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EXAMINING THE LACK OF TRANSPARENCY AND 

CONSUMER–DRIVEN MARKET FORCES IN U.S. 

HEALTH CARE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY POLICY, 

HEALTH CARE AND ENTITLEMENTS 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

APRIL 25, 2013 

Serial No. 113–20 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

MARK POCAN, Wisconsin 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 

PETER WELCH, Vermont 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

ROBERT BORDEN, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON ENERGY POLICY, HEALTH CARE AND ENTITLEMENTS

JAMES LANKFORD, Oklahoma, Chairman 

PATRICK T. MCHENRY, North Carolina 

PAUL GOSAR, Arizona 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

JACKIE SPEIER, California, Ranking 

Minority Member 

ELEANOR HOLMES NORTON, District of 

Columbia 

JIM COOPER, Tennessee 

MATTHEW CARTWRIGHT, Pennsylvania 

TAMMY DUCKWORTH, Illinois 

DANNY K. DAVIS, Illinois 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

(III) 

C O N T E N T S 

Page 

Hearing held on April 25, 2013 .............................................................................. 1 

WITNESSES 

Mr. Marty Makary, M.D., M.P.H., F.A.C.S., Surgeon, Johns Hopkins Hospital, 

Health Policy Professor, Johns Hopkins Bloomberg School of Public Health 

Oral Statement ................................................................................................. 6 

Written Statement ............................................................................................ 8 

Mr. John Goodman, Ph.D., President and Chief Executive Officer, National 

Center for Policy Analysis 

Oral Statement ................................................................................................. 11 

Written Statement ............................................................................................ 13 

Ms. Lynn Quincy, Senior Health Policy Analyst, Consumers Union 

Oral Statement ................................................................................................. 30 

Written Statement ............................................................................................ 32 

APPENDIX 

Letter from the Surgery Center of Oklahoma to the Honorable James 

Lankford, a Member of Congress from the State of Oklahoma ........................ 57 

Special Report in Time Magazine, Why Medical Bills Are Killing Us ................ 61 

(1) 

EXAMINING THE LACK OF TRANSPARENCY 

AND CONSUMER–DRIVEN MARKET FORCES 

IN U.S. HEALTH CARE 

Thursday, April 25, 2013, 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON ENERGY POLICY, HEALTH CARE & 

ENTITLEMENTS, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 10:34 a.m., in Room 

2247, Rayburn House Office Building, Hon. James Lankford [chairman of the subcommittee] presiding. 

Present: Representatives Lankford, Gosar, McHenry, Walberg, 

Woodall, Speier, Horsford, Lujan Grisham, and Cummings. 

Staff Present: Ali Ahmad, Majority Communications Advisor; 

Brian Blase, Majority Senior Professional Staff Member; Daniel 

Bucheli, Majority Assistant Clerk; Michael R. Kiko, Majority Staff 

Assistant; Scott Schmidt, Majority Deputy Director of Digital Strategy; Jaron Bourke, Minority Director of Administration; Nicholas 

Kamau, Minority Counsel; Adam Koshkin, Minority Research Assistant; and Safiya Simmons, Minority Press Secretary. 

Mr. LANKFORD. The committee will come to order. 

I would like to begin this hearing by stating the Oversight mission statement. We exist to secure two fundamental principles: 

first, that Americans have the right to know the money Washington takes from them is well spent; and, second, Americans deserve an efficient, effective Government that works for them. 

Our duty on the Oversight and Government Reform Committee 

is to protect these rights. Our solemn responsibility is to hold Government accountable to taxpayers, because taxpayers have a right 

to know what they get from their Government. We will work tirelessly in partnership with citizen watchdogs to deliver the facts to 

the American people to bring genuine reform to the Federal bureaucracy. This is the mission of Oversight and Government Reform. 

Today’s hearing will explore the problems that result from the 

lack of transparency, consumer-driven market forces, and our 

health care system. Today’s hearing features the testimony of two 

of the witnesses that are here—Ms. Quincy is also coming, as 

well—who last year wrote important thought-provoking books 

about the U.S. health care system. Both paint a picture where doctors, nurses, and patients are trapped in a system filled perverse 

2 

incentives. When providers and patients act upon these incentives, 

abundant waste and abuse result. 

