Cover: Taking a closer look at health care costs

Saturday, March 01, 2014 11:00 AM

Health care costs: Q & A with Stephen Brill, author of “Bitter Pill: Why Medical Bills Are Killing Us”

Steven Brill, Journalist
Kate Alfano, CMS Contributing Writer

Editor’s note: The Colorado Medical Society is exploring the complex issue of health care costs in each issue of Colorado Medicine this year. The January/February issue featured a column by Jay Want, MD, CMO of the Center for Improving Value in Health Care. He identified three tsunamis of change that are affecting every aspect of American life, including the effort to reduce the cost of health care: debt, data and deciders. Click here to read last issue’s cover story.

Journalist Stephen Brill’s special report in TIME magazine, “Bitter Pill: Why Medical Bills Are Killing Us,” investigated hospital billing practices and why U.S. health care spending is out of control. That March 2013 issue of TIME marked the first occurrence in the magazine’s history that the entirety of feature space was written by one contributor, and its publication sharply raised the profile of the health care cost debate.

Colorado Medicine sat down for an exclusive interview with Brill after he spoke at an IMA Foundation forum that brought together business leaders, legislators and industry experts to discuss why health care costs are so high and how these costs affect our communities.

Colorado Medicine (CM): In a digital age, given transparent information, is it now possible for more patients to be able to make informed choices?
Steven Brill (SB): The idea of informed choices involves two things: information and choice. It is entirely possible and should be mandatory that everyone – patients, public, policymakers – has information about what a particular health care procedure costs, who’s getting the money and even how they figured out how much it should cost. Having the information is one thing. Having the choice once you have the information is a whole other thing.

To take two different examples: If on the way out of here I slip and fall, the ambulance is going to take me to the nearest hospital. I’m not going to exercise any choice in what I pay or to whom I pay it. That’s a good thing; I want to get to the nearest hospital. The second example would be if I had some terrible disease like cancer and my doctor says there’s one drug that is the drug I need to put this in remission. I may have a lot of information about what the drug costs but I don’t have much choice.

The kind of reform we need to aim for is first, information. Second, traditionally regulators have interceded where the market can’t work because there isn’t real choice. I think this is an argument that when you give a patent for a crucial cancer-fighting drug so no one can copy it – which is a good thing, you’re rewarding the creator of the drug – I think you should be regulating the profit that can be made from it. Otherwise you have what we have in this country, much higher costs than any other country for those types of drugs.

CM: What will it take to make true price transparency a reality?

SB: There already is so much regulation in the health care system and there are already two players, Medicare and Medicaid, who pay for all these services and their costs are compiled and kept. With the advantage of everyone being able to analyze and organize data so easily, having the information is increasingly less difficult.

Having the information for individual patients is harder because I don’t know what deal my insurance company has made with Hospital A versus Hospital B. I don’t know – and my insurance company probably won’t even tell me in many cases – whether I’m better off to have my wife give birth at Hospital A versus Hospital B assuming they are of the exact same quality. The insurance company may have just been out-negotiated at Hospital B and I pay for that. That’s crazy.

The transparency, as any doctor in Colorado will tell you, isn’t really the chargemaster, the hospital’s list price. It should start with that but the real transparency is what the provider is actually charged in real life to people who are insured – most people and more people with the advent of the Affordable Care Act.

CM: Are you familiar with Colorado’s All Payer Claims Database? How will it impact the market?

SB: It’s so obvious that it’s a great tool. If I were an insurance company or hospital, I would be very uncomfortable about it. In the world of medical economics, if there’s something in the market that both hospitals and insurance companies are very uncomfortable about, it sounds like a pretty good thing.

I don’t know what it’s really going to do but I’ll tell you what it should be.  If I am insured by XYZ Insurance Company and I can go to any one of 10 providers for a colonoscopy, what I want to know is what the insurance company pays each of those 10 providers assuming it doesn’t pay them the same thing, which it won’t, and what my copay or coinsurance is. Second, I’d like to know if I had Insurance Company ABC instead of XYZ, how different a deal that would be. It’s one thing to focus on premiums; that’s important. Then in a world of high coinsurance and deductibles, it’s also important to focus on which insurance company has struck the best deal. If I owe 20 percent of $100 versus 15 percent of $1,000, I’m better with the 20 percent coinsurance on the $100.

CM: Are the matters of excessive leverage by one player over another an issue for state legislation or are they more about reform at the congressional level?

SB: It’s both. If the two biggest hospitals in a community merge, what they will say in their press release is they’re doing it to create all types of synergies and cost efficiencies and it’s going to result in lower costs for everybody and this is a wonderful thing. It may result in a much higher salary for the CEO because he now gets to run something twice as big but the press release will say, “we’re doing this to save money.” Well, we don’t know that because we don’t know what they charge or what the insurance company pays them. We need to be able to say: “In 2013 you were two hospitals competing and you charged Aetna this amount and now that you’re one hospital, Aetna’s being charged 20 percent more. Can you run through how this is saving everybody money again?”

Generally, in any democracy or free market, information is a pre-requisite for everything working. Once you have the information, maybe you see you need some regulation, too.

CM: What might be appropriate when it comes to regulation?

SB: For starters, controls on drug prices – particularly prescription medicines where [companies] have patents and have a near monopoly on that drug. Your doctor prescribes that drug and he may or may not have a consulting agreement with the drug company. The only thing you know is your doctor says this is the drug you must take and you or your insurance company is going to pay whatever the drug company charges. That’s one area of regulation.

The other area would be the concentration of provider power so that hospitals can’t keep consolidating and buying up doctors’ practices. It sounds good because then they’re providing coordinated care and the hospitals argue that if we buy up the second hospital in town, we’ll have these economies of scale. It’s clear to me that every study on the after effects of that is that prices go up.

