U.S. Hospitals’ Scandalous Price Gouging

American hospitals are getting away with charging patients outrageously inflated prices, according to an excellent piece by Steven Brill on our broken health care system. Writing in Time magazine, Brill goes deep in depth to examine six (typically) expensive hospital bills to figure out why health care costs so much in America. He found that hospitals keep an internal price list for different kinds of treatment and care called a “chargemaster,” which routinely sets the price of services at amounts much, much higher than it costs the hospital to administer them.

Looking at the bill of one patient, Sean Recchi, Brill lists some of the huge discrepancies between the cost to the hospital and the price it charged the patient:

Recchi was charged $13,702 for “1 RITUXIMAB INJ 660 MG.” That’s an injection of 660 mg of a cancer wonder drug called Rituxan. The average price paid by all hospitals for this dose is about $4,000, but MD Anderson probably gets a volume discount that would make its cost $3,000 to $3,500. That means the nonprofit cancer center’s paid-in-advance markup on Recchi’s lifesaving shot would be about 400%.

Throughout the piece, Brill traces the complex incentives that lead to such high hospital bills. Not only do the hospitals charge far more per treatment then they should for basic mercenary reasons, they also preform far more treatments than are necessary. Part of the motivation is financial, but part is legal:

“We use the CT scan because it’s a great defense,” says the CEO of another hospital not far from Stamford. “For example, if anyone has fallen or done anything around their head — hell, if they even say the word head — we do it to be safe. We can’t be sued for doing too much.”

His rationale speaks to the real cost issue associated with medical-malpractice litigation. It’s not as much about the verdicts or settlements (or considerable malpractice-insurance premiums) that hospitals and doctors pay as it is about what they do to avoid being sued. And some no doubt claim they are ordering more tests to avoid being sued when it is actually an excuse for hiking profits.

Read the whole thing. Brill’s article is one of the most outstanding pieces of health care journalism that we’ve seen in a long time.

It raises a number of questions and touches on a number of themes that we at VM think are extremely important, from the breakdown of the blue state model to the rise of new service jobs. Moreover, the article shows that the debate of healthcare hasn’t gone away with the dawn of Obamacare. Our system still suffers from flaws that the Affordable Care Act doesn’t even attempt to address, and we’re still trying to get even a basic understanding of them. We here at VM have already been writing on much of this, and we will continue to explore these themes in more depth in coming weeks and months.

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