Medical Price Gouging

by Ralph Nader, January 21, 2014

An epidemic of sky-rocketing medical costs has afflicted our country and grown to obscene proportions. Medical bills are bloated with waste, redundancy, profiteering, fraud and outrageous over-billing. Much is wrong with the process of pricing and providing health care.

The latest in this medical cost saga comes from new data released last week by National Nurses United (NNU), the nation’s largest nurse’s organization. In a news release, NNU revealed that fourteen hospitals in the United States are charging more than ten times their costs for treatment. Specifically, for every $100 one of these hospitals spends, the charge on the corresponding bill is nearly $1,200.

NNU’s key findings note that the top 100 most expensive U.S. hospitals have “a charge to cost ratio of 765% and higher — more than double the national average of 331%.” They found that despite the enactment of “Obamacare” — the Affordable Care Act — overall hospital charges experienced their largest increase in 16 years. For-profit hospitals continue to be the worst offenders with average charges of 503% of their costs compared to publically-run hospitals (“…including federal, state, county, city, or district operated hospitals, with public budgets and boards that meet in public…”) which show more restraint in pricing. The average charge ratios for these hospitals are 235% of their costs.

The needless complications of the vast medical marketplace have provided far too many opportunities for profiteering. Numerous examples of hospital visit bills feature enormous overcharges on simple supplies such as over-the-counter painkillers, gauze, bandages and even the markers used to prep patients for surgery. Not to mention the cost of more advanced procedures and use of advanced medical equipment being billed at several times their actual cost. These charges have resulted in many hundreds of millions of dollars in overcharges.

When pressed for answers, many hospital representatives are quick to defer to factors out of their control. It’s the cost of providing care they might say, or perhaps cite other vague aspects of running the business of medical treatment adding up, and factored into these massive charges. Cost allocations mix treatment costs with research, cash reserves, and just plain accounting gimmicks. These excuses shouldn’t fly in the US.

Few in the medical industry will acknowledge the troubling trend. One thing is undeniably certain however — the medical marketplace is not suffering for profits. Health-care in the United States is a nearly $3 trillion a year industry replete with excessive profits for many hospitals, medical supply companies, pharmaceutical companies, labs and health insurance vendors.

Americans spend more on health care than anywhere else in the world. One would hope and wish, at the least, that this enormous expenditure would provide a quality of healthcare above and beyond that found in the rest of the western world. The reality is that the results on average are no better than in France, Germany, Canada and elsewhere, which manage to provide their quality treatment without all the overcharges.

Much like our similarly wasteful, bloated military budget, the U.S. spends more on health care than the next ten countries combined — most of which cover almost all of their citizens. The United States spends $8,233 per person, per year according to a 2012 figure from the Organization for Economic Co-operation and Development (OECD). The average expenditure of the thirty three other developed nations OECD tracked is just $3,268 per person.

It gets worse. Harvard’s Malcolm Sparrow, the leading expert on health care billing fraud and abuse, conservatively estimates that 10% of all health care expenditure in the United States is lost to computerized billing fraud. That’s $270 billion dollars a year!

And unlike other commercial markets, where the advance of technology routinely makes costs lower, the reverse trend is in effect when providing medical care — the prices just keep soaring higher and higher. The flawed, messy Obamacare system will do little to help this worsening profit-grab crisis, which is often downright criminal in the way it exploits tragedy-stricken people and saddles them with mountains of debt.

Steven Brill’s TIME magazine cover story from February 2013 titled “Bitter Pill: Why Medical Bills Are Killing Us” gives an in-depth and highly-researched rundown of the severity of the medical cost problem and provides some of the worst, most astonishing examples of profiteering off of the plight of the sick or injured.

Here’s a fact that puts the full scope of this troubling trend into perspective — Brill writes: “The health-care industrial complex spends more than three times what the military industrial complex spends in Washington”. Specifically, the medical industry has spent $5.36 billion on lobbying in Washington D.C. since 1998. Compare that expenditure to the $1.53 billion spent lobbying by the also-bloated defense and aerospace sector.

One line summarizes the breadth of Brill’s enormous piece: “If you are confused by the notion that those least able to pay are the ones singled out to pay the highest rates, welcome to the American medical marketplace.”

Americans who can’t pay and therefore delay diagnosis and treatment are casualties. About 45,000 Americans die every year because they cannot afford health insurance according to a peer-reviewed report by Harvard Medical School. No one dies in Canada, Germany, France or Britain for lack of health insurance. They are all insured from the time they are born.

