Why are Americans Getting So Little in Return for the Highest Medical Bills on the Planet?

March 16, 2013 | 55,034 views | + Add to Favorites

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By Dr. Mercola

Americans spend twice as much on health care per capita than any other country in the world; in fact according to a series of studies by the consulting firm McKinsey & Co, the US spends more on health care than the next 10 biggest spenders combined: Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain, and Australia.
Despite that, we rank dead last in terms of quality of care among industrialized countries, and Americans are far sicker and live shorter lives than people in other nations. How is that possible? The short answer is: We’re being fleeced.
In the video above, CNN interviews a family blindsided by medical bills amounting to more than $474,000 after 60-year-old Bob Weinkoff spent just a few days in the ICU, suffering from difficulty breathing.
According to a 2011 report by the global consulting firm Milliman, annual healthcare costs for the average American family of four, if covered by a preferred provider organization, is a staggering $19,393.¹
Between 2002 and 2011 alone, the average cost of health care for American families doubled, and since absolutely nothing is being done to rein in the absurd overcharges, there’s every reason to believe costs will continue to skyrocket until the bottom falls out.
Cancer treatments, in particular, have increasingly become exorbitantly expensive, even though no one can explain exactly why it has to cost upwards of $1 million.
By dissecting the medical bills people have received, journalist and author Steven Brill says we can see exactly how and why we are overspending and where the money is going.

Bitter Pill – The Absurd Costs of American Health Care

In a recent Time Magazine interview,² Brill discussed his very impressive 11-page cover story, Bitter Pill:³ This is one of the longer investigative pieces and thankfully Time made it available for free.

“Simple lab work done during a few days in the hospital can cost more than a car. A trip to the emergency room for chest pains that turn out to be indigestion brings a bill that can exceed the price of a semester at college. When we debate health care policy in America, we seem to jump right to the issue of who should pay the bills, blowing past what should be the first question: Why exactly are the bills so high?”

In his article, Brill gives numerous examples of shocking markups on many hospital charges, such as $1.50 for a generic acetaminophen tablet, when you can buy an entire bottle of 100 tablets for that amount, $18 per Accu-chek diabetes test strip that you can purchase for about 55 cents apiece, or $283.00 for a simple chest X-ray, for which the hospital routinely gets $20.44 for when it treats a Medicare patient.
Most need to know that going to the ER can bankrupt you if you don’t have insurance. One example given in his article was a school bus driver who slipped and fell on her face and went to the ER. Three CT scans cost her nearly $7,000. She was just short of qualifying for Medicare and wound up being billed the full charge, for which Medicare would have only paid $825. But since she didn’t have Medicare, she got the FULL bill.
Even with insurance you can be decimated. The featured story reviews a man in his 50s who had insurance, developed pneumonia and was hospitalized for one month and came out with a nearly $500,000 bill. After insurance coverage, their bill was still over $400,000. This was in part due to the hospital’s policy of not just double billing for items but TRIPLE billing. Lab tests are another large cost and hospitals generate over 70 BILLION dollars every year from this service, while the largest lab tester in the country, Quest Diagnostics, only generates ONE TENTH of those charges, and they most likely do far more tests.
As an example, according to Stamford Hospital’s latest expense report, which each hospital is required to file with the federal Department of Health and Human Services, the hospital’s total expenses for lab work in 2010 were $27.5 million. Its total charges were $293.2 million, meaning it charged patients about 11 times its costs for lab work.

The Chargemaster: What You Need to Know About if You Want to Avoid Medical Bankruptcy

As Brill discovered, each hospital has an internal price list called a chargemaster, which contains every single item you may be given or come in contact with during your hospital stay. That includes the little white paper cup you get your medicine in, every box of tissue and band-aid, even a toy to a child (which many mistake as a “gift”) can be billed at upwards of $200. The problem is, no one quite knows how the prices in the chargemaster are created.

“It would seem to be an important document. However, I quickly found that although every hospital has a chargemaster, officials treat it as if it were an eccentric uncle living in the attic. Whenever I asked, they deflected all conversation away from it...

