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Hospitals: Crony Capitalist Mess

Hospitals: Crony Capitalist Mess
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The horror stories are legion.

A 64-year-old woman had chest pains and was taken by ambulance to a non-profit hospital. After three hours of tests, she was told she had indigestion and sent home. She did not have insurance. Her bill was $21,000.

Another patient was told he had non-Hodgkin’s lymphoma. He went to MD Anderson Cancer Center in Houston. The total cost for an examination, an initial dose of chemotherapy and a treatment plan (fee due in advance) was $83,900.

This patient was charged $1.50 for a single, generic Tylenol tablet, when an entire bottle can be purchased for that price elsewhere. A chest X-ray cost him $283, though the hospital typically charges Medicare patients $20 for the same test.

The son of an ANH-USA board member was throwing up and was taken to an emergency room by concerned friends. The initial bill was $8,000. The insurance company reduced the price to just under $2,000, which didn’t even include the doctor’s bill. An uninsured patient would have been charged the full $8,000.

Different hospitals charge vastly different prices – even from other facilities in the same area. One hospital in New Jersey, for example, charges nearly $100,000 for a procedure to treat chronic obstructive pulmonary disease; thirty miles away a different hospital charges $7,000.

For consumers, this is a bewildering, Kafkaesque system that is often impossible to navigate. How did we get here?

The vehicle behind these absurd prices is the Chargemaster, a hospital-specific compendium of all the items that a hospital can bill a patient for (or a third-party payer like an insurance company or Medicare). The prices are not determined by supply and demand but are purely administrative decisions. Hospitals are not required to make their Chargemaster public.

Here’s how it works, or rather doesn’t work. Insurance companies work out deals each year with hospitals to determine what insurance will pay for hospital services, on the premise that insurers have a lot of patients that will be needing hospitalization. So Blue Cross/Blue Shield can negotiate a reduced rate for its members that is significantly lower than the price listed in the Chargemaster.

Medicare works a bit differently. By law, Medicare payments are supposed to approximate a hospital’s cost of providing a service, including overhead, salaries, and equipment. But nobody really knows or cares what these costs are.

This system works brilliantly—for hospitals. According to one journalist, “In hundreds of small and midsize cities across the country…the American health care market has transformed tax-exempt ‘nonprofit’ hospitals into the towns’ most profitable businesses and largest employers, often presided over by the regions’ most richly compensated executives.”

Indeed, earlier this year we reported on ballooning medical bureaucracies that are increasingly taking control over medicine. We have also reported on how Medicare pays much more to hospital affiliated physicians, which has resulted in hospitals taking over formerly private practices and creating local monopolies.

Washington supports all of this because campaign contributions make this a paying business. Lobbying by the pharmaceutical and health care industries, combined with organizations representing doctors, hospitals, nursing homes, and other health services, totals $5.36 billion since 1998, far exceeding the totals spent by the defense industry ($1.53 billion) and the oil and gas industry ($1.3 billion) over the same timeframe.

ANH-USA has argued for a consumer driven health care system that enables people to buy insurance meeting their particular needs, and that incentivizes behaviors that help people stay well. Such a system would free the health insurance market of Obamacare regulations that are driving up premiums, while allowing those who wish to do so to keep their Obamacare plans.

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