According to a report last year from the Institute of Medicine, 30 

percent of U.S. health care spending, an amount that exceeds $750 

billion, was wasted in 2009. Over the past decade, the growth in 

health care costs almost entirely eliminated income growth for average families. Additionally, medical errors and hospital-acquired 

infections are a major problem. According to Dr. Makary’s testimony, if medical mistakes and preventable infections together were 

a disease, it would rank as the number three most common cause 

of death in the U.S., after heart disease and cancer. 

Today’s hearing will take a close look at the perverse incentives 

that lead to rampant waste and inappropriate and harmful medical 

treatment in the United States health care system. Nearly 90 percent of payment of health care services comes directly from third 

parties. Third-party payment separates the payer of the care from 

the patient and provides a strong incentive for a doctor to serve the 

payer of the care rather than serve the patient. The system has 

also produced a massive bureaucracy focused on claims processing 

and the creation of management of cumbersome rules. This bureaucracy adds to the expensive health care services and creates 

frustration among health care practitioners and patients. 

A 2009 study in the Archives of Internal Medicine found that 31 

percent of doctors are burned out and 51 percent of doctors 

wouldn’t recommend the profession to one of their children. 

I look forward to hearing Dr. Goodman’s testimony on the implications of the failure of the health care providers to compete on 

price. I also look forward to hearing about segments of the health 

care system where there is competition and transparency, and how 

we can move public policy more in that direction. 

Dr. Makary has done service to the Country by speaking up 

about problems within his profession. Unaccountable, his book, also 

deals with perverse incentives at the core of the health care system, but is focused on how these incentives lead to substandard 

care for far too many U.S. hospitals. Here are some examples from 

his book, and I hope I am not stealing your thunder on this: 

In about half the hospitals in the U.S., fewer than half the employees at that hospital would feel comfortable having their own 

care performed in the unit within which they work. 

Twenty-five percent of all hospital patients experience a preventable medical error. 

Hospitals make roughly $30,000 more from patients who suffer 

at least one complication than they do from patients whose procedures go smoothly. 

Dr. Makary argues that hospitals and doctors fail to compete on 

quality because the public does not have the information to be able 

to separate high quality hospitals from low quality hospitals for 

various treatments. 

I received a letter yesterday from Dr. Keith Smith, which I would 

like to enter into the record, a physician at the Surgery Center of 

Oklahoma in Oklahoma City. This hospital is the only place in the 

Nation where all prices are listed online, and competition has driven up quality and driven down price. 

3 

I ask unanimous consent to enter his letter into the record. Without objection, so ordered. 

Mr. LANKFORD. Independent experts believe that the Affordable 

Care Act, despite its name, might very well increase what Americans spend on health care, both in terms of money and in time. 

Moreover, Obama Care increases Federal Government control over 

U.S. health care system, increases the third-party payment problem, and reduces consumer choice. 

The health care system needs real reform, and the ideal reform 

would aim to address the two primary concerns highlighted by today’s witnesses: reducing the amount of third-party payment in 

health care and providing patients with additional information related to health care quality. The health care system has to be reoriented toward value and better outcomes, and away from increased 

utilization and waste. 

I now recognize the distinguished ranking member, the 

gentlelady from California, Ms. Speier, for her opening statement. 

Ms. SPEIER. Mr. Chairman, thank you and the witnesses for 

being here today on a topic that should be front and center because 

the cost of health care in this Country is one of the huge drivers 

for personal budgets and for the public budget as well. 

We spend a great deal of time talking about who should pay 

health care bills: the consumer, the insurance company, or the Government. Another question that could be asked is why are health 

care costs so high. 

Mr. Chairman, I want to submit for the record this Time magazine piece, Why Medical Bills Are Killing Us, by Steven Brill, and 

I am hopeful that we can invite Mr. Brill to come and speak to us 

here, because he has done an exhaustive study on why the cost of 

health care is so expensive. 

Mr. LANKFORD. Without objection. 

Ms. SPEIER. The majority has suggested that shifting more 

health care onto consumers, what one of the witnesses will call 

skin in the game, will lead to lower health care costs in the marketplace. 

As seen by one of the graphics we are about to put up, consumers 

already have a great deal of skin in the game. Sixty-two percent 

of bankruptcies are related to illness or medical bills. Sixty-nine 

percent of those who have experienced medical-related bankruptcies were insured at the time of their filing. 

Health care is not a buyer’s market, it is a seller’s market. It certainly is not a free market. When you have to go to the emergency 

room, you can’t shop around for the best deal like you would for 

a new TV, cell phone, or car. When the doctor tells you you need 

an x-ray and a CAT scan, you don’t ask how much it will cost; all 

you want to know is what is wrong and get a good diagnosis. 

