Routine Care, Unforgettable Bills
When Sean Recchi, a 42-year-old from Lancaster, Ohio, was told last March that he had non-Hodgkin’s lymphoma, his wife Stephanie knew she had to get him to MD Anderson Cancer Center in Houston. Stephanie’s father had been treated there 10 years earlier, and she and her family credited the doctors and nurses at MD Anderson with extending his life by at least eight years.
Diagnosed with non-Hodgkin’s lymphoma at age 42. Total cost, in advance, for Sean’s treatment plan and initial doses of chemotherapy: $83,900. Charges for blood and lab tests amounted to more than $15,000; with Medicare, they would have cost a few hundred dollars. The total cost, in advance, for Sean to get his treatment plan and initial doses of chemotherapy was $83,900. Why?
Charge for each of four boxes of sterile gauze pads, as itemized in a $348,000 bill following a patient’s diagnosis of lung cancer
One night last summer at her home near Stamford, Conn., a 64-year-old former sales clerk whom I’ll call Janice S. felt chest pains. She was taken four miles by ambulance to the emergency room at Stamford Hospital, officially a nonprofit institution. After about three hours of tests and some brief encounters with a doctor, she was told she had indigestion and sent home. That was the good news.
Patient was charged $18 each for Accu-chek diabetes test strips. Amazon sells boxes of 50 for about $27, or 55¢ each
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.
Unlike those of almost any other area we can think of, the dynamics of the medical marketplace seem to be such that the advance of technology has made medical care more expensive, not less. First, it appears to encourage more procedures and treatment by making them easier and more convenient. (This is especially true for procedures like arthroscopic surgery.) Second, there is little patient pushback against higher costs because it seems to (and often does) result in safer, better care and because the customer getting the treatment is either not going to pay for it or not going to know the price until after the fact.
To the extent that they defend the chargemaster rates at all, the defense that hospital executives offer has to do with charity. As John Gunn, chief operating officer of Sloan-Kettering, puts it, “We charge those rates so that when we get paid by a [wealthy] uninsured person from overseas, it allows us to serve the poor.”
The billing advocates aren’t always successful. just ask Emilia Gilbert, a school-bus driver who got into a fight with a hospital associated with Connecticut’s most venerable nonprofit institution, which racked up quick profits on multiple CT scans, then refused to compromise at all on its chargemaster prices. Gilbert, now 66, is still making weekly payments on the bill she got in June 2008 after she slipped and fell on her face one summer evening in the small yard behind her house in Fairfield, Conn. Her nose bleeding heavily, she was taken to the emergency room at Bridgeport Hospital.
Slipped and fell in June 2008 and was taken to the emergency room. She is still paying off the $9,418 bill from that hospital visit in weekly installments. Her three CT scans cost $6,538. Medicare would have paid about $825 for all three. Gilbert’s total bill was $9,418. “We think the chargemaster is totally fair,” says William Gedge, senior vice president of payer relations at Yale New Haven Health System. “It’s fair because everyone gets the same bill. Even Medicare gets exactly the same charges that this patient got. Of course, we will have different arrangements for how Medicare or an insurance company will not pay some of the charges or discount the charges, but everyone starts from the same place.” Asked how the chargemaster charge for an item like the troponin test was calculated, Gedge said he “didn’t know exactly” but would try to find out. He subsequently reported back that “it’s an historical charge, which takes into account all of our costs for running the hospital.”
Getting a patient in and out of a hospital the same day seems like a logical way to cut costs. Outpatients don’t take up hospital rooms or require the expensive 24/7 observation and care that come with them. That’s why in the 1990s Medicare pushed payment formulas on hospitals that paid them for whatever ailment they were treating (with more added for documented complications), not according to the number of days the patient spent in a bed. Insurance companies also pushed incentives on hospitals to move patients out faster or not admit them for overnight stays in the first place. Meanwhile, the introduction of procedures like noninvasive laparoscopic surgery helped speed the shift from inpatient to outpatient.
When Pat Palmer, the medical-billing specialist who advises Steve H.’s union, was given the Mercy bill to deal with, she prepared a tally of about $4,000 worth of line items that she thought represented the most egregious charges, such as the surgical gown, the blanket warmer and the marking pen. She restricted her list to those she thought were plainly not allowable. “I didn’t dispute nearly all of them,” she says. “Because then they get their backs up.” The hospital quickly conceded those items. For the remaining $83,000, Palmer invoked a 40% discount off chargemaster rates that Mercy allows for smaller insurance providers like the union. That cut the bill to about $50,000, for which the insurance company owed 80%, or about $40,000. That left Steve H. with a $10,000 bill.
When medical care becomes a matter of life and death, the money demanded by the health care ecosystem reaches a wholly different order of magnitude, churning out reams of bills to people who can’t focus on them, let alone pay them. Soon after he was diagnosed with lung cancer in January 2011, a patient whom I will call Steven D. and his wife Alice knew that they were only buying time. The crushing question was, How much is time really worth? As Alice, who makes about $40,000 a year running a child-care center in her home, explained, “[Steven] kept saying he wanted every last minute he could get, no matter what. But I had to be thinking about the cost and how all this debt would leave me and my daughter.” By the time Steven D. died at his home in Northern California the following November, he had lived for an additional 11 months. And Alice had collected bills totaling $902,452.