CM: If you were speaking directly to the chairman of the health committees in the Colorado state legislature, would that be your answer about how to deal with the imbalance of power?

SB: My answer would be, if you have a community where you can demonstrate that one provider has an 80 percent share of the market, then you can demonstrate that compared with Fort Collins where there are five providers who split the market, their prices are X percent higher, then you could sue to break them up, you could get the Justice Department to sue to break them up or you could scare them into breaking up.

I’m sure you’re more sensitive to this than I. The real threat is to doctors. It’s hard enough dealing with filling out forms for eight different insurance companies and Medicare but when a hospital comes to you and says, “We’ll buy your practice for X, we’ll pay you a salary that’s basically the same as what you’re taking in now but you don’t have any of this hassle anymore,” that sounds good until you read the provisions of the contract, some of which have been sent to me by doctors who are pretty angry. Down in the contract it says that if you quit, that’s fine, you just can’t practice within 300 miles of here for the next 10 years.

CM: Are you troubled by the trend of hospitals buying up physician practices?

SB: It troubles me but I understand it. Doctors, I assume, don’t go to medical school because they really like filling out forms and fighting with insurance companies. On the other hand, they don’t go to medical school because they really like the idea of a boss telling them, “you ordered 6 percent less of this test last month, what’s wrong with you?”

I got an e-mail right after the article came out from a salaried doctor in one of the hospitals I had written about who copied an e-mail he got from the supervisor of his department saying “last quarter you were 4 percent down on this very expensive test” with an enclosed graph. The last sentence was “you’d better get these numbers up.” Well, what is he supposed to do? There’s always the chance that the patient didn’t need the test, right? So the choice is do you want to fill out all the paperwork or do you want some guy telling you you’re supposed to be ordering tests? Neither one is a very good place.

CM: Do you anticipate that the hospitals will vigorously oppose your proposal to abolish the chargemaster and why?

SB: No one defends it. What the American Hospital Association said was, “yeah, yeah, you’re right about the chargemaster but nobody pays it anyway so it doesn’t really matter. We’ve been trying to abolish it for years.” Then there’s an association of CFOs of hospitals and they attack the article saying, “anyone who has bothered to follow our work would see we’ve had committee meetings and task forces for the last 10 years about how to abolish the chargemaster.” Well, what is that about? If you want to abolish it, abolish it! Change it. You could just say, “alright, our new chargemaster is 50 percent higher or 100 percent higher than what Medicare charges.”

CM: What would you transition it into?

SB: Hospitals are $700 billion or $800 billion of the $2.8 trillion [in health care spending]; they’re a fairly big industry. They’re all big businesses, hundreds of millions of dollars, billions of dollars. Name another business where they actually don’t know what their costs are for providing a service. They just don’t know, [they claim], and they won’t look at Medicare for that because they refuse to acknowledge that Medicare actually is measuring their costs.

So what you would transition it into is the way any enterprise is run: Here’s what our costs are,  therefore, we should target making 20 percent, 40 percent, 60 percent over our operating costs, whatever it is, and that allows us to cover overhead. That’s what we’re going to charge, that’s what we’ll explain to people and that’s the way any business is run. The only businesses that aren’t run that way are hospitals and universities.

CM: What are your recommendations to address costs associated with defensive medicine?

SB: The malpractice reform I’ve seen that I think makes the most sense is giving doctors and hospitals and other providers what’s called a “safe harbor.” If a doctor has followed a specific set of procedures, then the burden of proof shifts to the plaintiff’s lawyer to prove why the doctor should have made an exception in the case.

If I come in and say I fell off my bicycle and hit my head and they only give me one of two tests and I leave the emergency room and die the next day, the plaintiff’s lawyers will say, “You should have given the second test to be extra sure.” If the doctor can say the standard procedure is just to give the one test, the second test is just one step too far, then the doctor would get the case dismissed. You’ve basically changed the burden of proof if the doctor is practicing according to norms set in advance.

CM: In your research, was it your impression that there is an inverse power curve for the working uninsured – that they pay significantly more than their insured counterparts for equivalent services? 

SB: They do because they don’t have any bargaining power. If you’re insured, insurance companies try to bargain in advance for what you’re going to pay that provider, especially if the provider is in the network. That’s just the way it’s set up. I actually think the insurance companies by and large are being forced to pay too much money because the market needs regulation when it comes to a lot of hospitals that have high concentrations of bargaining power, and drug companies, device makers that have near monopolies on the products they sell.

CM: At the IMA event you said that doctors and nurses are the only ones not on the “gravy train.” Could you expand on that?

SB: If you look around, the irony of ironies is that the ultimate emblem of how screwed up the marketplace is is that the people actually providing the care are the ones who haven’t enjoyed the gold rush that everyone else has. If you’re really good at it, you can make more money as a sales manager selling CAT scan equipment than you can curing cancer. A lot of docs have gamed the system by having consulting contracts with device makers, giving speeches to drug companies, or buying or starting their own labs so they can send the lab test to their lab. Even then, they’re just the grunts doing the work. Name a hospital where the most highly regarded doctor in the hospital makes more money from the practice of medicine than the CEO of the hospital makes from being CEO.

CM: What can CMS members do to influence the cost of care debate?

SB: They can start by joining hospital boards and firing the consultants who by coincidence consult with every hospital and therefore set their peer group salaries that everybody pays for the executives of the hospital.

They can drive down the profit margins by lowering prices and providing more care and more aid to the people who need it, and have a much more aggressive policy for giving out financial aid. They could get on the backs of their congressmen and ask them why they keep voting to prevent Medicare from having the ability to bargain with pharmaceutical companies and device makers and diabetes test strip makers for the price of all the stuff that Medicare buys.

Those would be good starters.