Why is health care so damn expensive?
We've been told various theories in answer to that question, such as doctors get paid per transactions they perform on patients, and not for the ultimate outcome of the particular ailment or injury.
Journalist Steven Brill was curious about why so much has been written about the price of health care in the US, but not about why it's so high. Hence Brill's more than 24,000 word report published in Time magazine last month, titled "A bitter pill," which examined the very question.
By analyzing several patients' hospital bills, line by line, he discovered "aggressive markups" that are staggering when compared to what a patient on Medicare gets billed. A Medicare patient who gets a simple chest X-ray, for example, is charged $20.44; a patient not insured is charged $283.
The maximum prices for every possible charge in a hospital are contained in a "chargemaster."
On Monday, CL asked Tampa General Hospital's new CEO Jim Burkhart: Why do hospitals have such an outrageous set of prices? Burkhart replied, "You mean why does a hospital charge $10 for an aspirin?"
We know aspirin doesn't cost that much, so obviously Burkhart was exaggerating to make his point (Brill writes about a patient being charged $1.50 for a generic version of Tylenol, while Amazon sells bottles of 100 for $1.49). But yes, why does Tylenol cost so much in a hospital?
"It's a cost shifting thing," Burkhart replied. "You look at these things, and if a lay person sat down and looked at that, you're not going to understand it. Because you're going to say, 'What do you mean an aspirin costs $10?' You have to remember what's behind the aspirin in the hospital is not the aspirin itself, but it's the nurse who touches that, the pharmacist who touches that, and all those sorts of things. But that's part of the cost of it. The other part of it is how many people didn't pay for the aspirin, versus the ones who were left to pay for it."
Often times, if you break down the individual charges on a hospital bill, the times that a nurse or a pharmacist "touches" part of any procedure are listed on the bill as separate line items. The patient in Brill's piece who was charged $1.50 for the generic form of Tylenol also paid $1,791 for each night of his stay in the hospital.
"Most things have become case rates. So you get one case rate for the entirety of the case so to some degree for those things — for the public and the payer — it doesn't matter. It doesn't really matter because you're going to get this fee at this level, it becomes very important for us to make sure at the end of the day there's some money left at the end of the payment. Because if you're losing money on every case you can't make up on volume. Right?" Burkhart said.
In Brill's piece, the CEO of Sloan Kettering Hospital provides the same sort of answer: Without charging those high prices, the hospital could never afford to provide the charity care that they do.
Brill wrote about the discrepancy between the list prices and what the hospital costs:
However, no matter how steep the discounts, the chargemaster prices are so high and so devoid of any calculation related to cost that the result is uniquely American: thousands of nonprofit institutions have morphed into high-profit, high-profile businesses that have the best of both worlds. They have become entities akin to low-risk, must-have public utilities that nonetheless pay their operators as if they were high-risk entrepreneurs.
Although TGH takes pride for all of the charity care they provide, their CEO's (and most other major hospital leaders) are handsomely rewarded. Though Burkart's salary has not been revealed, one can wonder how much he's making compared to what Ron Hytoff, his predecessor, made before stepping down last year. The Tampa Tribune reported that according to one of the hospital's IRS filings, Hytoff received more than $1.7 million in salary and benefits in 2007.
Burkhart served as CEO at Jacksonville Shands for nearly a decade before making the move to TGH. Two years ago, the Jacksonville Times-Union reported his financial package at Shands in 2009 was $569,000.