Obamacare, which has already confused and infuriated many Americans — and even some experts — with its complexity — thousands of pages of legislation and regulations, clearly not the answer to the problem. Long before the internet, President Lyndon Johnson enrolled 20 million elderly Americans into Medicare in six months using index cards. Canada’s single-payer system was enacted with only a 13-page bill — and it covers everyone for less than half the cost per capita compared to the US’s system.

Enacting a single payer, full Medicare-For-All system is the only chance the United States has of unwinding itself from the spider web of waste, harm, and bloat that currently comprise its highly flawed health insurance and health care systems. It’s time to cut out the corporate profiteers and purveyors of waste and fraud and introduce a system that works for everybody.

(Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, published by AK Press. Hopeless is also available in a Kindle edition.)

6 Responses to Medical Price Gouging

  1. Thomas Cox PhD RN Reply

    January 26, 2014 at 4:37 pm

    While absolutely true, there is an even bigger danger, and one which is intimately related to over-billing.

    More and more of our health care providers have been cast in the roles of our health insurers. Capitation, the Medicare/Medicaid Prospective Payment Systems, the Diagnosis Related Groups system (DRGs), episode based care and bundled payment schemes as well as a variety of profit/risk sharing arrangements transfer patients’ insurance risks to their health care providers.

    While it seems like a sound idea, the truth is that insurance is useful because large insurers manage risk more efficiently and more effectively than individuals and small insurers. Health care providers are tiny, incredibly inefficient insurers. As a result they often fail to meet their profit goals, incur high operating losses and fail financially.

    The size of a solo physician’s patient roster has been estimated at between 1,900-2,300 patients. A health insurer with only 1,900-2,300 policyholders would be incredibly inefficient.

    Even assuming a generous capitation payment of $10,000 per patient would mean an annual budget of 19,000,000 – $23,000,000. But a single industrial accident, a building fire, or an epidemic could leave such a provider overwhelmed with their patients’ care needs at the same time that they have exhausted their capitation revenues – leaving their patients without access to care.

    Medicare for all won’t solve the problem of inefficient risk management because it won’t change the practice of transferring insurance risks to our health care providers.

    See “Standard Errors: Our Failing Health Care (Finance) Systems And How To Fix Them”

    • mk Reply

      January 26, 2014 at 6:43 pm

      This is why “single” payer is superior. All 300 million citizens share, or manage, the risk together. It’s the biggest possible group. Everyone in, nobody out. No private company can beat that.

      And when you remove the insurance middleman, and his insatiable profit motive, you save lots more money ($400,000,000,000). Single Payer is the most efficient and humane system ever devised, which is why every other country has adopted it.

      Private insurers have had their way in this country for too many years, and they have failed us miserably. For-profit medical insurance is expensive, stupid, wasteful, and cruel. You’ve had your chance and we are ready to move on.

  2. Mark Scaramella Reply

    January 26, 2014 at 1:26 pm

    Before anyone starts talking about “market-based” healthcare, they need to read the analysis of Sheila Kuhl’s Single-Payer bill (which passed the California legislature three times in the 2000s because it saves the state lots of money only to be vetoed by Schwarzenegger and which has since been tabled after having been overcome by the extremely expensive Obamacare federal law) conducted by the highly respected healthcare consulting outfit The Lewin Group at:
    http://www.lewin.com/publications/Publication/161

  3. Staying Healthy Reply

    January 26, 2014 at 12:33 pm

    Of course, wherever there’s money, there is always a market of some sort.
    The main problem with Medicare-for-all is getting doctors to buy in:

    “Doctors limit new Medicare patients”
    http://usatoday30.usatoday.com/news/washington/2010-06-20-medicare_N.htm

  4. Staying Healthy Reply

    January 26, 2014 at 9:39 am

    All true, except that Medicare-for-all is not the only alternative. We need a market-based solution that is something like the alternative one outlined at:
    http://www.answerisland.com/cure4healthcare.html

    The real problem, of course, is convincing the politicians, who have been bought off by those who profit from the current broken system.

    • mk Reply

      January 26, 2014 at 10:41 am

      Single payer (or Medicare for All) is a much better solution than any “market-based” scheme. Having layers of profit motive between us and our healthcare will always drive the price of it up.

      I agree with the idea of getting Big Money out of our politics. We can’t get well until we make that happen.

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