Chargemaster: Hospitals’ Killer App for Sucking Your Financial Blood Dry – Part 1

by on March 19, 2013 · 0 comments

in California, Civil Rights, Economy, Health

We spend more on artificial knees and hips every year than Hollywood collects at the box office.

Closeup Money rolled up with pills falling out, high cost, expensive healthcare

By John Lawrence / San Diego Free Press

A recent exhaustive article in Time magazine details the exhorbitant charges that hospitals are imposing on the American people, charges that have nothing to do with the actual costs of services provided. A woman in Stamford, Connecticut suffering from chest pains called 911. She was taken by ambulance to the emergency room at Stamford Hospital, a non-profit institution, four miles away.

After a few hours of tests she was told that she just had a case of indigestion; her heart was fine. So she went home. Her bill: $21,000 – for a false alarm. That breaks down to $995. for the ambulance ride, $3000. for the doctors and $17,000. for the hospital. Unfortunately, she had no insurance because she had been out of work for a year.

The American medical marketplace is such that those least able to pay are charged the most money. Their prices are determined by what is called a Chargemaster, a massive computer file thousands of items long. Every hospital has one.

The prices for medical services detailed in the Chargemaster have nothing to do with reality but are arrived at totally arbitrarily because there is no competition in the medical marketplace. And if you ever tried to find out in advance what the cost of some medical service was, you’d most likely be given the brushoff and told that it would be illegal for the hospital to tell you.

I had an experience like this myself. A few years ago, my family doctor advised me to get a colonoscopy and referred me to a gastroenterologist.

Let’s call him Dr. Goldfacher (not his real name). On the initial appointment, his receptionist presented me with a sheaf of papers to sign basically holding Dr. Goldfacher blameless no matter how badly he botched up the procedure. I told her that, before I signed those papers, I wanted to know the total cost of the procedure including pre-op and post-op office visits, the doctor’s charge, the hospital’s charge etc. Of course, she didn’t know, but after some back and forth she said someone else would be sent out to help me.

hospital1After a while a young man appeared, gave me a long spiel as to why the information I wanted to know was irrelevant, and, by way of a punch line, told me that it would be illegal for Dr. Goldfacher to tell me how much all of this would cost. I walked out of the office without signing away my rights. Last year under Obamacare I got a “free” colonoscopy with another doctor. However, although the colonoscopy was free there were numerous ancillary charges involved so that in the final analysis one could say it wasn’t exactly free, but it was reasonable.

The woman from Stamford who thought she was having a heart attack was 64 years old, not yet eligible for Medicare. If she had been on Medicare, her bill would have been a small fraction of what she was actually charged by the Chargemaster and most of it would have been paid by Medicare.

Medicare Part A covers 100% of hospital costs, and Medicare Part B, for which the recipient pays approximately $100. a month usually taken out of the recipient’s social security check, pays 80% of doctors’ fees. The Medicare enrollee can buy what is known as Medicare supplementary insurance from a private insurance company to cover the other 20%. Medicare mandates that hospitals charge it according to their actual costs i.e. not the Chargemaster rates!

The theory is that, since virtually all of these hospitals are set up as non-profits, each fee for service should reflect the actual costs sans profit. For example the woman in Stamford was charged $199.50 each for three troponin tests. Medicare would have paid the Stamford Hospital $13.94 each. She was charged $157.61 for a CBC test. Medicare would have paid $11.02.

The author of the study, Steven Brill, asserts that, for all the complaints about Medicare as “entitlement spending”, Medicare is the only rational system that is holding down the cost of medical care in the USA. Without it medical costs, as dictated by the completely arbitrary and divorced-from-reality Chargemaster, would skyrocket.

He goes as far as to maintain that far from restricting Medicare or raising the age that Medicare becomes available, the age for Medicare eligibility should actually be lowered. This would do more for keeping medical costs down than anything else. Thom Hartmann has called for Medicare Part E – Medicare available for anyone that wants to use it. But the medical-industrial complex has serious lobbying efforts going on to maintain the status quo.

All of these non-profit hospitals like making exorbitant profits. They just use the money to pay their administrators extravagant salaries so that the organization as a whole doesn’t make a profit. Or they embark on huge building projects to soak up all that loose cash. What they don’t do is to lower their prices.

According to a study by the consulting firm, McKinsey & Co., 2900 nonprofit hospitals across the country, which are exempt from income taxes, have higher profit margins than the 1000 for-profit hospitals that they studied after income tax obligations were deducted.

Take the case of Mercy Hospital which is owned by an organization under the umbrella of the Catholic Church called Sisters of Mercy. As a tax-exempt charity it is dedicated “to carry out the healing ministry of Jesus by promoting health and wellness.” Sisters of Mercy has a chain of hospitals across the midwest.

According to income tax returns Mercy paid its top executive, president and CEO Lynn Britton, $1,930,000. in 2011 and an executive vice president, Myra Aubuchon, $3.7 million. (Why a vice president was paid more than the president, the article does not say.) All in all seven Mercy Health executives were paid more than $1 million each. At the same time, this charitable institution provided 3.2% of revenues for charity care based on Chargemaster prices. Based on Mercy’s actual costs it probably provided about three-tenths of 1% of its revenues for charitable purposes.

The US spends more on health care than the next 10 big spenders combined: Japan, Germany, France, China, UK, Italy, Canada, Brazil, Spain and Australia. The price tag for Hurricane Sandy was $60 billion, part of which may not now be paid due to the sequester, but we spend almost $60 billion every week on health care.

drug4We spend more on artificial knees and hips every year than Hollywood collects at the box office. We spend two or three times that amount on canes and wheelchairs because the medical-industrial complex lobbies Congress and forces Medicare to pay as much as 75% more for this equipment than it would cost at Walmart. One hospital charged $1.50 for one 325-mg acetaminophen tablet, more than what Walmart charges for a hundred of them!

And lets not forget one of the biggest cost drivers of Medicare: George W. Bush’s prescription drug benefit which forced Medicare to pay Chargemaster like prices for drugs instead of negotiating those prices down like the Veterans’ Administration does. You want to bring down the spending on Medicare which is miniscule compared to Chargemaster prices? Congress needs only to change the prescription drug benefit law and allow Medicare to negotiate with the drug companies.

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