Medical Money Pits
Your Hospital Bill Is About to Get a Lot More Expensive

Doctors are fleeing private practices for the security of hospitals, and the exodus will be a disaster for U.S. health care.

On the surface, doctors taking on salaried jobs at hospitals might seem like good news for health care costs. One driver of health care inflation is the “fee for service” model, which gives doctors an incentive to deliver the maximum feasible number of billable services per patient. Salaried positions, on the other hand, are supposed to keep down costs, because you get paid the same no matter how many tests you order.

But it’s not that simple, as the NYT notes:

“In many places, the trend will almost certainly lead to more expensive care in the short run,” said Robert Mechanic, an economist who studies health care at Brandeis University’s Heller School for Social Policy and Management […]

Many of the new salaried arrangements have evolved from hospitals looking for new revenues, and could have the opposite effect. For example, when doctors’ practices are bought by a hospital, a colonoscopy or stress test performed in the office can suddenly cost far more because a hospital “facility fee” is tacked on. Likewise, Mr. Smith said, many doctors on salary are offered bonuses tied to how much billing they generate, which could encourage physicians to order more X-rays and tests.

Absorbing private practices is just one more way hospitals can make themselves bigger and more powerful. The market power of hospitals relative to insurers is already one of the most pernicious market imbalances in U.S. health care. This trend will only make it even less balanced. The bigger hospitals get, the more they can jack up their prices—up to 44 percent higher according to one estimate.

Pace Mechanic, this isn’t just a short-term problem. The more doctors start working in hospitals, the less sustainable our current health care system looks in the long term.

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  • qet

    I have made this very argument in prior comments on Via Meadia. Call it the commodification of medicine if you will, or at least a further stage along that road. Or maybe industrialization. Large hospital conglomerates have a large administrative layer. Just like colleges and universities, where the explosion in admin positions has vastly increased the cost in just a few short decades, the same thing is happening in medicine. Expect the usual Econ 101 twits to argue that all of this horizontal and vertical integration will lead to “improved efficiencies with the resulting lower costs passed on to the consumer.” Big Medicine will lobby (i.e., bribe) Congress for subsidies and for taxes on competitors and for regulations to bar entry etc etc just like every other Big industry. What is it again that Einstein said about repeating the same behavior and expecting different results?

    • Anyone who actually understands Econ 101 is never going to argue that this will lower costs and/or improve the quality of the product.

      This is not commoditization, the process being discussed in this article is closer to monopolization.

      Health care will never be made “affordable” by mandating the abuse of an insurance policy to pay for all of it. That effort is exactly what has pushed health care costs to skyrocket at rates multiple that of inflation, for decades.

      • qet

        It is commodification because that is the only way the administrative layer can appropriate to itself more of the gains from selling health care. Only by thoroughly rationalizing all medical care within the walls of a large firm can it be reduced to uniform components that can be performed more cheaply by non-MDs. Opening up more health care provision to non-MDs, i.e., removing the provision of the service beyond the monopoly of the guild, is precisely what rational analysts like Via Meadia have been calling for, solely in the name of “lowering costs.” Now look at the current state of US colleges and universities. Has the move to greater usage of non-guild members, that is, non-tenured and non-tenure track “adjunct professors” who are paid less, reduced the price to the student? Ha! Exactly the reverse. Prices have exploded as administrators have taken over the universities, appropriating most of those tuition payments to themselves (or to excessive facilities construction campaigns). Here and there some kind of celebrity or “star” professor actually gets laterally hired away at an exorbitant premium but that is only for branding/marketing purposes. Anyone who does not believe medicine capable of following this trajectory is fooling himself. These large hospital conglomerates will become the leading voices behind the “deregulation” of medicine–that is, the breaking of the AMA and MD guild by relaxing licensing requirements. I do not disagree with you regarding the drive to monopolization but that is a parallel drive to the internal rationalization of health care delivery. The bringing of MDs under the direct operational and financial control of administrator-run hospitals is just the first step. The hospitals will not be choosy who pays them–insurance companies or the federal government. Prices even for basic services will rise sufficiently that even ordinary care that currently can be paid for by the consumer as a “deductible” under a HSA or the like will be unaffordable because the only places to get that care will be the hospital and it will charge a walk-in consumer a hefty price (just like today). Of course I am not completely certain about what I have just said but it seems both logical and also beginning to become visible.

