In part 1 and part 2 we began digesting Steve Brill's recent Time magazine cover story in which he says that we should be asking why our healthcare bills are so high as opposed to who will pay those bills.
In part 2 we learned some things about nonprofit hospitals, including the fact that the average nonprofit hospital makes a greater profit than the average for-profit hospital. "In hundreds of small and midsize cities across the country...the American health care market has transformed tax-exempt "nonprofit" hospitals into the towns' most profitable businesses and largest employers, often presided over by the regions' most richly compensated executives." With a profit margin averaging about 12%, what do "nonprofit" hospitals do with their profits?
They start by buying up medical practices. The doctors in these practices will send their patients to the hospital lab for tests, X-rays, CAT scans, etc. When sending patients for inpatient or outpatient care, the doctors will recommend the hospital "affiliated" with their practice.
"In a trend similar to what we've seen in nonprofit colleges and universities--where there has been an arms race of sorts to use rising tuition to construct buildings and add courses of study--the hospitals improve and expand facilities (despite the fact that the U.S. has more hospital beds than it can fill), buy more equipment, hire more people, offer more services, buy rival hospitals and then raise executive salaries because their operations have gotten so much larger. They keep the upward spiral going by marketing for more patients, raising prices and pushing harder to collect bill payments. Only with health care, the upward spiral is easier to sustain. Health care is seen as even more of a necessity than higher education. And unlike in higher education, in health care there is little price transparency--and far less competition in any given locale even if there were transparency. Besides, a hospital is typically one of the community's larger employers if not the largest, so there is unlikely to be much local complaining about its burgeoning economic fortunes."
"Nonetheless, hospitals...are able to use their sympathetic nonprofit status to push their interests. As the debate over deficit-cutting ideas related to health care has heated up, the American Hospital Association has run ads on Mike Allen's Playbook, a popular Washington tip sheet, urging that Congress not be allowed to cut hospital payments because that would endanger the '$39.3 billion' in care for the poor that hospitals now provide. But that $39.3 billion figure is calculated on the basis of the chargemaster prices. Judging from the difference I saw in the bills examined between a typical chargemaster price and what Medicare says the item costs, this would mean that the $39.3 billion in charity care costs the hospitals less than $3 billion to provide. That's less than half of 1% of U.S. hospitals annual revenue and includes bad debt that the hospitals did not give away willingly in any event."
And let's not forget lobbying costs. You probably thought that the defense and aerospace industries were big spenders in Washington. Or maybe you would have guessed in would be the oil companies. "According to the Center for Responsive Politics, the pharmaceutical and health-care-product industries, combined with organizations representing doctors, hospitals,nursing homes, health services and HMOs, have spent $5.36 billion since 1998 on lobbying in Washington. That dwarfs the $1.53 billion spent by the defense and aerospace industries and the $1.3 billion spent by oil and gas interests over the same period. That's right: the health-care-industrial complex spends more than three times what the military-industrial complex spends in Washington."
That lobbying is done because there is a lot of money to be made in healthcare. "We may be shocked at the $60 billion price tag for cleaning up after Hurricane Sandy. We spent almost that much last week on health care. We spend more every year on artificial knees and hips than what Hollywood collects at the box office. We spend two or three times that much on durable medical devices like canes and wheelchairs, in part because a heavily lobbied Congress forces Medicare to pay 25% to 75% more for this equipment than it would cost at Walmart."
That's coming up in the next post.
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