Health Care Costs Are Running Amok!

In the U.S., health care costs currently run about 18% of the total GNP, and are growing at the rate of 5% annually. If the track continues, by 2021 we will be spending 31%, and the country will be essentially bankrupt. You can do the math. It is simply straightforward (18% X 5%, etc. etc.)

This is the single most important problem facing the United States. More important than Afghanistan (that can be fixed), Social Security (that can be fixed), the Defense Department budget (that can be fixed), and on and on. When 30% of the GNP goes to health care costs, this country will be unliveable!!

This importance demanded that reducing costs should have been the focal point of the Obamacare
bill, but it was never mentioned. In fact, using "relative effectiveness research" in setting Medicare payments was specifically prohibited in the Obamacare bill.

Today's column in the Los Angeles Times by David Lazarus puts a real face and real numbers on this problem. You will find it interesting and FRIGHTENING!!

latimes.com

Medical bills need reconstructive surgery

Prices are almost always inflated before being routinely discounted. Amid such financial flimflammery, it's virtually impossible for a patient to be a well-informed consumer of healthcare.

David Lazarus

6:40 PM PDT, March 24, 2011

Susan Kovinsky underwent outpatient surgery recently at Cedars-Sinai Medical Center. The procedure, a hysterectomy, began at 10:40 a.m. By 3 p.m., she was on her way home.

The hospital bill: $65,514.97.

"When I saw that number, I was sure it couldn't be right," Kovinsky, 44, of North Hollywood told me. "How could just a few hours in the hospital cost that much?"

Yet this is a story of the healthcare system working as it's intended to. Cedars-Sinai did its job. Kovinsky's insurer, Blue Shield of California, did its job. Kovinsky has no complaints about either.

But if we ever intend to get our healthcare spending under control, clearly there's much to be done to reform a system in which a relatively common procedure and less than a day in the hospital costs more than a fully loaded 535i BMW sedan.

Kovinsky's case is illustrative of the problem. Medical bills are almost always inflated before being routinely discounted. This is done by hospitals and doctors to boost their reimbursement from insurers.

The upshot, though, is that amid such financial flimflammery, it's virtually impossible for a patient to be a well-informed consumer of healthcare.

Kovinsky had what's known as a laparoscopic hysterectomy — a minimally invasive operation that allows a doctor to remove a woman's uterus by making three small incisions in the abdomen. The surgery is performed using instruments and a camera that are inserted under the patient's skin.

To be sure, this isn't a simple matter. It requires a certain level of expertise on the doctor's part. Even so, here are some of the charges from Kovinsky's hospital bill:

Operating room services: $35,629.65.

Medical/surgical supplies: $13,249.19.

Anesthesia: $10,217.68.

Recovery room: $3,455.13 (which, for just several hours of use, has to be one heck of a nice room; a full night's stay at the five-star Peninsula Beverly Hills costs a mere $495).

But the most striking aspect of Kovinsky's bill is that Cedars-Sinai deducted $34,526.39 as a "hospital discount to patient." The total cost billed to Blue Shield was thus $30,988.58.

The bill explains that the hospital "discounts for services covered by most insurance plans."

But you have to wonder: If Cedars can still make a profit billing about $31,000 for a laparoscopic hysterectomy, what's that $65,000 initial charge about? Why is the hospital inflating its bills by more than 50%? What's the actual cost of the procedure?

I spoke with several gynecologists to find out. Not one said they knew the true cost of performing a laparoscopic hysterectomy. Each hospital sets its own price, they said.

Patricia Kittell, Cedars-Sinai's vice president of patient financial services, was almost apologetic when I called to ask about the hospital's pricing. She readily acknowledged that no patient — whether insured or uninsured — actually pays the full price.

The problem is that government insurance programs like Medicare were able decades ago to negotiate deep discounts for program participants. Private insurers demanded the same treatment, and pretty soon it became standard practice for all reimbursements to hospitals to be heavily discounted.

"This is how all hospitals in the country are operating," Kittell said. "All charges are inflated."

Complicating matters even more, hospitals have different arrangements with different insurers, meaning that the discounted price charged to one patient could be significantly different from the price charged to another.

Although Kovinsky's operation ended up costing Blue Shield $30,000, Kittell said the same procedure under the exact same circumstances could have ended up costing another insurer as much as $40,000.

Needless to say, such billing procedures make it virtually impossible for a patient to know the actual cost of treatment, let alone to shop around for the best possible deal.

Kovinsky said Blue Shield didn't balk at her $30,000 bill. It covered the whole thing, except for about $400 in charges remaining under her $8,000 deductible. (Much of the deductible had already been accounted for by an earlier auto accident.)

"I actually felt bad for the insurance company — and I hate insurance companies," Kovinsky said.

As I say, this is how our system was intended to work. Patients receive first-class treatment. Private insurers cover most of the costs. Everyone's a winner.

Except, that is, the American people, who are saddled with sky-high medical costs as a result of a system that seems to price things willy-nilly, regardless of the actual cost of treatment or supplies (let alone the $509.60 Kovinsky was billed for "administration, processing").

Those costs, in turn, are reflected in ever-rising insurance premiums, co-pays and deductibles. Are the hospitals to blame? The insurers? Both, it seems.

If we're ever going to get our hands around runaway healthcare costs, we're going to have to introduce some transparency to medical pricing, along with some way of requiring that doctors and hospitals price their services fairly.

Insurers, for their part, need to standardize billing and reimbursement so that the medical marketplace becomes more open and efficient. Basically, it needs to become clearer how much things really cost and how much is really covered.

The current system is little more than a guessing game in which prices don't reflect reality and in which the consumer is deliberately left in the dark.

Kovinsky's experience shows that the healthcare system works. But not like we want.

Copyright © 2011, Los Angeles Times