The medical economy is clearly a different world than we face in 

any other parts of our lives. In February, Time magazine ran the 

story by Steven Brill, The Bitter Pill. Brill undertook an exhaustive 

examination of the medical bills and the actual hospital costs for 

eight patients across the United States. The results are shocking 

and clearly demonstrate how broken our health care delivery system is. 

4 

For example, a patient was charged $283 for a single x-ray that 

would only cost $20.44 if covered by Medicare. The patient was 64 

and unable to buy insurance. If he had been one year older, he 

would have qualified for Medicare. That nonprofit hospital, and I 

underscore the fact that it is a nonprofit hospital, has a profit margin of 26 percent and paid its president $1.8 million plus what he 

earned consulting for pharmaceutical companies last year. 

A patient at another hospital was charged $199 for a blood test, 

for which Medicare would have paid $13.94. 

In yet another case, a patient was billed $7,997 for a stress test 

using radioactive dye that cost Medicare $554. 

The bottom line: our system ensures that those least able to pay, 

those with the most skin in the game, are the ones singled out to 

pay the highest rates. 

You have each been provided a copy of the article and I have already requested unanimous consent. 

As seen in the next slide, the cost of health care also bears little 

connection to the quality of the care that is provided. Annual 

health care spending per person in the United States was higher 

in 2010 than it was in Australia, Denmark, Japan, Spain and the 

United Kingdom. But our life expectancy rate ranked at the bottom. So something is fundamentally wrong. We pay the most and 

we get the least, and the condition of those is reduced. 

As Dr. Makary notes in his testimony today, the Institute of 

Medicine has reported that up to $750 billion, 30 percent of the 

total health care spending, may be going to over-treatment, unnecessary tests, and/or wasteful spending. In fact, we provide perverse 

financial incentives to medical providers to provide more services 

and order more tests under a fee for service system. The more they 

order, the more they are paid. Increasingly, they have direct financial stakes in CAT scans, MRI, or pathology services they order. 

The in-office ancillary service exception and stark prohibition on 

self-referral has now swallowed the rule. Doctors are encouraged to 

buy CT and MRI machines, and are instructed by the manufacturers on how many scans they need to provide a break even, and 

then how many tests they need to order to generate a healthy profit. 

Last November, the GAO issued a report on advanced imaging 

showing a direct correlation between self-referral and higher utilization, costing Medicare at least $109 million in 2010; and that is 

a very conservative figure. The same problem exists in pathology, 

radiation, physical therapy, and the GAO will have a similar report 

coming out on those. I will soon be introducing legislation to close 

this truck-size loophole and save Medicare billions. 

Requiring consumers to have more skin in the game would also 

do little to address the quality of care patients receive. Medical errors and preventable infections are among the leading causes of 

death in the United States. This has been one of the dirty little secrets in the health care industry. 

The issue of health care transparency is not a new one. I actually 

carried legislation in California in 2000 that requires general acute 

care hospitals to adopt a formal plan to eliminate or substantially 

reduce medication-related errors. I introduced this bill because I 

5 

had learned that medication errors increase the cost of a hospital 

stay by an average of $4,700. 

Some in Congress do not like to admit it, but the Affordable Care 

Act has already gotten the Nation moving in the direction of increased transparency, lower costs, and better outcomes. The Summary of Benefits program created an unprecedented standardized 

method of communicating health plan information to over 170 million consumers enrolling in private health coverage. The SBC requires providers to give consumers information about health care 

plans in a uniform layout and in terms they can actually understand. 

I realize I am 56 seconds over, but let me just finish with this. 

A new study from the Kaiser Family Foundation demonstrates 

that the slowdown in costs could cut half a trillion dollars in health 

care costs over the next decade. Larry Levitt, from Kaiser Family 

Foundation, says, ‘‘The run-up to the Affordable Care Act and the 

initiatives put in place by the law are absolutely having an effect, 

and that providers and payers see health care reforms coming and 

they want to get ready to lower their costs.’’ 

So we have much to do and I thank the chairman for initiating 

this hearing so that we can get to the business of making it more 

affordable for consumers to access health care. I yield back. 

Mr. LANKFORD. Thank you. 

Members will have seven days to submit opening statements for 

the record. 

We will now recognize our panel today. 

