services.

Medical coding

• Coding is a cryptic and constantly evolving language, through which the care provided by a hospital or medical office is expressed on claims and bills. It’s a shorthand language for different medical procedures.
• The financial stakes in coding are high.
  • There are three different coding languages, not interchangeable, so there are different medical coding degree tracks, along with professional exams, certifications, and licensure.
  • Highly skilled coders means higher costs for patients, as medical bills now also have to include salaries for highly skilled coders.
• Providers and insurers lobby for and fight over each code rule and revision.

Research and medical societies

• Many charitable foundations, including patient disease groups, don’t see themselves as research funders for cures, but instead as investors for treatments.
• Medical societies form super PACs
  • Medical societies and their PACs push for many laws that benefit only them.
  • For instance, an Illinois state representative proposed requiring physicians to inform patients whether they were covered by a patient’s insurance—to avoid surprise out-of-network charges—and the Illinois State Medical Society successfully lobbied to block it.

Conglomerates

• Healthcare systems typically characterize mergers as a way to provide seamless care.
  • This actually means more power over customers and insurers.
• Consolidation means a huge rise in prices, as conglomerates drive out competition.
  • The existence of one dominant healthcare system in a region can result in price increases as high as 50%.
• Doctors are pressured to refer patients for treatment within the system, which is usually overpriced.

What should change

Utilize fee schedules and national price negotiations

• Many countries (e.g., Germany, Japan, and Belgium) set national fee schedules for medical encounters, supplies, and medicines—Medicare already does this.
• National fee schedules mean far lower prices, and it’s much more efficient.
  • In the US, a heart sonogram costs between $1,000 to $8,000, but the negotiated price in Japan and Belgium is $150.
  • In the US, the VA and Medicaid bargain for considerable discounts. 

Insurance

• Single payer is when a single authority, usually the government, dispenses most of the money paid to healthcare providers, though private insurance still exists.
  • Used in countries like Canada, Australia, and Taiwan.
• The Medicare program is a good single-payer system, and could provide a path to a more extensive one.

Doctor training

• Cost and cost-effectiveness should be integrated into medical school curricula.
• Prices should be included on order sheets or hospitals should provide medical staff with a master price list.
• A doctor should be obligated to provide financial information.

Hospitals

• Provide patient-friendly price disclosure.
• Hospitals in your network should guarantee that those who treat you are in-network.
• Pursue charitable missions or pay taxes (states and municipalities should more aggressively challenge hospitals’ tax-exempt status).
• Create industry-wide standards for hospital billing and collection.

Manufacturers and regulators

• Allow people to buy medicine from other developed countries if the drugs are safe.
• Give pharmacists more prescribing power.
• The FDA should reform the patent process and revamp drug and device approval.
• Promote pharmaceutical transparency.
  • Currently, the government bodies charged with ensuring patient-centered health care can’t directly consider treatment, medicine, or device prices.

Doctors and professional organizations

• Pressure drug companies to deliver value and reduce prices.
• Make sure no one in leadership takes industry money.

What you can do

When selecting your primary care doctor:

• Is the practice owned by a hospital or licensed as a surgery center?
  • If yes, you or your insurer might pay outrageous facility fees.
• Will you refer me only to other physicians in my insurance network?
• If I need bloodwork or radiology testing, can you send me to an in-network lab?
• Will there be charges for phone advice? Is there an annual practice fee?
• If I’m hospitalized, will you see me in the hospital? What is your coverage on weekends?

When in your doctor’s office:

• How much will this test/surgery/exam cost?
  • “I don’t know,” or, “It depends on your insurance,” isn’t an answer. The doctor should give a range.
• How will this test/surgery/exam change my treatment?
• Which blood test are you ordering? What X-ray? Why?
• Are there cheaper alternatives that are equally good, or nearly so?
• Where will this test/surgery/exam be performed—at the hospital, a surgery center, or the office—and how does it impact price?
• Who else will treat me? Can you recommend someone in my insurance network?

When picking a hospital:

• Leapfrog Group grades all general hospitals on patient safety on a scale of A to F.
• There’s also information on Medicare’s Hospital Compare program, and Medicare’s Provider Utilization and Payment Data for Inpatient Stays.

When in the hospital:

• If you’re assigned to a private room, make it clear that you didn’t request it and can room with another patient. (Contemporary note: COVID-19 makes this hard these days.)
• In the admitting documents, there is usually one about financial responsibility for charges not covered by your insurer.
  • Before you sign, write in, “As long as the providers are in my insurance network.”
• Are you being admitted or held under observation status?
  • Hospitals can keep you for up to three days on observation status. You’ll be considered an outpatient, which is generally more expensive than inpatient. 
• Ask about the identity of every unfamiliar person who appears at your bedside, what they’re doing, and who sent them.
• If the hospital tries to send you home with equipment you don’t need, refuse it, even if it’s “covered by insurance.”

When dealing with bills

• If you get a large bill from a hospital, testing center, or medical office, negotiate.
• Request complete itemization of the bill—you have a right to an itemized bill.
• Protest bills in writing to create a record.
  • Send a copy of your letter to the state insurance commissioner or consumer protection bureau.
  • There are many online pricing tools, such as Healthcare Bluebook, Pratter, ClearHealthCosts, and FAIR Health, to help compare costs.
• Argue against surprise out-of-network bills. 
  • You went to an in-network hospital so that your care would be covered. You weren’t informed of other providers’ out-of-network status and didn’t consent.
  • You’ll pay only the co-pay you would have had to pay for an in-network provider.

Picking insurance

• The premium: The amount you pay each month to be insured.
  • Find out what percentage of your premium you’re paying, and how much is being paid in total.
• The deductible: The amount you pay out-of-pocket before insurance starts.
  • You need to be clear about your deductible and how it’s calculated. E.g., is the $3,000 deductible calculated per person or per family? Are there separate deductibles for in-network and out-of-network care?
• The co-payments and coinsurance: The patient’s contribution for each medical purchase or encounter.
  • Pay attention to how a plan structures its co-payments.
• The out-of-pocket maximum: The limit on how much you will be expected to pay in a given year.
  • Be clear about how your insurer defines these limits.
• The network: The collection of doctors and hospitals you must use to have the plan cover your care.
  • If you’re staying with your doctor, ask for the plans in which they participate.

When purchasing medicine and medical devices

• Many expensive prescription medicines are just reformulations of the same drugs repatented, not improved.
  • Ask your pharmacist or doctor if there are cost-effective alternatives.
• GoodRx.com gives the cash price of every medicine at pharmacies in your area.
• Be skeptical of advertising and marketing—the healthcare industry spends $15 billion a year on this. They want you to spend money.

When dealing with bills for tests and ancillary services

• Try to avoid having any test or service performed by an out-of-network provider; ask if your ordinary blood and fluid specimens can be directed to an in-network lab.

• What happens to small hospitals after consolidation
• The age of healthcare as pure business, and the age of the Affordable Care Act
• The enormous benefits of HMOs
• More creative insurance plan designs, such as reference pricing and bundling payments
• The American Medical Association and what its done in its desire for revenue
• The Physicians’ Desk Reference and why the pharma supply chain refuses to provide information on how much drugs actually cost
• How drug companies invented “co-pay assistance,” a form of corporate charity, to cover certain co-payments (guised as a donation) so manufacturers can still submit bills for the drug’s full price to insurers
• What to demand from state insurance commissioners
• Abuse of the resource-based relative value scale 
• How professional ambulance services became easy to monetize
• The negative effect of your medical information being dispersed over many offices, resulting in repeated tests and procedures, and the benefits of a universal, national program
• Examples for nearly each point made in this outline