Nathan Sass

REACT: Bitter Pill: Why Medical Bills Are Killing Us – Steven Brill – Time Magazine

In Economics, Health Care Reform, Politics on February 26, 2013 at 11:33 AM

Steven Brill has authored a cover story for Time Magazine entitled Bitter Pill: Why Medical Bills Are Killing Us.  In his article, he discussed the experience of a patient diagnosed with cancer, who selected a treatment center in Texas that did not accept his catastrophic insurance coverage.

This of course left the patient to pay 100% of the costs of his care with his cash, out of pocket, and those costs were tremendous.

One might think that the point of the article was to push for single payer coverage, or some other political message, but it was not.

Mr. Brill, to his great credit, dove instead into the question of WHY those costs were so ridiculously high.  He highlighted the simple example of a charge of $1.33 for a single generic Tylenol, when a full bottle of those same pills on was $1.49.

He compared charge after charge to the Medicare reimbursement rate, and found that the hospital charged sometimes 100 times more to the patient he followed.

Towards the end of his piece he attempts to answer the “why” of these insane charges, and highlights the response of the hospital system that their charges and billing practices are in line with all other health care providers, which is sadly true.

Mr. Brill points to the excessive compensation of the executives of these non-profits as a possible proximate cause of the high process charged for the simplest of services.  He also highlights that the health care industry also spends 5 times the amount in lobbying that the much maligned defense industry does, and notes that this allows the prices to continue to rise.

With all due respect to Mr. Brill, I think he missed the most glaringly obvious cause of the insane pricing he discovered,  but he is far from alone in that.  The clues are found in the very first paragraphs of his article.  The cause of the overcharges is not excessive executive compensation, is it not lobbying spending, nor is it outright greed….those are EFFECTS not causes.

The cause of all these overcharges is INSURANCE itself, not the lack of insurance.  It is a system where the providers are allowed to bill a third party (insurance companies) and the consumer (the patient) never knows or cares what is actually ON that bill, or how much the charge of a generic Tylenol actually is.

The reason that these charges were exposed to Mr. Brill in the first place is because the patient didn’t have a third party writing the checks and paying those outrageous bills.  That means he saw EVERY SINGLE excessive charge for EVERY service.  Since most people ARE insured, though, these charges are allowed to hide in the shadows, and stories like this one are rare.  No one in the real world ever sees or cares how much that Tylenol costs, because they aren’t paying for it.

Mr. Brill would have not bothered to investigate this story if the patient had insurance, even though the bills would have been just as high, because the patient would never have complained in the first place.

Put another way, imagine that 99% of Americans were like Mr. Brill’s case study.  Imagine we ALL were billed directly for the services we received at our doctors office.  How long do you think a hospital could get away with charging a patient $1.33 for a single Tylenol?  How much business would they lose with prices that insane?  Wouldn’t people tell them to go to hell, and go to a hospital that charges the $0.13 that the pill actually should cost?

And that is the core problem we face in the US Health Care sector.  We have a system that is broken because the buyers and sellers never actually discuss the price for a service, but the purchase is made anyway and someone else pays the tab, at a price that is irrelevant.

Instead of addressing this simple economics-based core issue, we have spent decades trying to get MORE people on insurance, and as a result have managed to make the problem WORSE, not better.

When I explain this problem in regular terms to people I interact with, every single one of them eventually agrees with me that insurance is the problem, not the solution.  But that is a scary idea to promote, and is easily dismissed by “smart people” in DC.  It is an idea that requires explanation, and some degree of courage to advocate.  It also is not very popular with the providers who are getting rich with the current system, either.

In this space, time and again, I have written about the nature of the problem of the costs of health care.  (Read more here, here, and especially here.)

I have shown how when you let buyers (patients) consume without direct impacts to their own pocket book, they consume more with no regard for price.

I have illustrated how sellers (doctors and hospitals) have figured out that they can charge the most ridiculous prices and actually GAIN business in the process.

I have shown that the middle man (insurance companies OR the government) is virtually powerless to control price, and can only slow the spending down by limiting access to ever more expensive care (commonly referred to as “uncovered procedures” rationing”, respectively).

It is FAR past time that the US does what it has always done best – INNOVATE,  change the game,  shift the paradigm.

Maybe we need to consider that what we thought was the solution is really making things worse.  Maybe we need to accept that insurance (regardless of if the insurance comes from a company or a government) only makes everything worse.

I have outlined a workable solution to the economic issues of health care, but it is admittedly a bit radical, unless you accept the premise that the insurance model is the problem, not the solution.

(The proposal: Real Health Care Reform Plan – Version 2.0 along with a “case study”: Health Care Reform Plan in Action)

More people spending other people’s money on health care will only let hospitals charge even more ridiculous prices, and eventually the entity paying the bills will just start to tell people “no, you cannot have that service/treatment/drug/test/operation.  It is unavoidable, and we see that in Canada and Europe already starting to happen.

There is no villain here, either.  Patients aren’t doing anything they shouldn’t be.  Neither are providers or the insurance companies in the middle.  Every one of these groups is acting rationally in the system we have right now.

It is that system that is wrong.  Changing the system to more of the same (Obamacare), or changing the name on the side of the building of the third party payer from Insurance, INC. to US Dept of Health Insurance will not change anything, either.

The solution is painfully simple.  Make people pay for what they buy, give them a way to finance those charges, make sure that there is a limited and effective safety net that doesn’t distort the economics of the health care market, and make providers compete with each other on price and quality.

Does anyone with a platform have the courage to admit the truth?  Is there anyone left in places of power that is willing to offer an actual solution, instead of old ideas that have been tried and failed?  Is there even one politician with the courage of the innovators of America’s past that were willing to risk ridicule because they knew they had a better answer?

Mr. Brill has done a fantastic job showing the results of the third party payer US Health Care economy.  I would hope he would join me in advocating a solution to the problem he so clearly laid out in Time Magazine.

  1. Dear Dinner Table,
    it seems your analysis is completely off the mark – you missed that Mr. Brill correctly points out, that health care providers get reimbursed by insurers, such as Medicare, according to negotiated rates, which are much lower than the original amounts posted on the bill by the health care provider.
    In fact, I regularly inspect the notifications I receive of health care bills paid by my insurance, and almost always the reimbursement paid by the insurance amounts to only a fraction of the oftentimes ridiculous charges on the original bill.
    That being said, the reason why the patient in the story was faced with these outrageous bills, is precisely because he did not have an insurance carrier on his side to provide the necessary collective bargaining power to keep prices in check.
    It is quite obvious that health care providers quite unabashedly gouge those patients who are most vulnerable in times of greatest distress.
    Other countries such as Germany long ago have addressed these issues by compiling detailed catalogues of allowable maximum charges for all health care charges, practically amounting to a public “chargemaster”, which has the binding character of legislation. There are plenty of adjustment provisions for difficult cases and regional differences in provider cost structure. In addition, specialty health care providers are allowed to bill according to privately negotiated rates which are disclosed up-front as simple multiples of the rates set forth in the public “chargemaster”.
    This system de-facto ensures that the patient has the freedom of choice, while understanding the expected cost, and not being overcharged in a non-transparent manner.
    Why should it not be possible to do the same in this country?
    Does anyone believe that the quality of health care would sufer if the maximum allowable charge of gauze pads, band aids, tylenols or standard blood work were set by law?

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