Dr. Marty Makary is the Director of Surgical Quality and Safety 

at Johns Hopkins Hospital and Associate Professor of Health Policy 

at Johns Hopkins Bloomberg School of Public Health; Dr. John 

Goodman is the President of the National Center for Policy Analysis; and Ms. Lynn Quincy is the Senior Health Policy Analyst at 

Consumers Union. 

Pursuant to committee rules, all witnesses are sworn in before 

they testify, so if you would please stand and raise your right hand. 

Do you solemnly swear or affirm the testimony you are about to 

give will be the truth, the whole truth, and nothing but the truth, 

so help you God? 

[Witnesses respond in the affirmative.] 

Mr. LANKFORD. Thank you. 

Let the record reflect that the witnesses answered in the affirmative. 

You may be seated. 

In order to allow time for discussion, please limit your testimony 

to five minutes. Your entire written statement will be made part 

of the record, as all of you have submitted written testimony as 

well. When we conclude this portion of it, we will have questions 

from all the different members that are here and we will have 

some interaction at that time. 

Dr. Makary, you are our first witness and we would be honored 

to receive your oral testimony now. 

6 

WITNESS STATEMENTS 

STATEMENT OF MARTY MAKARY, M.D., M.P.H., F.A.C.S. 

Dr. MAKARY. Thank you, Mr. Chairman. Thank you, Ranking 

Member Speier. Thank you, members of the subcommittee for having me, and staff. My name is Marty Makary. I am a surgeon at 

Johns Hopkins Hospital and I am an associate professor of health 

policy at the Johns Hopkins Bloomberg School of Public Health. 

When I recently asked one of my patients why did you come to 

this hospital, their answer was because of the parking. That answer embodies what is wrong with American health care. Today we 

have one-fifth of the U.S. economy, a marketplace of products with 

no way for consumers to evaluate those products. 

While some successful innovations are advancing the science of 

medicine and the way we deliver care, one problem remains endemic and more costly than ever. It is the wide variation in medical quality in the United States. The Institute of Medicine, as we 

said, estimates that up to $750 billion, or 30 percent of everything 

we do, tests, procedures, studies, may be unnecessary, a form of 

waste. 

The cost of the problem is not theoretical or deferred; it is real 

and immediate. Americans are paying hundreds more for their 

health insurance this year and they are getting hit with escalating 

co-pays of $100 to $500 per encounter. I have patients complain 

about co-pays. 

American businesses now cite health care costs as the leading 

reason they have trouble competing with businesses overseas. And 

when I talk with business leaders, they consistently tell me that 

they are frustrated paying more and more for health care without 

any metrics of performance. Every other contractor they have has 

some way to measure their performance. 

Now, every proposed solution to this unsustainable financial trajectory calls for measuring hospital performance by tracking patient outcomes. So where are these outcomes? Well, much of it lives 

in federally funded registries with little or no access to the taxpayers that pay for them. In my field of surgery, the national Pancreas Islet Transplant registry, funded by the NIH, tracks patient 

outcomes. When I do an operation and remove a patient’s pancreas, 

we send it to the laboratory, it is then re-infused into the patient’s 

liver. That transplant operation has many variables that are collected and reported to the national registry. 

Now, when I tried to get access to this registry, even as a researcher with resources, I wasn’t able to. Yet, this registry is funded by taxpayer dollars. If we had access, we could find out which 

centers have good outcomes and which centers have bad outcomes. 

But this data is not available to the public. Similar barriers exist 

for Medicare and other federally funded registries. 

After a lot of work, my research team accessed one Governmentfunded database, but under the condition that the hospital names 

are removed. We looked to see whether hospitals are performing 

common surgical procedures using the minimally invasive, or 

laparoscopic, method in situations where it has been well established to result in lower wound infection rates, less pain for the patient, and better functional outcomes compared to open surgery. 

7 

Here is what we found: Despite lots of evidence, including an extensive Cochrane review in the medical literature, to support lower 

complication rates of laparoscopy, its use at U.S. hospitals varied 

widely. In this figure, each dot represents one U.S. hospital, and 

we graft the variation. 

So if you go to a hospital on the left side of the chart, it is highly 

unlikely that they will use the laparoscopic approach, even though 

it is associated with lower infections and better outcomes. And if 

you go to a hospital on the right side of the graph, 80, 90, 100 percent chance, maybe, that you will get that operation using the better method. This wide variation embodies the problem with a system that is not transparent. 

The same variation was true of some of the most common procedures in medicine: hysterectomy, colon surgery and others. Patients 

make choices in a free market where competition exists all right, 

but the competition exists at the wrong level; it exists at the level 

of valet parking and billboards, leaving patients uninformed about 

these differences and outcomes. 

