TIME Magazine
“Bitter Pill: Why Medical Bills are
Killing US”
By Steven Brill
March 4, 2013 p. 16-55
Slides by Randall P Ellis
Economics Department
Boston University
(Drawing upon ppt slides of Calvin Luscombe)
Case Studies
• Sean Recchi: 42, small business, private
insurance, but coverage limit of $2000/day for
IP care
– Cancer: Billed $83,900 OOP in advance.
• Janis S: 64, unemployed, uninsured.
– Heart Burn: Billed $21,000 OOP.
• Emilia Glibert: 60ish, school bus driver, no
insurance.
– Slip and fall, One day treatment: Billed $9,400 OOP.
Case Studies
• Steve, H: blue collar union worker, private insurance,
but $60,000 payout limit of union policy.
– Spinal stimulator: Billed $87,000; paid $10,000 OOP.
• Steven D: Terminally ill, private insurance, but
$50,000 maximum coverage
– Lung Cancer: Billed $902,000; paid $172,000 OOP by
family.
• Scott S: 50’s, private insurance, but $100,000
maximum payout
– Pneumonia: Billed $474,000; paid $313,000 OOP
Case Studies
• Alan A: 88, Medicare
– Heart attack: Billed $268,000; Medicare paid
$43,000; OOP less then .02%
The Chargemaster
• Hospital Price guide
– Not based on cost
– Not used for Medicare reimbursements
• Used as starting price in payment negotiations
– Assuming agent aware they are bargaining.
• Used to help justify charitable donations
• Zero transparency (HIPPA Shield)
– Every hospital has its own, unique Chargemaster
Chargemaster Vs. Medicare
• Example fee comparison (Chargemaster VS Medicare)
– Troponin (measures protein in blood):
• $199.50 VS $13.94
– Electrocardiograph (lab test)
• $1,200 VS $96
– Triple CT scans (Head, Chest, Face)
• $6,538 VS $825
Pay No Attention To The Chargemaster
”These are not the droids you’re looking for.” - Star Wars
• Representatives avoid explanations about the
Chargemaster.
• Justification of high rates include:
– Almost no one pays them
– At least then everyone receives the same bill
– We use these rates to charge rich foreigners and
subsidize treating the poor
– They are a starting point for negations not a final
offer
Exorbitant fees may have resulted from
hospitals gaming the Medicare DRG outlier
formula
• Hospitals in US are paid primarily a lump sum
Diagnosis Related Group (DRG) payment for each
admission. Receive 80 percent of any excess of
costs above a high threshold ( e.g., when more
than $25,000 over the DRG payment)
• Hospital “costs” determined by taking their
submitted charges, and multiplying them by the
LAGGED hospital Cost to Charge ratio.
• It is profitable to keep increasing submitted
charges to stay ahead of the CCRt-1.
Too Big To Regulate
• Large employers
• Positive local reputation
• Threat of reducing services to poor
Medical-billing advocates
• Negotiate for reductions in charges
• Seton hospital accepts a 82% average discount
on its charges
• Appear to bring huge value to their clients
• New to me
Cash Crop: Durable Medical Goods
• Medtronic: Profit margin 75% vs. Apple 40%
• Congress protected profit
• Payments to physicians
– Stock options
– Royalty agreements
– Consulting agreements
– Research grants and fellowships
• Sunshine laws?
Better Safe Than Sorry: Malpractice
• Technological advance: high cost but not
necessarily high benefit.
• Hospital CEO says: “We can’t be sued for
doing too much.”
• Practical Proposal: Safe Harbor
Is It Really Nonprofit?
• Nonprofits not prohibited from earning more
than costs.
– BOA survey: nonprofit more profitable than for profit
after tax deductions
– Excess revenue increases executive salaries, expands
facilities, buys rival hospitals.
• Example: Stamford nonprofit hospital in Conn.
– 12.7% operating profit
– CEO earns $1.86 mil/year
– 99.4% revenue from patients bills
But Medicare Doesn’t Pay Enough
• Stamford Hospital
– serves 50% Medicare and Medicaid patients
– Operating profit margin of 12.7%
• For-profit Hospitals accept them and even
advertise to them.
What Can Be Done?