        • Style tip: paragraphs are your (audience’s) friend. 😉

          Health care was commoditized a long time ago. The fact that the costs have been artificially inflated due to decades of manipulation by the federal government doesn’t change that.

          Meanwhile, outsourcing health care services to non-MDs is not commoditization, it is simple cost-cutting. This trend is a direct result of the corporate business model, which places shareholder dividends and the bottom line over quality of care in terms of business priorities.

          Interesting that you bring up the skyrocketing cost of education though, since it suffers from the same sort of distortion that has caused health care costs to skyrocket. That is: the funding mechanism – incurring long-term debt instead of paying directly for services – encourages endless price inflation. And unsurprisingly, we see this is another area where the federal government – through manipulation of that funding mechanism via cheap loans – encourages inflation in that market.

          “…also beginning to become visible.”

          It’s only becoming visible because of the massive corruption of the market by 50+ years of federal manipulation.

          Get government and insurance OUT of health care, and the costs will be controlled the same way that of all OTHER commodities is controlled.

          • qet

            I am writing a comment to a blog post, not a term paper. I don’t feel the need either for friends or two sentence paragraphs. Health care is still being commodified; yes, to cut costs (that is what I said), not to cut prices. And while I don’t disagree with the idealism in your insistence that we “get the government out of X” (just as I don’t disagree with the idealism in Jefferson’s vision of a nation of yeoman farmers), it is simply not going to happen. This Via Meadia post to which I was attempting to respond was specific to the trend of doctors becoming salaried employees of hospitals and how that would lead to higher prices for health care. Yes, ultimately, fundamentally, the rivers of cash directed by the federal government into any industry distort that industry’s workings, but here I was simply trying to offer an explanation (banal though it may be) for why the absorption of doctors into corporate hospital firms would necessarily lead to higher prices.

          • “I don’t feel the need either for friends or two sentence paragraphs.”


  • Andrew Allison

    “Your Hospital Bill Is About to Get a Lot More Expensive” That may be but, thanks to ACA, it will be covered by insurance LOL. Perhaps a more accurate headline would have been: Your insurance premiums are about to go through the roof!
    TAI persists in confusing the delivery of healthcare with how it’s paid for.

    • Allan Theobald

      Sure once you pay the 6000$ deductible and the other costs. You are quite wrong to assume the ACA covers your costs. the ACA was about giving the masses the illusion of insurance not real affordable care.

      • Andrew Allison

        At least try and get your facts right: it’s a $4K deductible, then a co-pay which varies depending on your plan, and the maximum out-of-pocket is $6,350. None of which has anything to do with the fact that is you go to hospital, you’ll end up paying pretty much the same regardless of the hospital bill.

        • Until that guy with the pen decides to change it.


        • Allan Theobald

          My facts were right as you just documented. I ran large medical groups for almost two decades so I am very well versed in this subject. At any rate yes ACA will be good for a very small percentage of the population with very large bills but the vast majority of the people will be worse off. This is why 60% of the population are against the ACA and that will only intensify since the most onerous aspects of the plan have yet to kick in. The amount of people left uninsured will be about the same twenty years later despite a trillion dollar expenditure.

          • Well said. It is simply another means of wealth transfer.

          • Andrew Allison

            You wrote: “Sure once you pay the 6000$ deductible and the other costs.” That statement displays profound ignorance of ACA.

  • Boritz

    …many doctors on salary are offered bonuses tied to how much billing they generate, which could encourage physicians to order more X-rays and tests. -TAI

    It is painfully obvious when you enter a furniture or electronics store where the sales people are on commission. This sounds like it will likewise involve pain.

    • SongDog

      Since the failure of the salary model used by Coastal Physician, an early PPMC, all compensation models I have ever heard of base physician compensation on productivity. This is not a bad thing, but to argue that salaried docs are going to save the system money because they don’t have the same incentives to “sell” more medical care as a private physician is almost always wrong.

      And silly to boot. With the exception of maybe a few new or cosmetic practices, most docs are inundated with work and struggle just to deliver adequate care to all those who come in. “Up selling” is entirely unnecessary in such circumstances.

      The defensive medicine issue, on the other hand, is an expensive and pervasive problem.

      Don’t believe me? Find one of those directories of “Best Docs” for your area and call in for an appointment. They will average about a 45 day backlog in most parts of the country.