The family’s first bill — for $348,000 — which arrived when Steven got home from the Seton Medical Center in Daly City, Calif., was full of all the usual chargemaster profit grabs: $18 each for 88 diabetes-test strips that Amazon sells in boxes of 50 for $27.85; $24 each for 19 niacin pills that are sold in drugstores for about a nickel apiece. There were also four boxes of sterile gauze pads for $77 each. None of that was considered part of what was provided in return for Seton’s facility charge for the intensive-care unit for two days at $13,225 a day, 12 days in the critical unit at $7,315 a day and one day in a standard room (all of which totaled $120,116 over 15 days). There was also $20,886 for CT scans and $24,251 for lab work. Alice responded to my question about the obvious overcharges on the bill for items like the diabetes-test strips or the gauze pads much as Mrs. Lincoln, according to the famous joke, might have had she been asked what she thought of the play. “Are you kidding?” she said. “I’m dealing with a husband who had just been told he has Stage IV cancer. That’s all I can focus on … You think I looked at the items on the bills? I just looked at the total.”
As 2012 began, a couple I’ll call Rebecca and Scott S., both in their 50s, seemed to have carved out a comfortable semiretirement in a suburb near Dallas. Scott had successfully sold his small industrial business and was working part time advising other industrial companies. Rebecca was running a small marketing company. On March 4, Scott started having trouble breathing. By dinnertime he was gasping violently as Rebecca raced him to the emergency room at the University of Texas Southwestern Medical Center. Both Rebecca and her husband thought he was about to die, Rebecca recalls. It was not the time to think about the bills that were going to change their lives if Scott survived, and certainly not the time to imagine, much less worry about, the piles of charges for daily routine lab tests that would be incurred by any patient in the middle of a long hospital stay. Scott was in the hospital for 32 days before his pneumonia was brought under control. Rebecca recalls that “on about the fourth or fifth day, I was sitting around the hospital and bored, so I went down to the business office just to check that they had all the insurance information.” She remembered that there was, she says, “some kind of limit on it.”
“People, especially relatively wealthy people, always think they have good insurance until they see they don’t,” says Palmer. “Most of my clients are middle- or upper-middle-class people with insurance.” Scott and Rebecca bought their plan from Assurant, which sells health insurance to small businesses that will pay only for limited coverage for their employees or to individuals who cannot get insurance through employers and are not eligible for Medicare or Medicaid. Assurant also sold the Recchis their plan that paid only $2,000 a day for Sean Recchi’s treatment at MD Anderson. Although the tight limits on what their policies cover are clearly spelled out in Assurant’s marketing materials and in the policy documents themselves, it seems that for its customers the appeal of having something called health insurance for a few hundred dollars a month is far more compelling than comprehending the details. “Yes, we knew there were some limits,” says Rebecca. “But when you see the limits expressed in the thousands of dollars, it looks O.K., I guess. Until you have an event.”
Whether it was Emilia Gilbert trying to get out from under $9,418 in bills after her slip and fall or Alice D. vowing never to marry again because of the $142,000 debt from her husband’s losing battle with cancer, we’ve seen how the medical marketplace misfires when private parties get the bills. When the taxpayers pick up the tab, most of the dynamics of the marketplace shift dramatically.
It’s with the bill for the transfusion that the peculiar economics of American medicine take a different turn, even when Medicare is involved. We have seen that even with big discounts for insurance companies and bigger discounts for Medicare, the chargemaster prices on everything from room and board to Tylenol to CT scans are high enough to make hospital costs a leading cause of the $750 billion Americans overspend each year on health care. We’re now going to see how drug pricing is a major contributor to the way Americans overpay for medical care.
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. “The drug companies give the rebates so that the hospitals will make more on the drug and therefore be encouraged to dispense it,” the doctor explained. (A spokesperson for Medicare would say only that the average sales price is based “on manufacturers’ data submitted to Medicare and is meant to include rebates.”)
The Spanish business at the beginning of the Flebogamma supply chain does even better than Sloan-Kettering. Made from human plasma, Flebogamma is a sterilized solution that is intended to boost the immune system. Sloan-Kettering buys it from either Baxter International in the U.S. or, as is more likely in Alan A.’s case, a Barcelona-based company called Grifols. In its half-year 2012 shareholders report, Grifols featured a picture of the Flebogamma plasma serum and its packaging — “produced at the Clayton facility, North Carolina,” according to the caption. Worldwide sales of all Grifols products were reported as up 15.2%, to $1.62 billion, in the first half of 2012. In the U.S. and Canada, sales were up 20.5%. “Growth in the sales … of the main plasma derivatives” was highlighted in the report, as was the fact that “the cost per liter of plasma has fallen.” (Grifols operates 150 donation centers across the U.S. where it pays plasma donors $25 apiece.)
