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Opinion: Are Hospital Bills Making the U.S. Economy Sick?

Markups for medical practices and supplies can be up to 10,000 percent more expensive than at the local drugstore

If you consider yourself up to speed about the U.S. economy, here's a pop quiz.

What sector accounts for one-fifth of the overall economy and bills customers from a secret price list stored in a computer called the "chargemaster" that no one knows how to control and that gets its numbers from who-knows-where?

Answer: the healthcare industry, a $2.7 trillion market that exceeds total healthcare costs in the next 10 highest-spending countries combined.

Much of that whopping figure comes from the common practice of hospitals billing all of their patients -- insured and uninsured alike -- from an inscrutable price list generated by the mysterious chargemaster, computer programs that differ wildly from one hospital to the next, even in the same city.

However you look at it, the chargemaster is out of control and threatens to bankrupt the nation, even as it has many a desperate individual faced with soaring bills.

Before going further, full disclosure: Much of the information in this column is derived from "Bitter Pill," a lengthy article by Steven Brill in Time magazine (March 4, 2013).

The cover of the issue shows a giant Tylenol tablet that costs 1.5 cents when bought by the bottle at the local Rite Aid or CVS, but which hospitals routinely mark up by 10,000 percent on price lists produced by the ever-ready chargemaster.

As if to confirm the Brill article, a recent front-page story in the New York Times reported the runaway costs of our country's highly profitable -- 30 percent or better rates of return – – hospitals, especially right here New Jersey.

Under the headline "Jersey Hospital Is the Costliest In the Nation," we learn that after it was taken over by a hedge fund, the former nonprofit Bayonne Medical Center "charges the highest amounts in the country for nearly one-quarter of the most common hospital treatments."

So much for the private sector showing how to reduce healthcare costs.

In one of many examples cited, the Bayonne facility was found to "charge $99,689 for treating a case of chronic lung disease, 5.5 times as much as other hospitals and 17.5 times as much as Medicare paid in reimbursement."

Examining a wider swath, Brill analyzed hospital bills from around the country and found the same egregious pattern of excessive costs being charged to patients, whether they went to for-profit or supposedly nonprofit hospitals, in state after state.

In one case, 42-year-old Sean Ricchi from Ohio was diagnosed with possibly fatal lymphoma, but had only a bare-bones health insurance policy after he and his wife started a small business.

His examination costs alone -- as billed by the ubiquitous chargemaster -- came to $48,900, every dollar of which was "due in advance."

That was just the beginning of the hospital horror show for Sean and his family.

His first round of chemotherapy cost him another $35,000, again, due in advance.

But what choice did they have but to pay? As his wife later explained to Brill, "he had a large mass in his chest that was growing . . . He was panicked."

So they borrowed again and again from family members to scrape together the money needed for treatment.

Brill described the relentless march of the chargemaster, including such aggressive markups as $283 for a "simple chest x-ray," for which Medicare reimburses the hospital at the princely rate of $20.44 -- less than a tenth of what the hospital was billing Sean for the same service.

Medicare payments -- by law -- must approximate a hospital's "actual cost of providing a service including overhead, equipment and salaries," as Brill emphasizes.

It should be noted that provisions of the 2010 Affordable Care Act may put a damper on at least some of these hyperinflated prices. One key piece of this much-maligned law will require hospitals to charge uninsured patients amounts similar to what they would receive in reimbursements from insurance.

Another clause will fund state efforts to increase transparency through databases that cover all insurance claims.

That's a good start, but it's no more than that, a tourniquet when major surgery is needed.

Meanwhile, it's no secret what the real costs of treatment are. The only mystery is why hospitals and other providers get away with charging so much more, to the point that Republicans and Democrats alike decry the rising national healthcare debt.

As Brill details, the massive overpayments go on and mind-numbingly on from one patient to the next:

  • $77 for boxes of sterile gauze pads that cost only a few dollars in the local drugstore;

  • $18 for a diabetes test strip that Amazon sells in boxes of 50 for about $27, or $0.55 each;

  • $6,538 for three CAT scans; Medicare would pay "about $825 for all three."

The Times recently examined one common medical procedure, the colonoscopy -- in which a doctor inserts a tiny TV camera into a patient's rectum in search of cancerous polyps.

The June 2 article, "Colonoscopies Help Explain a $2.7 Trillion Medical Bill," details more of what Brill discovered.

For example, one woman's colonoscopy bill was $6,385 when the procedure was done at a Long Island hospital. That turns out to be on the low side, compared with a North Carolina facility that charged $19,438 for the same procedure.

You get the picture, and it's not a pretty one. The only question is what are we going to do about this?

Hospital administrators, many paid six-figure salaries, cannot or will not explain the sources for their itemized chargemaster spreadsheets. Their typical justification, as recounted by Brill, is that the chargemaster billings are merely the "starting point for negotiations" with Medicare and private insurance companies.

But that makes no sense, unless, of course, you are a hospital administrator. The only rational starting point for negotiation is the Medicaid reimbursement rate which is based on actual costs.

When bills are hundreds of times actual costs, a discount of 30 percent to 40 percent does little to right the fundamental injustice. Moreover, an uninsured individual like Sean Ricchi, faced with a potentially life-ending diagnosis, has no bargaining power. Any effort by him to negotiate with the chargemaster-based hospital bill is simply a plea for mercy.

Let's consider a simple fix: Treat hospitals and the medical care industry as the equivalent of a public utility with rates set, however roughly, by a government agency whose decisions are based on a modest markup from actual costs.

Even if Medicare is not expanded to include everyone -- and Brill suggests that it need not be inclusive -- Medicare rates must be the legally mandated baseline for hospital and medical charges for all, insured and uninsured alike.

One more thing: Dump the chargemaster.

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