If we intend to ever stop the health care price explosion we must start calling scams what they are, and identifying where they're coming from.
If you've followed my writing on this topic you know that my primary focus has been on differential billing by providers and cross-subsidization. This is a practice that is fairly unique in the medical profession, with a big part of the reason being that it's unlawful under Robinson-Patman to do so in goods-producing (or goods/services hybrid) businesses in the general sense where the intent or effect is to lessen competition.
Since virtually all medical services involve goods, this anti-trust protection would normally apply, and could be used against this set of practices, but for specific insurance exemptions that were put into place after WWII.
It is not, of course, only physicians who have this scam embedded in their business models. It's also part and parcel of the hospital industry. To wit:
Susan Kovinsky underwent outpatient surgery recently at Cedars-Sinai Medical Center. The procedure, a hysterectomy, began at 10:40 a.m. By 3 p.m., she was on her way home.
The hospital bill: $65,514.97.
But the most striking aspect of Kovinsky's bill is that Cedars-Sinai deducted $34,526.39 as a "hospital discount to patient." The total cost billed to Blue Shield was thus $30,988.58.
The bill explains that the hospital "discounts for services covered by most insurance plans."
Of course those who pay cash don't "enjoy" such a discount. Can they obtain one? Maybe. But much of that depends on circumstance, and just getting an answer prior to what was (in this case) an elective procedure (that is, not an emergency and one for which the customer walks in under their own power) can be a problem. In some cases, if not most, it can in fact be impossible.
It's doubly-impossible if you're incapacitated at the time of the incident and thus unable to give consent.
There is law that medical care provided in such circumstances is "presumptively" consented to. How did we get there? Certainly, most people would prefer under most circumstances to have life-saving medical care provided rather than not. But you're not exactly in a position to negotiate when you just had a serious auto accident and are bleeding out, have been shot, or are in the throes of a heart attack or stroke.
In some of those cases hospitals go one further - they attempt to attach any recovery you might get from the person who caused the accident:
At University Medical Center Brackenridge, she had surgery and went home two days later in a wheelchair with rods and pins in her leg. The hospital said her care cost $31,115. Bogardus figured Medicare, her health insurer, would pay.
But instead of billing Medicare, the hospital filed a lien against Bogardus, staking a claim to part of any settlement she might seek from the driver's insurance company. That meant, if Bogardus was awarded a settlement, the hospital would get paid first.
In the general sense this is ok. But it's how it's done that's a problem. Read back up there a bit - the hospital bills out at double (or more) the amount it actually gets paid and accepts as "paid in full." What does it seek from these liens? The full invoiced amount.
The law, however, is rather specific. While the hospital has the right to seek recovery of its actual costs from the person who caused them to be incurred, it does not have the right to mark them up by 100% or more and then try to hammer the person responsible for the harm on what amounts to a general damage award via back-door means. The only person entitled to a punitive award, or one for "pain and suffering", is the person actually injured. Yet this practice of billing "full invoice" amounts to a back-door attempt to impermissibly impose such a general damage award.
Chief among the ways that banks abuse "customers" for products such as OTC derivatives are through obscuring the market. That is, by resisting the placing of such contracts on regulated exchanges, banks keep the customer in the dark about the available options in the marketplace for the customer to buy similar services (in this case, credit insurance) from others. This in turn allows them to widen the spreads and thus pocket money that, in an efficient market, they would be unable to collect.
Likewise, the entire medical industry has been and remains focused on opacity and destruction of price discovery by the customer - in this case the patient. That policy and practice, in turn, allows the medical profession to skim off enormous amounts of money throughout the system, from the doctor to the hospital to the drug and device industry to the insurance carriers that should remain in the consumer's pocket.
We spend, in the United States, double the percentage of GDP as other first-world nations on medical care. Cost-shifting is a big part of this. An illegal Mexican that comes into the United States and drops a kid will be treated, as will their premature infant, at no cost to them even if the bill is over $1 million. Try that as an American in Mexico and you will find that treatment will not be provided.
I'm a diver and carry a "secondary" diving insurance policy to cover the possibility of getting "the bends" from my activity. This is a hazard of diving that can hit anyone, even if you do everything "right." In the United States such an incident will result in an immediate "ride" in a recompression chamber - the only treatment for "the bends" - with the hospital worrying about how they'll get paid later. Without treatment, incidentally, there's a decent chance you'll either die or be paralyzed.
Get bent in Mexico while at Cozumel or Cancun and you better have that insurance card or proof that you can fund the payment for the chamber operator - by wire transfer or a credit card. No payment, no recompression. This will be true even if you will die or be permanently disabled, and most of the time without treatment that's exactly what will happen. This is true in most parts of the world, which is one of the reasons that most Americans, even though their ordinary medical insurance would almost-certainly cover this treatment, carry supplementary diving insurance if they choose to travel abroad.
Our medical system is severely broken and Obama's "fix" did nothing to address why it's broken. We cannot resolve this problem without taking a head-on approach to the medical profession and their intentional acts of obfuscation along with the shifting of costs that take place. Being billed over $1,000 a night for a stay in a two-customer hospital room, then charged extra for the television, is outrageous when one considers that half a luxury hotel room in most cities is less than 1/4 of that price - and the rooms are hardly luxury hotels. A $3,500 bill for a couple of hours in a recovery room is likewise extortionate. Doctors routinely bill hundreds of dollars (or more) for "consultations" that consist of walking past your hospital room door! $10,000 for Anaesthesia? Why? Supplies of $13,000 for a laparoscopic surgery? Can we see the itemized bill for those supplies? Why do I suspect that the scalpels are being charged out at $500 each when a box of 10 disposable sterile scalpels can be had for $14 from any one of a dozen medical supply companies?
Cost-shifting and intentional obfuscation of price is used as an industry device to promote and hide scams of various sorts. Our medical system didn't used to be riddled with these devices; you had your surgery or doctor visit, got the bill, and then submitted it to the insurance company. Since you saw it, you knew what was being charged and what services and goods you allegedly received. Beginning with Nixon's wage and price controls this process became decoupled from the customer, and EMTALA added into the mix a requirement to treat anyone who showed up with a complaint, irrespective of ability to pay.
Now we have medical practitioners and providers claiming that Medicare and especially Medicaid pay less than the cost of providing their services. The truth of this assertion cannot be tested, however, and further these physicians and providers put the lie to their own claims by continuing to accept and provide services under those terms.
There are only two possible explanations for this behavior:
This behavior must be stopped and medical care providers of all stripes, whether they be drug and device manufacturers, hospitals or physicians, must be held to account for their previous sins in this regard. Differential billing and cost-shifting must be exposed and stopped - by either the market or force of law - going forward.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.
NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.
The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.
Looking for "The Best of Market Ticker"? Check out Ticker Classics.
Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.
The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.
Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.