  • teapartydoc

    This is true. I get paid a premium to work at the hospital rather than a surgery center. This consolidation of oligopoly power isn’t designed to save anyone any money. It’s all about power politics and rent-seeking. The idea is that there’s going to be one pie controlled by the government, and the corporations that get the biggest piece of that pie early on will be able to control their own destinies because when they are the last ones standing, they will be indispensable–too big too fail, and eligible for bailouts and subsidies, when the system (this is the only really inevitable part of it all) doesn’t work.

  • I wish people would wake up and try to think outside the tiny box within which they insist on hiding.

    Here… let’s try this… try to find THE CONSUMER in the following sentence:

    The market power of hospitals relative to insurers is already one of the most pernicious market imbalances in U.S. health care.

    If you don’t have a CONSUMER you don’t have a market. So the notion of a “market imbalance” in this scenario is risible. The fact is that what’s being described here is not a market at all.

    The reason it’s not a market is due to the interposition of comprehensive health care insurance companies – an inflationary element the federal government has been hard at work mandating and encouraging for over 50 years.

    There are many OTHER commodity necessities of life that we can’t live without – food, water, shelter, transportation, heat, electricity, iPhones… Somehow, ALL of those necessities remain relatively affordable for the vast majority of people. And that’s despite the fact that they are just as regulated, just as onerously taxed, and suffer all the same cost factors – R&D, shipping, labor, licensure, capital equipement, etc. – as the health care industry. Some even moreso.

    Why are all of THOSE commodities relatively affordable? Simple: because we aren’t distorting those markets with a payment scheme that destroys the economic relationship between the consumer and the provider. Prices are kept down because consumers can apply direct, downward pressure.

    But health care – thanks to 50 years of manipulation by the federal government – is funded in a quasi-market where the consumer doesn’t even know what the prices are. Forget about applying any downward pressure. This is accomplished through the statutory mandate and tax incentives that push comprehensive health care insurance onto the vast majority of working consumers (and retirees). Eliminate this market-distorting element, go back to direct-payment for services, and you’ll see health care prices drop back in line with other necessities.

    Beyond that, if one wishes to avoid “medical bankruptcy”, how about this: try SAVING FOR A RAINY DAY instead of spending yourself into unsustainable debt. That is – open a Health Savings Account, and purchase a high-deductible / low-premium, “catastrophic” health insurance policy. Government could help here, by creating tax incentives for this non-inflationary market structure. But they don’t.

    Final experiment: why do you suppose the federal government has worked tirelessly to force an inflationary business model on consumers when it comes to health care? In the context of today’s destruction of the health care system, if you see this 50-year effort as the Hegelian Dialectic made manifest, you get a star.

    • I only regret that I have but one like to give for your comment.

      “Insurance” requires the existence of “insurable events”, which must be rare in relation to the insured population. When the events are expected to be common, it’s no longer insurance; it’s merely an inefficient and opaque payment fulfillment system.

      • That so very few Americans can even fathom (much less agree with) this self-evident truth is a testament to the success of the federal government’s relentless efforts to control the citizenry through manipulation and politicization of health care.

  • Allan Theobald

    Few of the “journalists” that write about healthcare know even the basics about how the system really works. I read endlessly how doctors are overpaid and that the solution is to get profit and greed out of the system. That sounds great but in truth a highly trained specialist can not earn less than say 300k because if that happened the entire system would collapse. It’s far too complicated to get into this in a simple comment but it’s true. Comparing the US system to Europe is a false comparison because in Europe the education is mostly free and there is no malpractice worries. Today in the US it costs between 200k at the low end and up to 600k on the high end to become a doctor. Moreover it take 12-15 years of intensive very competitive study after high school. Meanwhile the typical big city safety employees(cops/fireman) earn actuarially about 170k(this includes the lifetime pension costs) per year for a job that requires little education. If say doctors would earn what liberals want say 150k this would mean that the average fireman in San Diego would end up far better off than the person who spent 200-600k and 12-15 years to become a doctor. Obviously this can’t work. Moreover all the public city hospitals only survive because they are staffed by doctors in training paid slave wages. If the final salary was 150k then these city hospitals would be forced to pay a fair wage (100k) to these doctors and these hospitals would go bankrupt. As always the government officials pushing “reform” are clueless to how the system actually works. They seem unaware that nurses and PA’s already are making in excess of 100k making their dream of a making doctors modestly paid bureaucrats hopelessly naive.

    • Doctors don’t need to make 300k salaries any more than structural engineers, airline pilots or other highly-skilled professionals who hold people’s lives in their hands every day.

