When Steve Brill released his recent Time magazine article, Bitter Pill – Why Medical Bills Are Killing Us,, it was an overdue chapter in a critical primer to educate the American public on the perverse incentives plunging our healthcare system and our nation into dysfunction and debt. The Time piece was the first major media effort in some time to shine a light on the factors beyond the insurance industry that contribute to costs that now eclipse 16% of our GDP.
Brill’s article clearly touched a clear nerve as the American Hospital Association immediately issued a multiple page press release refuting many of the writer’s observations and complaining that billing practices were an outgrowth of a cat’s cradle of cost shifting and an increasingly Darwinian landscape where only the best equipped, resourced and positioned hospitals will survive.
Yet, Brill’s facts are hard to refute. Many not for profit hospitals are paying seven figure executive salaries and posting double digit margins achieved through complex and imbalanced billing practices that rival Egyptian hieroglyphics. Time’s expose demystifies the complicated calculus of hospital billing and alleges that the system of billing and reimbursement is hopelessly broken leaving the most vulnerable of victims in its wake – those earning too much to qualify for Medicaid but earning far too little to afford coverage. The stories are gut wrenching and identify a range of misaligned financial and care motives across high margin practices such as oncology, imaging, lab, emergency and pharmacy services. The findings also tie to a June 2009 Harvard study that found that 50% of all US bankruptcies were directly related to medical bills and/or illness.
When I crossed the proverbial River Styx from healthcare consultant to regional CEO of a health plan, I was plunged into a bitter and high stakes battle with large hospital systems demanding and often getting double digit unit cost increases. The result was a zero sum game where in my resolve to try to control double digit trend, I would attempt to extract steeper discounts from smaller providers and community based hospitals – ironically providers who offered lower unit costs and similar quality than bigger systems. However, consumers demanded big name brands. The daisy chain of cost shifting punished weaker players and slowly drove primary care and small hospitals to the edge of extinction. Meanwhile, the uninsured paid the most for healthcare – often paying 200%-400% more for care in healthcare’s most expensive setting, the hospital emergency room.
In 2007, I watched two regional hospitals engaged in an arms race for membership through aggressive marketing and sub-specialty expansion. When the hospitals both sought to expand their cardiology programs, the practice of inserting post angioplasty stents increased by 300%. While the risk of stents outweighed the benefits for certain patients with (CAD) coronary artery disease, cardiac interventionalists routinely placed stents in their patients, not because patients always needed them but rather because they could earn more money. It’s a familiar story: The doctor tells the patient they need a procedure. The patient, fearful and accustomed to the notion that more health care must be better, consents. To the degree, any payer attempts to disallow a recommended procedure as unnecessary, the payer is accused of bureaucratic meddling or worse, jeopardizing the quality of care for the sake of operating profits. Years later, we are finally beginning to understand that whoever regulates costs, access and necessity of treatment in the healthcare system – be it a payer or a governmental agency, is automatically fitted with a black hat and labeled the villain.
The Time’s article focusing on certain hospital billing practices are a subset of a nationwide game of cat and mouse as facilities seek to balance highly variable reimbursement from Medicaid, Medicare and commercial insurance. The fight over the true cost of care is often invisible to those footing the bill – employers. Many employers have no line of sight into the thorny negotiations between hospitals and their insurer. To make matters worse, if a large healthcare system threatens to drop out of an insurer’s PPO network, employers often urge their carrier to resolve its contract differences with the hospital to limit disruption for employees. The insurer, concerned over losing membership if the PPO network loses a flagship provider, quietly caves and the cost of inpatient healthcare trends continue to rise. To make matters worse, employers have consistently resisted implementing narrower PPO networks that might otherwise force billing outliers back toward the mean costs of delivering care. It seems employers want to fly first class but only pay for coach.
The insurance industry has committed its share of financial and public relations misdemeanors during the two decade run up of healthcare costs. Yet, insurers were uniquely singled out during the recent debate leading up to the Affordable Care Act. Politically, the black hat payers were easier targets than other stakeholders who have abetted the demise of our system: consumers with unrealistic expectations, doctors using malpractice avoidance as air cover to oversubscribe services, drug companies and PBMs engaged in intricate and difficult to understand pricing practices, employers who have remained parochial and disruption averse, the food and agricultural industries for practices that promote products that adversely impact public health, the government for its serial under-reimbursement of providers through Medicaid and Medicare and a range of stakeholders who ineffectively advise and assist the industry in its quest for an optimal balance between quality and affordability.
Steven Brill’s thoughtful rendering is an inch wide and a mile deep as it illuminates the need for hospital payment reform. However, he stops too soon in his expose, refraining from identifying the other accomplices that drive these billing behaviors — including a Medicare and Medicaid system that enjoys low administrative costs but presides over an estimated annual $100B waste and fraud problem arising out of unmanaged fee for service care. Medicare is beloved by seniors partially due to the simple fact that it does not manage care. What Brill also misses is the private sector’s apathy in aggressively punishing high outlier unit costs charges by taking on some of our most sacred players – large teaching hospitals and system oligopolies that now dominate many regional landscapes. As consultants, we have failed to convince employers of the merits of eliminating open access PPOs, increasing consumer directed health plans, using scheduled reimbursements for elective surgeries and enforcing a bi-lateral social contract around good health by requiring workers to see a primary care doctor and receive age and gender appropriate testing to better manage health status.
As with any stakeholder that feels singled out, the AHA response to the Time’s article was swift and predictable. I’m sympathetic. Laying our affordability crisis at the feet of any one group misses the entire point of our issues in the US. However, the need for reimbursement reform and billing simplification is irrefutable. Our system is in crisis. The question remains: will we move towards a delivery model that allows market based reforms and affords consumers a greater role in driving quality and cost effective delivery or will we wake up in a decade to a single payer that rations access and peanut butter spreads reimbursement. One could argue our entire healthcare system can be best summed up by the average US hospital bill – opaque, misunderstood and bearing little relationship to true cost of the services.