According to Brill:
• Tighten antitrust laws related to hospitals
• Tax hospital profit at 75%.
• Increase tax on non-doctor salaries over
$750,000/year
• Outlaw Chargemaster
• Limit wonder drug monopoly/patent power
• Cap CT and MRI payments, tighten Medicare
• Safe Harbor for physicians
Princeton Economist Uwe Reinhardt’s
approach
• Make it illegal for hospitals to charge uninsured
people more than X percent of what Medicare
pays for a procedure.
• What is a reasonable magnitude for X?
Uwe Reinhardt Shocked, Shocked. over Hospital Bills. New York Times Economix Blog. March 1, 2013
Uwe Reinhardt’s approach
• Professor Reinhardt served on a state commission that
helped guide the state of New Jersey to enact such
legislation in 2008.
• Former Gov. Jon Corzine of New Jersey worked with
the state Legislature to enact Assembly Bill No. 2609.
• The bill limits what New Jersey hospitals can charge
uninsured New Jersey residents with gross incomes up
to 500 percent of the federal poverty level: no more
than 115 percent of the applicable payment under the
federal Medicare program.
Other problems with US
• All of the prices featured in the Brill article are for
people paying prices not negotiated by their
health plan. Few people do indeed pay such high
prices.
• But there are other problems with fees being
simply too high.
– Fees unreasonably high when there is market power
– Providers often able to upcode the number and
intensity of services they provide.
When considering antitrust for price setting
and monopolization, what is the relevant
market?
• Consider the proposed acquisition of three
practices with TEN primary care physicians
(PCPs). Will this unduly increase a provider
networks market power?
• Market is Massachusetts, all physicians:
• 29,000 physicians in Massachusetts
• 1203 MDs in Essex County
• 493 PCPs in Essex County
• 36 PCPs in the three towns where they are
locating?
Map of North Shore cities and towns
Source: http://www.sec.state.ma.us/cis/cispdf/ma_city_town.pdf
Town-level market shares BEFORE proposed
merger
Town-level market shares AFTER proposed
merger
Massachusetts faces a crisis?!?
Table 1.1 Physician Specialties Categorized as Critical or
Severe in 2011 Massachusetts Medical Society Survey
Specialty
Dermatology
Family Medicine
General Surgery
Internal Medicine
Neurosurgery
Orthopedics
Psychiatry
Urology
Severe
Severe
Severe
Critical
Severe
Severe
Critical
Critical
17 percent reduction in visits from
2008 to 2012
British Medical Journal Article:
US physician hours and visits still down 17% in 2012.
October 11, 2012 at 8:01 am
US physicians work fewer hours and see fewer patients than in 2008
Edward Davies
BMJ 2012; 345 doi: http://dx.doi.org/10.1136/bmj.e6863 (Published 10 October 2012)
“Between 2008 and 2012, the average number of hours physicians worked fell from 57 hours a week to
53, and doctors saw 16.6% fewer patients. The research, based on a survey of 13 575 physicians across
the US, estimates that if these patterns continue 44 250 full time equivalent (FTE) physicians will be lost
from the workforce in the next four years.
More than half of physicians (52%) have limited the access of Medicare patients to their practices or are
planning to do so, while one out of four physicians (26%) have already closed their practices altogether
to Medicaid patients, the survey shows. Physicians cited rising operating costs, time constraints, and
diminishing reimbursement as the primary reasons why they are unable to accept additional Medicare
and Medicaid patients.”
