More than a 150 years ago Charles Dickens’ A Christmas Carol introduced the character Ebenezer Scrooge, who was the embodiment of greed, “tight-fisted…. a squeezing, wrenching, grasping, scraping, clutching, covetous, old sinner! Hard and sharp as flint, from which no steel had ever struck out generous fire.” If Dickens were alive today he’d recognize that Scrooge’s rapacious attitude has broadly infiltrated parts of our healthcare system. Let me share some examples of how this mindset has negatively impacted our ability to provide decent, affordable medical care to all.
Excessive Hospital Charges
I was reminded of Dickens’ well-drawn character while reading Bitter Pill: Why Medical Bills Are Killing Us, Stephen Brill’s detailed exposé of the outrageous price gouging that occurs in our out-of-whack medical system. Brill cites example after example of hospital billing practices that routinely charge $1.50 for pills that should only cost a few pennies, blood assays that are marked up from $14 to $200, and chest X-rays that wind up being charged at $283 to most of us, but are billed at only $20 for Medicare patients. Success in almost every industry brings in competitors who undercut your prices and try to steal market share from you. This is why most supermarkets operate on a near 1% profit margin and rely on volume to earn a profit. Would anyone shop at a supermarket that charged $22 for a pound of zucchini or $14 for a can of tomatoes? Of course not, yet these types of markups are rife throughout our medical system. Hospitals don’t compete on price because they keep their fees hidden. This prevents consumers from choosing their treatments on a cost basis and contributes to keeping prices high. Many foreign hospitals, however, do actively compete against American hospitals on a cost basis, leading to the phenomenon known as “medical tourism”.
Are there hospitals out there that charge a reasonable rate for the services they provide? Government data show that hospital prices (even within the same city) vary widely for any given medical procedure, but accessing this information has historically not been possible. If you have high quality medical insurance, you may only pay a few hundred dollars towards the cost of a $12,000 trip to the emergency room. Your insurance provider will also not be paying the outrageous prices being charged by the hospitals; they negotiate much lower fees. The only people who are charged and actually asked to pay these usurious rates are folks who don’t have insurance, have low quality insurance, or who have run through their insurance coverage. Put another way, it appears that our current healthcare system is at least partially built on the backs of those without adequate insurance i.e. the poor.
Excessive Executive Compensation
Brill also points out the high salaries being paid to hospital executives, including those at non-profits. Who would have guessed that the CEO of a non-profit hospital (MD Anderson) would be paid $1.8 million (which does not include outside income), and the hospital itself would earn a $531 million dollar profit on revenues of $2.05 billion? For comparison, the president of the entire U. of Texas system, which MD Anderson is a part of, earned only about a third of this amount. Montefiore Medical Center, a large non-profit hospital system in the Bronx, paid its CEO $4,065,000, its chief financial officer $3,243,000, an executive vice president $2,220,000, and the head of the dental department $1,798,000. Are there no qualified people available who would take these jobs for a quarter or a tenth of those amounts? Brill cites an analysis of U.S. hospital financial reports that “found that the 2,900 nonprofit hospitals across the country, which are exempt from income taxes, actually end up averaging higher operating profit margins than the 1,000 for-profit hospitals after the for-profits’ income-tax obligations are deducted.”
In her book The Entrepreneurial State: Debunking Public vs. Private Sector Myths author Mariana Mazzucato points out that many Big BioPharma companies spend huge amounts of money on stock buyback plans, “to boost their stock price, which affects the price of stock options and executive pay linked to such options.….Amgen, the largest dedicated biopharma company, has repurchased stock in every year since 1992, for a total of $42.2 billion through 2011, including $8.3 billion in 2011. Since 2002 the cost of Amgen’s stock repurchases have surpassed the company’s R&D expenditures in every year except 2004, and for the period 1992-2011 was equal to fully 115 per cent of R&D outlays and 113 percent of net income.” Some would argue that it’s a good idea to return “unused” money to shareholders, but many