Imagine if you, as a patient, were looking for a hospital to have 

an appendix removed, one of the most common procedures in 

America, and you could look up a hospital’s outcomes, you could 

look up the complication rate, and you could look up the percent 

likelihood that that hospital does laparoscopic surgery. You would 

likely know where to go. It would likely create competition around 

patient-centered outcomes, not just volume, and drive the entire 

marketplace towards good value. 

Making Government-funded databases open to researchers where 

hospitals can be identified as over-or under-performing centers is 

one simple step that could be meaningful and allow the free market 

to work with the competition at the right level. 

My team has compiled a registry of national registries to look at 

every database out there looking at patient outcomes. There have 

been no standards and no coordination of registries. We found that 

there are over 150 national registries that track patient outcomes. 

One-quarter are taxpayer-funded, yet only three make their data 

available to the public. 

Making public access a condition of taxpayer funding is one simple reform that would allow the market to cut waste. Transparency 

also needs to be applied to medical errors, sentinel events like 

never events, retained sponges. This information is being tracked, 

but it is not public information. If it were, it would allow the market to work. 

Finally, transparency can inform patients seeking medical care, 

create competition, and cut waste in health care. Rewarding hospitals for participation in national registries, public reporting, creating public access to Medicare and ARC databases are important 

reforms that can realign incentives to focus on what is right. 

[Prepared statement of Dr. Makary follows:] 

8 


Insert offset folio 1 here 80922.001

Testimony before Committee on Oversight and Government Reform Subcommittee on 

Energy Policy, Healthcare and Entitlements 

Statement of Martin A. Makary, MD, MPH, FACS 

Director, Surgical Quality and Safety, Johns Hopkins Hospital 

Director, Pancreas Islet Transplantation Center, Johns Hopkins Hospital 

Associate Professor of Health Policy, Johns Hopkins Bloomberg School of Public Health 

April 25, 2013 

Mr. Chairman, Ranking Member Speier, members of the subcommittee and staff - good 

morning. Thank you for inviting me today. My name is Marty Makary and I am a 

surgeon at Johns Hopkins and an associate professor of health policy at the Johns 

Hopkins Bloomberg School of Public Health. I am the primary author of the original 

scientific publications on the operating room checklist and recently wrote the book 

Unaccountable outlining the national effort to make healthcare safer and more efficient 

by increasing transparency. 

While some innovations in health care are making the system better, the broader 

problems remain endemic and more costly than ever-specifically the wide variations 

in medical quality. The Institute of medicine states that up to $750 billion, or 30% of 

the entire health care expenditure, may be going to overtreatment, unnecessary tests 

and other forms of waste in healthcare. 

Not only are Americans are paying hundreds more for their health insurance this year, 

but now they are getting hit with escalating co-pays of $100-$500 per encounter. 

American businesses cite medical costs as the leading reason they have trouble 

competing with businesses overseas. And when I talk with business leaders, they 

consistently tell me they are frustrated paying more and more for healthcare without 

any metrics of good or bad performance. 

Every proposed solution to this unsustainable trajectory calls for measuring hospital 

performance by tracking patient outcomes. But where are these outcomes? 

The answer is that much of it lives in federally-funded registries, with little or no 

access to the public that that pays for them with their tax dollars. 

In my field of surgery, a national Pancreas Islet Transplant registry funded by the NIH 

tracks patient outcomes. When I do an operation, the patient's information is 

voluntarily reported to the registry, which has data on which centers are performing 

well and which are performing poorly. But this data is not available to the public. 

Similar barriers exist with Medicare data. 

After a lot of work, my research team accessed one government-funded databases but 

with the hospital names removed. We looked to see whether hospitals are performing 

common surgical operations using the minimally-invasive (laparoscopic) method in 
9 


Insert offset folio 2 here 80922.002

situations where it has been well-established to result in lower infections, less pain 

and better functional outcomes compared to open surgery. Here's what we found. 

Despite lots of evidence, including an extensive Cochrane review to support the lower 

complications with laparoscopy, it's use at U.S. hospitals varies widely. In the case of 

appendectomy, on the left side of the figure, we see that many U.S. hospitals perform 

the operations using an open operation, and on the right, hospitals performed most 

using laparoscopy. The same wide variation was true for some of the most common 

operations in medicine-- hysterectomy, colon surgery, and others. 

