Health Care Costs: End Of The Phony War?

By Todd Hixon

Steven Brill has received a lot of attention for an article published recently, Bitter Pill: Why Medical Bills Are Killing Us. Brill illustrates through a series of case studies two things: why medical costs are out of control, and how the impact of this on individuals can be devastating, especially on middle class people with some assets who thought they had insurance cover and suddenly have a $300,000 hospital bill. He points to the same driving forces for high costs that I and others have discussed before: the concentrated regional power of hospital groups, very high prices by world standards for most medical services/products, and over-utilization driven by wrong incentives (more).

28 November 1939 — soldiers playing cards in front of a dug-out named “10 Downing Street”. Image via tumblr.com.

I am strongly moved by Brill’s stories about average families struggling with devastating disease that are blind-sided by overwhelming medical bills, and the callousness of the “non-profit” hospitals that mark up common items, pad bills outrageously, and then un-leash the bill collectors. He points out that many “non-profit” hospitals are in reality nicely profitable and pay their CEOs million dollar salaries (and their CFOs nearly as much, which is a sure sign of a bottom-line-oriented business).

Brill also turns his spotlight on medical device and pharmaceutical companies, which maintain very high prices and profits in the U.S., protected by Congress from attempts by Medicare to negotiate better prices.

In many cases hospitals take these high drug and device prices and mark them up 2x-5x on the patient’s bill. Brill tells the story of Steve H., who had day surgery to implant a medical device in his back, and came home with an $87,000 hospital bill. $49,000 was the charge for the medical device, for which the hospital pays about $19,000. Then comes the nickel-and-diming: $24 charge for a dose a Niacin, a vitamin that retails for 5 cents, or a charge of 100x retail price for a dose of Acetominophen, which is generic Tylenol. Steve is a union man, but his insurance payout capped at $45,000, so his day in the hospital cost $40,000 out of pocket.

Any one of us could be financially crushed by health care costs in a day if it turns out that our insurance umbrella has a tear in the wrong place, or if we can’t afford robust insurance but are not poor or old enough to qualify for government health benefits. The health care industry is well defended in Washington, but the level of financial pain, and the extent to which providers do embarrassingly well by doing good, is rising to the action threshold, perhaps?

At the start of World War II, after war was declared, very little happened for half a year. This came to be called the “Phony War” or “Sitzkrieg”. It ended suddenly when German forces surged through the low countries, conquered France, and threw the British into the sea at Dunkirk. The period since the Supreme Court affirmed the ACA last summer has been health care’s phony war: lots of entrenchment but little actual engagement in the real struggle, which is controlling cost.

Brill’s article may be one of the first salvos of the real battle. I hope so.


[This post first appeared at blogs.forbes.com/toddhixon on March 20, 2013.]

One clap, two clap, three clap, forty?

By clapping more or less, you can signal to us which stories really stand out.