Our laws do more than prevent the government from restraining prices for drugs the way other countries do. Federal law also restricts the biggest single buyer — Medicare — from even trying to negotiate drug prices. As a perpetual gift to the pharmaceutical companies (and an acceptance of their argument that completely unrestrained prices and profit are necessary to fund the risk taking of research and development), Congress has continually prohibited the Centers for Medicare and Medicaid Services (CMS) of the Department of Health and Human Services from negotiating prices with drugmakers. Instead, Medicare simply has to determine that average sales price and add 6% to it.
By the numbers, Medicare looks like a government program run amok. After President Lyndon B. Johnson signed Medicare into law in 1965, the House Ways and Means Committee predicted that the program would cost $12 billion in 1990. Its actual cost by then was $110 billion. It is likely to be nearly $600 billion this year. That’s due to the U.S.’s aging population and the popular program’s expansion to cover more services, as well as the skyrocketing costs of medical services generally. It’s also because Medicare’s hands are tied when it comes to negotiating the prices for drugs or durable medical equipment. But Medicare’s growth is not a matter of those “bureaucrats” that Betsy McCaughey complains about having gone off the rails in how they operate it. In fact, seeing the way Alan A.’s bills from Sloan-Kettering were vetted and processed is one of the more eye-opening and least discouraging aspects of a look inside the world of medical economics.
Sloan-Kettering sends Alan A.’s bills to medicare electronically, all elaborately coded according to Medicare’s rules. There are two basic kinds of codes for the services billed. The first is a number identifying which of the 7,000 procedures were performed by a doctor, such as examining a chest X-ray, performing a heart transplant or conducting an office consultation for a new patient (which costs more than a consultation with a continuing patient — coded differently — because it typically takes more time). If a patient presents more complicated challenges, then these basic procedures will be coded differently; for example, there are two varieties of emergency-room consultations. Adjustments are also made for variations in the cost of living where the doctor works and for other factors, like whether doctors used their own office (they’ll get paid more for that) or the hospital. A panel of doctors set up by the American Medical Association reviews the codes annually and recommends updates to Medicare. The process can get messy as the doctors fight over which procedures in which specialties take more time and expertise or are worth relatively more. Medicare typically accepts most of the panel’s recommendations.
‘When hospitals say they are losing money on Medicare, my reaction is that Central Florida is overflowing with Medicare patients and all those hospitals are expanding and advertising for Medicare patients,’ says Blum, deputy administrator of the Centers for Medicare and Medicaid Services. ‘Hospitals don’t lose money when they serve Medicare patients.’ The part of that process that Kovach and three colleagues, with whom I spent a morning recently, are responsible for involves overseeing the writing and vetting of thousands of instructions for coders, who are also private contractors, employed by HP, General Dynamics and other major technology companies. The codes they write are supposed to ensure that Medicare pays what it is supposed to pay and catches anything in a bill that should not be paid.
In a review of other bills of those enrolled in Medicare, a pattern of deep, deep discounting of chargemaster charges emerged that mirrored how Alan A.’s bills were shrunk down to reality. A $121,414 Stanford Hospital bill for a 90-year-old California woman who fell and broke her wrist became $16,949. A $51,445 bill for the three days an ailing 91-year-old spent getting tests and being sedated in the hospital before dying of old age became $19,242. Before Medicare went to work, the bill was chock-full of creative chargemaster charges from the California Pacific Medical Center — part of Sutter Health, a dominant nonprofit Northern California chain whose CEO made $5,241,305 in 2011.
Another doctor’s bill, for which Alan A.’s share was 19¢, suggests a second apparent flaw in the system. This was one of 50 bills from 26 doctors who saw Alan A. at Virtua Marlton hospital or at the ManorCare convalescent center after his heart attack or read one of his diagnostic tests at the two facilities. “They paraded in once a day or once every other day, looked at me and poked around a bit and left,” Alan A. recalls. Other than the doctor in charge of his heart-attack recovery, “I had no idea who they were until I got these bills. But for a dollar or two, so what?”
“I was driving through central Florida a year or two ago,” says Medicare’s Blum. “And it seemed like every billboard I saw advertised some hospital with these big shiny buildings or showed some new wing of a hospital being constructed … So when you tell me that the hospitals say they are losing money on Medicare and shifting costs from Medicare patients to other patients, my reaction is that Central Florida is overflowing with Medicare patients and all those hospitals are expanding and advertising for Medicare patients. So you can’t tell me they’re losing money … Hospitals don’t lose money when they serve Medicare patients.”
We should tighten antitrust laws related to hospitals to keep them from becoming so dominant in a region that insurance companies are helpless in negotiating prices with them. The hospitals’ continuing consolidation of both lab work and doctors’ practices is one reason that trying to cut the deficit by simply lowering the fees Medicare and Medicaid pay to hospitals will not work. It will only cause the hospitals to shift the costs to non-Medicare patients in order to maintain profits — which they will be able to do because of their increasing leverage in their markets over insurers. Insurance premiums will therefore go up — which in turn will drive the deficit back up, because the subsidies on insurance premiums that Obamacare will soon offer to those who cannot afford them will have to go up.