The survey was fielded online from late March to early June 2012 by Merritt Hawkins for the Physicians
Foundation
Total Office/OP visits per 1000 members per month ,
1% Marketscan Sample 2007-10
Total Office Visits per 100 members per month
300
250
200
150
100
50
0
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2007
2008
2009
2010
Average Total Allowed Charge, New patient, Office or Other
Outpatient Visit, 2010, 1% Marketscan Sample
250
$202.82
Average Allowed Charge
200
$159.79
150
$108.23
100
$75.96
$52.05
50
0
99201-Office/OP 99202-Office/OP 99203-Office/OP 99204-Office/OP 99205-Office/OP
visit, new patient, visit, new patient, visit, new patient, visit, new patient, visit, new patient,
(problem
(expanded
(detailed)
(Comprehensive, (Comprehensive,
focused)
problem focused)
moderate)
high)
Average Total Allowed Charge, Established patient, Office or Other
Outpatient Visit, 2010, 1% Marketscan Sample
250
Average Allowed Charge
200
$145.19
150
$105.11
100
$71.88
50
$46.80
$32.52
0
99211-Office/OP 99212-Office/OP 99213-Office/OP 99214-Office/OP 99215-Office/OP
visit, Established visit, Established visit, Established visit, Established visit, Established
patient (minimal) patient (problem
patient
patient (detailed)
patient
focused)
(expanded)
(comprehensive,
high)
Distribution of Five Levels of Office Visits, New Patients, over time
100%
90%
80%
70%
99205-OV: New, Comprehensivehigh
99204-OV: New, Comprehensivemoderate
99203-OV: New, Detailed
60%
50%
99202-OV: New, Expanded
problem focused
99201-OV: New, Problem focused
40%
30%
20%
10%
0%
2007
2008
2009
2010
Relative frequency of various bills for Evaluation and Management (EM)
Office visits New Patients, , 1% Marketscan Sample 2007-10
Frequency relative to January 2007
1.3
1.2
1.1
New-99201
New-99202
New-99203
1.0
New-99204
New-99205
0.9
0.8
0.7
1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627282930313233343536373839404142434445464748
Relative frequency of various bills for Evaluation and Management (EM)
Office visits - Established patients , 1% Marketscan Sample 2007-10
Frequency relative to January 2007
1.3
1.2
1.1
Est-99211
Est-99212
Est-99213
1.0
Est-99214
Est-99215
0.9
0.8
0.7
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2425 26 27 28 29 30 31 32 33 34 35 3637 38 39 40 41 42 43 44 45 46 47 48
Relative frequency of various bills for Evaluation and Management (EM)
Office visits - Established patients , 1% Marketscan Sample 2007-10
Frequency relative to January 2007
1.3
1.2
Est-99211
Est-99212
1.1
Est-99213
Est-99214
Est-99215
1.0
Linear (Est-99211)
Linear (Est-99212)
Linear (Est-99213)
Linear (Est-99214)
0.9
Linear (Est-99215)
0.8
0.7
1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627282930313233343536373839404142434445464748
Relative frequency of various bills for Evaluation and Management (EM)
Office visits - Established patients , 1% Marketscan Sample 2007-10
Frequency relative to January 2007
1.3
1.2
1.1
Linear (Est-99211)
Linear (Est-99212)
Linear (Est-99213)
1.0
Linear (Est-99214)
Linear (Est-99215)
0.9
0.8
0.7
1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627282930313233343536373839404142434445464748
Relative frequency of various bills for Evaluation and Management (EM)
Office visits New Patients, 1% Marketscan Sample 2007-10
Frequency relative to January 2007
1.3
1.2
New-99201
New-99202
1.1
New-99203
New-99204
New-99205
1.0
Linear (New-99201)
Linear (New-99202)
Linear (New-99203)
Linear (New-99204)
0.9
Linear (New-99205)
0.8
0.7
1
3
5
7
9
11
13
15
17
19
21
23
25
27
29
31
33
35
37
39
41
43
45
47
Relative frequency of various bills for Evaluation and Management (EM)
Office visits New Patients, 1% Marketscan Sample 2007-10
Frequency relative to January 2007
1.3
1.2
1.1
Linear (New-99201)
Linear (New-99202)
Linear (New-99203)
1.0
Linear (New-99204)
Linear (New-99205)
0.9
0.8
0.7
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47
Mean Evaluation and Management Fee, 2007-2010,
1% Marketscan Sample
Mean E&M fee relative to January 2007
1.250
1.200
1.150
1.100
1.050
1.000
0.950
0.900
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48
Time trend (months)
Relative fees for Evaluation and Management (EM) Office visits , 1%
Marketscan Sample 2007-10
1.3
Fee
relative to January 2007
1.2
New-99202
1.1
New-99203
New-99204
1.0
Est-99212
Est-99213
Est-99214
0.9
0.8
0.7
1
3
5
7
9
11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47