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Astronomical Health Care Costs: Pay No Attention to the Chargemaster Behind the Curtain

Astronomical Health Care Costs: Pay No Attention to the Chargemaster Behind the Curtain

While many Republicans balked at passing $60 billion in relief for Hurricane Sandy cleanup (they eventually passed a little higher than $50 billion), TIME’s Steven Brill wrote that the United States spends nearly that much in health care costs each week.

In Bitter Pill: Why Medical Bills Are Killing Us, Brill asks the question very few people raise: Why does the United States pay so much for health care?

In the U.S., people spend almost 20% of the gross domestic product on health care, compared with about half that in most developed countries. Yet in every measurable way, the results our health care system produces are no better and often worse than the outcomes in those countries….Health care is eating away at our economy and our treasury.

Brill dissected people’s medical bills to decipher the astronomical charges many patients face, whether it’s paying $83,900 for initial doses of chemotherapy or a $1.50 per generic Tylenol pill (you can buy a 100-count bottle on Amazon for $1.49).

The culprit in these cases is every hospital’s internal price list known as chargemaster.

Chargemaster, Brill concludes, is a very important document because it is the basis for what patients are charged in hospitals for everything from gauze pads and radiation therapy to CAT scans and blood tests. But, he couldn’t get very far when he tried to dig deeper just where these prices came from.

….I quickly found that although every hospital has a chargemaster, officials treat it as if it were an eccentric uncle living in the attic. Whenever I asked, they deflected all conversation away from it. They even argued that it is irrelevant. I soon found that they have good reason to hope that outsiders pay no attention to the chargemaster or the process that produces it. For there seems to be no process, no rationale, behind the core document that is the basis for hundreds of billions of dollars in health care bills.

For example, look at patient Janice S., who was rushed to the hospital with chest pains at age 64. After several tests and a false alarm, Janice S. was left with a bill for $21,000. If she had been admitted to the hospital a year later when she was eligible for Medicare at age 65, her bill would have been less than $500.

Janice S. had no health insurance, as she was out of work for more than a year. Brill writes:

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.

Chargemaster prices passed on to patients, Brill found, varied from hospital to hospital and didn’t appear to be based on anything like cost. One hospital executive told Brill these prices were “set in cement a long time ago” and keep going up automatically.

At Stamford Hospital, where Janice S. was treated, Brill received first of his many “brush-offs” when asking about chargemaster rates from hospital spokespeople or administrators. Stamford Hospital spokesman Scott Orstad told Brill, “Those are not our real rates….It’s a list we use internally in certain cases, but most people never pay those prices. I doubt that Brian [the hospital’s CEO] has even seen the list in years. So I’m not sure why you care.”

Brill writes:

Orstad also refused to comment on any of the specifics in Janice S.’s bill, including the seemingly inflated charges for all the lab work. “I’ve told you I don’t think a bill like this is relevant,” he explained. “Very few people actually pay those rates.”

But Janice S. was asked to pay them. Moreover, the chargemaster rates are relevant, even for those unlike her who have insurance. Insurers with the most leverage, because they have the most customers to offer a hospital that needs patients, will try to negotiate prices 30% to 50% above the Medicare rates rather than discounts off the sky-high chargemaster rates. But insurers are increasingly losing leverage because hospitals are consolidating by buying doctors’ practices and even rival hospitals. In that situation—in which the insurer needs the hospital more than the hospital needs the insurer—the pricing negotiation will be over discounts that work down from the chargemaster prices rather than up from what Medicare would pay. Getting a 50% or even 60% discount off the chargemaster price of an item that costs $13 and lists for $199.50 is still no bargain. “We hate to negotiate off of the chargemaster, but we have to do it a lot now,” says Edward Wardell, a lawyer for the giant health-insurance provider Aetna Inc.

Expensive, unnecessary procedures also played a role in Janice S.’s astronomical bill. A stress test that uses radioactive dye cost $7,997.54. Medicare would pay Stamford $554 for the test. In most cases, according to Jack Lewin, a cardiologist Brill interviewed, you would simply administer a standard stress test that uses an electrocardiograph. This standard test, even on the chargemaster scale, costs significantly less at $1,200. Medicare pays $96 for this version.
As we detailed last week, Medicare is an example of a health care system that works well and at a lower cost than private health insurance.

A McKinsey study of the medical marketplace Brill examined concluded that a typical piece of equipment pays for itself in one year if it carries out just 10 to 15 procedures a day. That means, every use beyond that is pure profit, not to mention the fees for the doctor on top of that. The health care system is not a free marketplace where people can shop around for the best prices (especially if they're in an emergency situation). Very few people have the knowledge that the bill the hospital sends you is a jumping off point for negotiations. This is not a system that works for everyone. 

It’s clear that health care costs must come down and access must be expanded to avoid medical bankruptcies that cripple working families. The AFL-CIO supports building upon the Medicare health care delivery system that works in order to lower costs,and expanding that level of coverage to all working families.

The AFL-CIO Executive Council said in a statement last year:

Medicare has proven to be more cost effective than private health insurance plans over the past four decades.  We need to take advantage of the market power of Medicare to extend payment and delivery reforms throughout the entire U.S. health care system.  A simple, indisputably constitutional solution would be to allow employers and Americans of all ages to buy into an improved Medicare program.  And we know from the experience of other industrialized countries that Medicare for all would be the most effective way to contain health care cost growth and achieve quality health care for everyone.  To succeed in holding down costs without sacrificing care, we continue to believe the social insurance model must be our goal, and we applaud Senator Sanders and Representatives McDermott, Conyers, Stark, and Dingell for having introduced bills that would take us in that direction.

Read more about controlling health care costs on the AFL-CIO website. 

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