Houston Southard
a name that looks so fake you'll care just as little to learn it's not
An american Sickness
Elisabeth rosenthal
Introduction
We live in an age of medical wonders—transplants, gene therapy, lifesaving drugs, and preventive strategies—but the healthcare system remains fantastically expensive, inefficient, bewildering, and inequitable. Faced with disease, we are all potential victims of medical extortion. The alarming statistics are incontrovertible and well known: the United States spends nearly one-fifth of its gross domestic product on healthcare, more than $3 trillion a year, about equivalent to the entire economy of France. For that, the U.S. health system generally delivers worse health outcomes than any other developed country, all of which spend on average about half what we do per person.
Who among us hasn’t opened a medical bill or an explanation of benefits statement and stared in disbelief at terrifying numbers? Who hasn’t puzzled over an insurance policy’s rules of co-payments, deductibles, “in-network” and “out-of-network” payments—only to surrender in frustration and write a check, perhaps under threat of collection? Who hasn’t wondered over, say, a $500 bill for a basic blood test, a $5,000 bill for three stitches in an emergency room, a $50,000 bill for minor outpatient foot surgery, or a $500,000 bill for three days in the hospital after a heart attack?
Where is all that money going?
Chapter 1 - The Age of Insurance
Why would an insurer pay such a high cost share for a member’s drug?
Disease was very time consuming. Without antibiotics and nonsteroidal medicines, or anesthetics and minimally invasive surgery, sickness and injury took much longer to heal
The original purpose of health insurance was to mitigate financial disasters brought about by a serious illness, such as losing your home or your job, but it was never intended to make healthcare cheap or serve as a tool for cost control. Our expectations about what insurance should do have grown.
Blue Cross and its partner, Blue Shield, were more or less the only major insurers at the time and both stood ever ready to enroll new members. The former covered hospital care and the latter doctors’ visits. Between 1940 and 1955, the number of Americans with health insurance skyrocketed from 10 percent to over 60 percent.
The new demand for health insurance presented a business opportunity and spawned an emerging market with other motivations. Suddenly, at a time when medicine had more of value to offer, tens of millions of people were interested in gaining access and expected their employers to provide insurance so they could do so. For-profit insurance companies moved in, unencumbered by the Blues’ charitable mission. They accepted only younger, healthier patients on whom they could make a profit.
In 1993, before the Blues went for-profit, insurers spent 95 cents out of every dollar of premiums on medical care, which is called their “medical loss ratio.” To increase profits, all insurers, regardless of their tax status, have been spending less on care in recent years and more on activities like marketing, lobbying, administration, and the paying out of dividends. The average medical loss ratio is now closer to 80 percent. Some of the Blues were spending far less than that a decade into the new century. The medical loss ratio at the Texas Blues, where the whole concept of health insurance started, was just 64.4 percent in 2010.
ACA tried to mandate MLR by requiring insurers to spend 80-85% of every premium dollar on patient care. It was considered a victory even though Medicare uses 98% on healthcare and 2% on admin.
So, why do insurers agree to high cost shares?
It’s less trouble to pay than not - hospital systems are large clients of insurers, and rather than risk losing them by refusing a cost share, insurers can recoup high cost share payouts by raising premiums, copays, and deductibles.
They can pervert the MLR restrictions - Becuase ACA forced insurers to an 80-85% MLR, insurers need to make that 15% they get count more.
In order to make sure that 15% take is still sufficient to maintain salaries/dividends, executives have to increase the size of the pie.
To cover shortfalls, the premiums are increased to pass the cost onto the consumers.
15% of a large sum is better than 15% of a smaller sum.
This is why despite economic predictions that healthcare spending is slowing, premiums in the past few years have increased by double digits.
Once something is covered by insurance the cost spikes because patients are insulated from most of the cost. A 99k covered one night hospital stay requires a 3k payment from the patient. Insurers give hospitals payments no patient would, repeatedly.
The Age of Hospitals
Between 1967 and 1983, hospitals set rates and the patient or his insurer was expected to pay up. Medicare payments to hospitals increased more than tenfold from $3 billion to $37 billion nationwide.
In the early 1990s, with prices and health insurance premiums sometimes increasing 20 percent a year, many employers and the insurers they hired desperately sought to move patients into health maintenance organizations (HMOs) to contain costs. HMOs often received a fixed payment per patient per month. A primary care doctor who served as a gatekeeper for tests, specialists, and hospital care, all within an HMO’s closed network, was assigned to each patient. With business falling off as a result of this “care management,” hospitals could only make money if they were streamlined and cost-effective, and most were not
HMOs succeeded at containing costs at least for a while. The 1990s were the only decade since the 1940s when U.S. health spending did not increase faster than the cost of living.
1974 Congressional law - state health-planning agencies must be granted approval before hospitals could build new facilities/ buy new technology. Law rescinded in 1987.
Strategic Billing 101 - Upcoding/Facility fees
In 2000, first hospital decides doctors will no longer be paid a fixed salary but compensated in proportion to the relative value units (RVUs) of care they dispensed (measure of productivity to determine medical billing.
RVUs assigned according to complexity on 1-5 scale.
Hospitals claim if their doctors are on salaries they don’t incentivize their doctors this way, but those salaries are still tied to RVUs or they are given bonuses based on them.
Medicare tried to prevent this with audits, but hospital consultants helped doctors “check the right boxes”
As obesity rates climbed, medical equipment companies devised new operations using new products to help combat the condition, and bariatric surgery was a boom field. Companies, hospitals, and doctors’ groups lobbied successfully to have insurers pay for it all. Being overweight was rebranded as a disease. Dr. Alfons Pomp, a weight-loss surgeon from Canada, was recruited first by New York’s Mount Sinai Medical Center in 1999 and then by NewYork-Presbyterian / Weill Cornell Medical Center just two miles away in 2003. Each hospital invested heavily to create lucrative bariatric wards: buying new beds, lifts, wheelchairs, and OR tables that could accommodate the bulk of the patients. The returns were exceptional.
Hospitals profit from increased numbers of residents because they receive subsidies based on employing medical trainees. The AHA helped lobby the Resident Physician Shortage Reduction Act to increase training positions nationwide by 15%
Hospital Hotels
Rather than using operating surpluses on raising salaries for nurses or reducing patient costs, they spent on amenities that could be charged.
How non-profits are the devil
They are just a profitable as capitalist corps, except cash flow is called operating surplus.
Recent research shows that many are providing nowhere near the amount of charity care and community benefit that would justify the value of their tax exemption. A survey of the forms conducted by the California Nurses Association concluded that 196 hospitals received “$3.3 billion state and federal tax exemptions and spent only $1.4 billion on charity care—a gap of $1.9 billion.” Three-quarters of the hospitals got more dollars in tax breaks than they spent on benefiting the communities they serve.
Ways Hospitals and Insurers profit from higher costs
Upcoding (Relative Value Units)
Hospital Hotels
“Observation”