      Doctors “need” to make high salaries because of the cost of medical school and the cost of malpractice insurance.

      But no one ever stops to think about this problem long enough to realize that the inflationary mechanism we use to pay for health care is what has encouraged the cost of that education and that insurance to skyrocket in the first place – right along with every OTHER aspect of health care.

      Doctors – like every other profession – should earn what the market determines, as valued by the consumer.

      You can’t have a market if the consumer is eliminated from the price-setting process by a comprehensive health care insurance element.

      • Allan Theobald

        In an ideal world I would agree with much of what you said, but the truth is the cost of medical school and the time cost of the training is not going to change any time soon. Therefore doctors will continue to be well paid not because they are greedy but because that’s the income required to pay off the true cost of the training. What will change is that primary care will be provided by non-physicians while the specialist will remain doctors.

        • The truth is that the cost of medical school is determined by the market. As long as the market is distorted by the use of comprehensive health care insurance and cheap credit – both of which, unsurprisingly, are promoted by an overreaching federal government – the cost of all these things will continue to skyrocket, just as they have done for the past quarter century.

          • Allan Theobald

            Maybe but that is the way it is and there is no going back. Medical/Law/Business/Dental School will always remain very expensive.

          • Something that can’t go on forever, won’t.

          • Allan Theobald

            I agree but this has been going on at the college level for years and shows no signs of changing. The 100th ranked private school costs about the same as the top ten which makes no economic sense. College today is far overpriced compared to the value of most of the degrees but the progressive have a vise grip on the education system and any reform will greatly hurt the education class which explains the complete lack of progress. Most college classes haven’t changed in years and could easily be taught online. The elite colleges today are nothing more that expensive elite social clubs and the parents are mostly paying for this grouping /prestige rather than education which could be taught using modern technology by one professor to thousands of students at a fraction of the cost. This is a true crisis that is going to dramatically effect the middle and upper middle class since so many students are taking on large student debts.

          • “shows no signs of changing.”

            Neither did the housing bubble (remember all those “riskeless” securities being pumped into the financial markets by the GSEs?)… until it collapsed and took the entire economy down with it.

            Similarly, as long as the federal government makes cheap credit for “higher education” (read: nationalist/statist indoctrination) available, tuition inflation will continue.

          • Allan Theobald

            I agree it’s a bubble of sorts but it’s quite different than the housing bubble. The top schools will never change because they are rich and give huge financial aid but it will effect the weaker ones very soon.

          • “it’s a bubble of sorts ”

            It’s a bubble. All bubbles eventually collapse. Often quite catastrophically.

          • Allan Theobald

            As I told you we agree in principle but just claiming it’s bubble and that it will eventually collpase is pretty vague. My point is that it’s very different from the housing bubble for a variety of reasons. And for precisely those reasons I think sadly the scam will continue for many years to come.

          • “it’s very different from the housing bubble”

            Not in any substantive way. And all bubbles collapse.

          • Allan Theobald

            Here you are quite wrong. The top schools have so much prestige that they could fill their classes at twice the price and so much money that they can afford to let 50-90% of the students pay little to no tuition. Where I live(San Diego) many parents would impoverish themselves to send their child to HPYS. Yes some of the non-elite schools will collapse but your analogy to the housing bubble is too simplistic. What would really change the system would be to put the schools on the hook for defaulted student loans but that is not going to happen for political reasons.

          • “Here you are quite wrong.”


    • Guest

      You are comparing doctors who SAVE lives and
      police/fire who RISK their lives. I think they are more analogous then
      you think. The government should help on educational
      costs for doctors if they want this shabang to work.

    • Shana Hector

      You are comparing doctors who SAVE lives and
      police/fire who RISK their lives. I think they are more analogous than
      you think. The government should help on educational
      costs for doctors ‘absolutely’ if they want this Sha-Bang to work.

      • Allan Theobald

        I’m not sure what you are saying. Cops have very little educational requirements and retire at 50 with full pensions though they have a somewhat dangerous job. Doctors must attain very high levels of educational performance and go to school for 12-15 years. They are not related in any meaningful way. As for the cost it’s not really about who pays so much but rather that the cost is highly inflated.

        • Shana Hector

          Allan I appreciate your point but I think it needs to be injected with a little more sociology. I think some costs are unquantifiable.

          Cops have a somewhat dangerous job? I’m not a huge fan of cops but they do risk their lives everyday just by pulling over a vehicle for a simple moving violation. They also witness the carnage of the most horrific acts of violence our society has to offer. Stress pay and early retirement might be warranted.