I soon found that they have good reason to hope that outsiders pay no attention to the chargemaster or the process that produces it. For there seems to be no process, no rationale, behind the core document that is the basis for hundreds of billions of dollars in health care bills... No hospital’s chargemaster prices are consistent with those of any other hospital, nor do they seem to be based on anything objective – like cost – that any hospital executive I spoke with was able to explain. 'They were set in cement a long time ago and just keep going up almost automatically,' says one hospital chief financial officer with a shrug.

...That so few consumers seem to be aware of the chargemaster demonstrates how well the health care industry has steered the debate from why bills are so high to who should pay them... [T]he drag on our overall economy that comes with taxpayers, employers and consumers spending so much more than is spent in any other country for the same product is unsustainable. Health care is eating away at our economy and our treasury.”

There is no real marketplace as such, as you the buyer is completely separated from the seller. There’s absolutely no market feedback to regulate and control the prices that are charged. For the most part the hospitals charge as much as they want, which plays a large role on why these charges have gotten so outrageously out of control. This simply doesn’t happen in countries outside of the US.

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Nonprofit Profitmakers

About the only defense for the chargemaster rates Brill was able to get was that it has to do with charity. John Gunn, chief operating officer of Sloan-Kettering told Brill:

“We charge those rates so that when we get paid by a [wealthy] uninsured person from overseas, it allows us to serve the poor.”

If this strikes you as nonsense, you’re not alone. Brill found two major holes in that argument. The first one is the most obvious: The hospital is not only charging those rates to wealthy medical tourists or “Saudi Sheiks,” as Brill puts it. These chargemaster rates are billed to average uninsured Americans who aren’t poor enough to qualify for the hospital’s financial assistance program, and don’t qualify for Medicaid.
So in essence, middle-class Americans are being bankrupted to help pay for the poor and the elderly while still allowing the hospital to rake in massive profits and paying their executives some rather astounding salaries. For example, at Montefiore Medical Center, a large nonprofit hospital system in the Bronx, its chief executive has a salary of $4,065,000, the chief financial officer of the hospital makes $3,243,000, the executive vice president rakes in $2,220,000, and the head of the dental department makes a not-so-shabby $1,798,000 per year. Similarly, 14 administrators at New York City’s Memorial Sloan-Kettering Cancer Center are paid over $500,000 a year, including six who make over $1 million.

“Second, there is the jaw-dropping difference between those list prices and the hospitals’ costs, which enables these ostensibly nonprofit institutions to produce high profits even after all the discounts,” Brill writes.

“...[N]o matter how steep the discounts, the chargemaster prices are so high and so devoid of any calculation related to cost that the result is uniquely American: thousands of nonprofit institutions have morphed into high-profit, high-profile businesses that have the best of both worlds. They have become entities akin to low-risk, must-have public utilities that nonetheless pay their operators as if they were high-risk entrepreneurs.

As with the local electric company, customers must have the product and can’t go elsewhere to buy it. They are steered to a hospital by their insurance companies or doctors (whose practices may have a business alliance with the hospital or even be owned by it). Or they end up there because there isn’t any local competition. But unlike with the electric company, no regulator caps hospital profits.”

Hospitals Profit Despite Receiving Only a Small Portion of Billings

Most hospitals end up receiving just 35 percent of what they bill, yet they still manage to make tens of millions of dollars in operating profits each year. Some hospitals, including Sloan-Kettering and MD Anderson, who are tougher in their negotiations with insurance companies, end up getting around 50 percent of their total billings, which quite literally amounts to a fortune. Stamford Hospital reported $63 million in operating profits in 2011, even though about half of their patient base is highly discounted Medicare and Medicaid patients. The actual revenue received, which included all the discounts off the chargemaster, was $495 million.

“That’s a 12.7% operating profit margin, which would be the envy of shareholders of high-service businesses across other sectors of the economy,” Brill writes. “Its nearly half-billion dollars in revenue also makes Stamford Hospital by far the city’s largest business serving only local residents. In fact, the hospital’s revenue exceeded all money paid to the city of Stamford in taxes and fees. The hospital is a bigger business than its host city.”