          Do we know the cost that has been placed on society by doctors prescribing at will? Anyone with a paper cut can get highly addictive painkillers (FAIL), directly contributing to the crime rate
          increasing…more cops needed. Doctors, in effect have become legal drug dealers who generally care less about their patients but more about the cash they obtain by repeat visits.

          Solution, make doctors education more affordable so they don’t need to resort to drug dealing and insurance fraud,

          In England, they never prescribe you ANY addictive medications and they actual want you to get better. Crazy foreign concept…they actually want you to get well at a minimum cost to both the
          patient and society.

          • Allan Theobald

            Shana I don’t disagree with much of what you say but just stated that medical education should be made less expensive has little meaning unless you actually propose a realistic plan that explains how that could be achieved. Yes cops have a dirty job but let’s use the fireman as an example since thye get paid even better. In San Diego no fireman has died in the line of duty since 1978 so calling it dangerous just ins;t accurate. They are really overpaid paramedic since these days with modern building codes fires are very rare. Generalizing that most doctors are legal drug dealers is a foolish statement that you can’t back up. At any rate the original discussion was about why is makes no rational sense to compare the incomes of cops and doctors.

          • Shana Hector

            Sorry Allan I guess I’m jaded. I know way too many American’s on prescription drugs that the UK population has never even heard of. The NHS would NEVER prescribe such addictive substances. Everything is for sale in the USA, even the health and well being of its people. Sad really.

  • Blaze

    It’s called “Meaningful Use” and it’s just a different way for large hospitals to strong-arm insurance companies instead of just straight reimbursements.

  • Blaze

    It’s called “Meaningful Use” and it’s just a different way for large hospitals to strong-arm insurance companies instead of just straight reimbursements.

  • pabarge

    This is the website of Walter Russell Mead. Walter voted for Barack Obama. Keep this in mind when ever you read anything on this website. These people voted for Barack Obama.

    • bittman

      Jonathan Turley, the Georgetown University Law Professor, voted for Obama too. Yet, he still testified before Congress that Obama with his unilateral decisions and changes to Obamacare was becoming the very threat against our Constitution that our Founding Fathers were trying to prevent.

  • bittman

    Obamacare is simply a big government/big hospital monopoly. Monopolies are seldom the most cost effective or the most efficient way to get anything done.

    • I_Go_Pogo

      It’s a Ponzi scheme. A fraud of the highest magnitude.

  • I_Go_Pogo

    I’ll gladly pay my doctor ( who is in a hospital system ) anything she charges me, rather than give a DIME to obama’s Reich. ‘Self pay or die’ is my new motto. F**k him, and all his fellow travelers.

  • devan95

    Will Obamacare be repealed or won’t it? Will Congress fund it or won’t it? Will the web site be fixed or not? Blah, blah, blah. We the people just need to do what we need to do and Congress be damned. Resist. Refuse. Revolt. EXEMPT OURSELVES! We did not comply with Prohibition and we simply should not comply with Obamacare. For religious reasons. For privacy reasons. For the cause of liberty and freedom and in protest of the idea that the federal government (under one party rule, no less), can force private citizens to purchase anything with our own money. Are we citizens or subjects? Mice or (wo)men? Just say NO to socialism and to the corrupt, unionized, far left IRS: the gestapo of America’s political class. After all, the federal government ignores millions of illegals who are breaking U.S. immigration law every day. Our Founders pledged their lives, their fortunes and their sacred honor. All we have to do is just say no to a scheme we all know is un-American and a violation of our most basic founding fundamentals of privacy, self reliance, limited government and individual freedom.
    How To Opt Out Of Obamacare. Know your options and become savvy self-pay patients. Join a health care sharing ministry. These are voluntary, charitable membership organizations that agree to share medical bills among the membership. They function similar to insurance, and are probably the best alternative to conventional health insurance. There are four of them, at least that I know of. Three are open only to practicing Christians (Samaritan Ministries, Christian Healthcare Ministries, and Christian Care Ministry) while a fourth, Liberty HealthShare, is open to anyone who agrees with their ethical commitment to religious liberty. They operate entirely outside of Obamacare’s regulations, and typically offer benefits for about half the cost of similar health insurance. Members are also exempt from having to pay the tax for being uninsured. From the article by Sean Parnell http://thefederalist. com/2013/12/04/opt-obamacare/

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