Medicare is Part of the Problem

Medicare was signed into law in 1965. At the time, the House Ways and Means Committee predicted the program would cost $12 billion in 1990. By the time 1990 rolled around, the actual cost was $110 billion. This year, Medicare costs are estimated to hit nearly $600 billion. As if stuck in an infinity loop, Medicare and Big Pharma (which has successfully manipulated the political system to their unbridled advantage) drive health care costs ever skyward.
As opposed to other countries, American laws actually prevent the government from restraining drug prices. Federal law even prevents the single largest drug buyer – Medicare – from negotiating drug prices. This is a perfect example of how Big Pharma has successfully manipulated laws in such a way that they can operate completely unrestrained in the US, under the flimsy argument that high prices and profits are required in order to fund costly research to develop potentially groundbreaking drugs to treat our ever-proliferating ills.
The only thing Medicare is allowed to do is to add six percent on top of the average sales price drugmakers sell the drug for to hospitals and clinics.
However, Congress does not control what drugmakers charge for their drugs. Pharmaceutical companies are allowed to set their own prices, and when it comes to one-of-a-kind drugs like some cancer drugs, the safeguards built into a free market system disappear, making price setting anything but fair.
Pharmaceutical companies also give rebates to hospitals to create incentive to dispense the drug, as the hospital can then make a greater profit. But since hospitals around the country not only get the same drug at varying rates, and the “average sales price” Medicare bases its payments on doesn’t necessarily reflect these rebates, the base price Medicare uses is oftentimes not very average at all... In some cases, this can result in a hospital still making upwards of 50 percent profit on what Medicare pays for the drug!
In the example Brill includes in his report, a cancer serum called Flebogamma costs the manufacturer an estimated $200-300 to collect, process, test and ship. According to the drugmaker, the average sales price for the drug is $2,003. Sloan-Kettering bills $4,615 for the drug, which Medicare then cuts down to $2,123 ($2,003 plus 6 percent).

“In practice, the average sales price does not appear to be a real average. Two other hospitals I asked reported that after taking into account rebates given by the drug company, they paid an average of $1,650 for the same dose of Flebogamma, and neither hospital had nearly the leverage in the cancer-care marketplace that Sloan-Kettering does. One doctor at Sloan-Kettering guessed that it pays $1,400. ...So even Medicare contributes mightily to hospital profit – and drug-company profit – when it buys drugs,” Brill notes.

Further adding to the problem of unrestrained costs is the fact that Medicare is not allowed to pay attention to comparative-effectiveness research. What this means is that if two drugs are found to be of equal effectiveness but one costs far less, Medicare is not allowed to make the decision to reimburse for the lower priced drug only.

Americans Pay 50 Percent More than Other Countries for Identical Drugs

As a result of laws and regulations preventing the US government from reining in drug prices like other nations do, drugs are wildly overpriced in the US. Overall, Americans pay 50 percent more than other countries for identical drugs. This year alone, the US will spend more than $280 billion on prescription drugs. If Americans paid the same prices other countries pay for the same products, we’d save about $94 billion a year! The explanation given by the pharmaceutical industry when confronted about this price difference is that:

“US profits subsidize the research and development of trailblazing drugs that are developed in the US and then marketed around the world.”

But, as Brill states, should a country with a health-care-spending crisis really subsidize the rest of the developed world? Who made that decision? Furthermore, the numbers tell us Americans really do not need to pay such inflated prices in order to guarantee continued drug research and development:

“According to securities filings of major drug companies, their R&D expenses are generally 15% to 20% of gross revenue... Neither 5% nor 20% is enough to have cut deeply into the pharmaceutical companies’ stellar bottom-line net profits. This is not gross profit, which counts only the cost of producing the drug, but the profit after those R&D expenses are taken into account... All the numbers tell one consistent story: Regulating drug prices the way other countries do would save tens of billions of dollars while still offering profit margins that would keep encouraging the pharmaceutical companies’ quest for the next great drug.”

A New Cottage Industry: Medical-Billing Advocates

A small grassroots-type industry has emerged as a result of shell-shocked patients reaching out for help to understand their medical bills. Referring to themselves as medical-billing advocates, they help you not only read and understand the content of your bills, but also negotiate with the hospital to reduce the charges. Brill quotes Katalin Goencz, a former appeals coordinator in a hospital billing department who now runs her own medical-billing advocacy business from her home in Stamford:

“The hospitals all know the bills are fiction, or at least only a place to start the discussion, so you bargain with them.”

The problem with that, of course, is: what about the people who don’t realize they CAN bargain with a major hospital? And should we really accept “bills of fiction” to begin with? Brill writes:

“Goencz is part of a trade group called the Alliance of Claim Assistant Professionals, which has about 40 members across the country. Another group, Medical Billing Advocates of America, has about 50 members. Each advocate seems to handle 40 to 70 cases a year for the uninsured and those disputing insurance claims. That would be about 5,000 patients a year out of what must be tens of millions of Americans facing these issues – which may help explain why 60% of the personal bankruptcy filings each year are related to medical bills.”

Even with the help of a medical-billing advocate (who of course charges a fee for the service), many uninsured patients still overpay. After all, getting a 50 percent discount on a test billed at $200, which should cost $15 is not necessarily a great bargain, although it’s certainly an improvement if we only take fictional numbers into account. The sad thing is, as mentioned earlier, the overcharges are SO grossly inflated that even if you get the bill cut in half, the hospital still makes out like a bandit!

50 Signs US Health Care System is Gigantic Scam About to Collapse

A recent article lists 50 signs that the US health care system is a gigantic money making scam that is about to collapse.⁴ This list includes the following amazing statistics:

• This year the American people will spend approximately 2.8 trillion dollars on health care, and it is being projected that Americans will spend 4.5 trillion dollars on health care in 2019
• If the U.S. health care system was a country, it would be the 6th largest economy on the entire planet
• Approximately 60 percent of all personal bankruptcies in the United States are related to medical bills
• The U.S. health care industry has spent more than 5 billion dollars on lobbying our politicians in Washington D.C. since 1998
• The U.S. ambulance industry makes more money each year than the movie industry

Another factor driving this broken health care system is direct-to-consumer drug advertising. According to FiercePharma,⁵ the pharmaceutical industry spent $2.7 billion on drug ads for TV, magazines, newspapers, radio and billboards over the past 10 years.

“The world's largest drug company, Pfizer, tops the list, spending 23 percent of that $2.7 billion on some of its best-selling drugs. In fact, as the data show, it is generally a company's best-selling drugs that get the greatest spends, suggesting that DTC advertising remains very effective.”

Natural is Better, and Less is More

The U.S. health care system has an awful lot of room for improvement. The United States has the highest infant mortality rate among high income countries, and ranks dead last in terms of life expectancy among 17 affluent nations. You could say wanton greed is killing this nation...
If throwing money into the system isn’t the answer, then how can we improve the health of Americans? The answer is simpler than most care to admit. I don't think anyone in the medical community disagrees with the idea that changing your lifestyle can go a long way toward "fixing" a number of chronic conditions, such as diabetes. As identified by the NIH,⁶ five life-changing factors that can do this are:

• Following a healthy diet
• Maintaining an optimal body weight
• Engaging in regular physical activity
• Not smoking
• Keeping alcohol use to no more than one drink per day for women, and two drinks per day for men

In a Waking Times article from last year,⁷ Dr. Dennis Antoine discusses the many lifestyle factors contributing to the rise in cancer incidence, and why we have to stop being so foolish as to think we “don’t know” why cancer has become so commonplace. As a group, chemicals play a major role: chemicals in your water, soil, air, in your clothes and in your home, in your household cleaning products and in the lotions and potions you spray and rub onto your skin, and in the vaccines injected into your body.
He also mentions a few different alternative cancer treatments, such as that by Dr. Max Gerson, who in 1938 discovered he could put cancer patients into remission using vegetables. Alas, there’s ample evidence that the cancer industry is not at all interested in finding cures. Its only interest is finding profitable treatments. Dr. Antoine writes:

“At this time in history, a bill was appropriated for 100 million dollars to anyone who could show promise and results in treating cancer. Dr Gerson in 1946 presented 5 terminal cases and 5 additional patients’ records showing his effective treatment and cure of all of these cases. Well, guess what? The Pepper-Neely bill was defeated by four senators who were medical doctors. Also of note, radio announcer Raymond Gram Swing who was in the room, was as astonished as any of the others and made a broadcast that night detailing these events and Gerson’s effective treatment. Two 2 weeks later, Swing was fired from his job.”

What Constitutes a Healthy Lifestyle?

That's not an impossible list. The great thing about these behavior changes is that they don't cost extra money to do – and they're almost guaranteed to save you money in the long run. I would add a few things to this list, though. Of all the healthy lifestyle strategies I know of that can have a significant impact on your health, normalizing your insulin and leptin levels is probably the most important.
There is no question that this is an absolute necessity if you want to avoid disease and slow down your aging process. That means modifying your diet to avoid excessive amounts of fructose, grains, and other pro-inflammatory ingredients like trans fats. In addition to the items mentioned above, these additional strategies can further help you stay healthy:

• Learn how to effectively cope with stress – Stress has a direct impact on inflammation, which in turn underlies many of the chronic diseases that kill people prematurely every day, so developing effective coping mechanisms is a major longevity-promoting factor.
Meditation, prayer, physical activity and exercise are all viable options that can help you maintain emotional and mental equilibrium. I also strongly believe in using energy psychology tools such as the Emotional Freedom Technique to address deeper, oftentimes hidden emotional problems.

• Optimize Your Vitamin D Levels to between 50 and 70 ng/ml, ideally by exposing enough of your skin to sunshine or a safe tanning bed.
• High-Quality animal-based omega-3 fats – Correcting the ratio of omega-3 to healthful omega-6 fats is a strong factor in helping people live longer. This typically means increasing your intake of animal based omega-3 fats, such as krill oil, while decreasing your intake of damaged omega-6 fats (think trans fats).
• Get most of your antioxidants from foods – Good sources include blueberries, cranberries, blackberries, raspberries, strawberries, cherries, beans, and artichokes.
• Use coconut oil – Another excellent anti-aging food is coconut oil, known to reduce your risk of heart disease and Alzheimer's disease, and lower your cholesterol, among other things.
• Avoid as many chemicals, toxins, and pollutants as possible – This includes tossing out your toxic household cleaners, soaps, personal hygiene products, air fresheners, bug sprays, lawn pesticides, and insecticides, just to name a few, and replacing them with non-toxic alternatives.
• Avoid prescription drugs – Pharmaceutical drugs kill thousands of people prematurely every year – as an expected side effect of the action of the drug. And, if you adhere to a healthy lifestyle, you most likely will never need any of them in the first place. However if you are currently taking prescription drugs it is best to work with a trained natural health care professional to help you wean off of them.

Take Control of Your Health

Incorporating these healthy lifestyle guidelines will help set you squarely on the path to optimal health and give you the best shot at living a longer life. Remember, it's never too late to take control of your health, but the sooner you begin, the greater your long-term payoff.
When even a minor illness requiring hospitalization may cost you your child’s college tuition fund, and a severe disease like cancer can bankrupt the entire family, taking control of your health and being proactive about staying healthy is not a luxury, it’s essential.
Clearly, the American health care system is broken and in need of a serious overhaul – NOT in terms of who should pay these padded bills, but rather how can we get a more reasonably priced system that won’t be the leading cause of bankruptcy? At the present rate the current system is unsustainable. However, I suggest you don’t wait for this miracle, and start focusing on simple, inexpensive lifestyle changes that can help prevent some of the most common health problems plaguing the US today.