When I recently asked a patient of mine, why did you choose Johns Hopkins for your 

care, she told me "Because of the parking." Patients make choices in a dysfunctional 

free market where competition exists, but it exists at the wrong level. It exists at the 

level of billboards and valet parking, leaving patients uniformed about outcomes which 

are currently being collected. Imagine if you as a patient were looking for a hospital to 

have your appendix removed and you could see a hospital's outcomes including their 

surgical complication rate, and what percent of their operations they perform using 

the laparoscopic operation. It would likely create competition around patient-centered 

outcomes, and drive the entire marketplace towards good outcomes. 

My team has complied a registry of national registries in health care. There are over 

150 national clinical registries which track patient outcomes. One-quarter are 

taxpayer funded, yet only 3 make their outcomes available to the public. Making public 

access a condition of taxpayer funding is one simple reform which would allow the free 

market to work to cut waste in healthcare. 

Transparency also needs to be applied to well-defined medial errors-errors currently 

tracked by hospitals. If this information were public it would create more 

accountability, and incentivize improvements. If medical mistakes and preventable 

infections together were a disease, it would rank as the number #3 most common 

cause of death in the u.s. We spend a lot of time and money on #1 (cardiovascular 

disease) and a lot of time and money on #2 (my area of cancer). It's time to address 

the problem through standardized public reporting. 

Most doctors, including myself can testilY that we've seen patients harmed and 

disabled from overtreatment driven by profit motives in medicine. Reasonable size 

additional salary bonuses based are one thing, but purely volume based quartermillion-dollar bonuses, and harassing emails and text messages from hospital 

managers about meeting monthly volume targets bring out the worst of American 

medicine--a driver of the overtreatment epidemic and a contributor to the 46% 

national physician burnout rate described in a the 2012 Mayo Clinic study. 

The state of Maryland recently submitted a proposal to Medicare to allow the state to 

pay hospitals in a radically different way. The HSCRC Waiver application outlines how 

the state's hospitals could be paid based on quality and outcomes per beneficiary, 

rather than by volume. If approved, it would change the profit incentives from a focus 

on more to better. We need to start rewarding quality, not just quantity. 
10 


Insert offset folio 3 here 80922.003

Rewarding hospitals for participation in national registries and their public reporting 

option, participation in external peer review, and creating public access to Medicare 

and AHRQ data are important reforms that will re-align incentives to focus on what's 

right for the patient. 

Transparency can inform patients seeking care, make competition over quality, and cut 

the waste in medicine that harms our people and burdens our national debt. 

Thank you. 
11 

Mr. LANKFORD. Dr. Makary, thank you. 

Dr. Goodman. 

STATEMENT OF JOHN GOODMAN, PH.D. 

Mr. GOODMAN. Thank you, Mr. Chairman, members of the committee. Good morning. 

If something goes wrong with my iPhone, there are a dozen 

places in Dallas, Texas that I can go to without any appointment 

and get high-quality, low-cost care. There are places that will send 

someone to my condo to repair this iPhone in my home. There is 

a national repair chain that is called iHospital and the employees 

are called iDoctors. 

But if something happens to my body, the average wait in the 

United States for a patient to see a new doctor is three weeks. In 

Boston, where we are told we have universal coverage, the average 

wait for a patient to see a new doctor is two months. And, amazingly, one out of every five patients that enters a hospital emergency room leaves without ever seeing a doctor because they get 

tired of waiting. 

Now, why is the market so kind to my iPhone and so mean to 

me? I believe the answer is that this iPhone is produced and sold 

and repaired in a real market with real prices, where entrepreneurs know they can make millions of dollars if they solve our 

problems; where over in health care we have so completely suppressed the market for year after year, decade after decade, that 

no one ever sees a real price for anything, no patient, no doctor, 

no employee, no employer. 

Basically, we like to think in the United States we are different 

from other countries. That is a myth both on the left and the right. 

In the United States, we mainly pay for care the way they pay for 

it in Canada and Britain; we pay with time, and not with money. 

In Canada you visit a doctor, it is free; in the United States it is 

almost free. Every time we spend a dollar in the doctor’s office, 

only $0.10 is coming out of our own pocket; $0.90 is coming from 

a third-party payer, an employer, an insurance company, or Government. 

What we have overlooked is that when you suppress the marketplace, when you suppress prices, you elevate the importance of nonprice barriers to care. And what are those non-price barriers? Well, 

how long does it take you on the telephone to get an appointment 

with a doctor? How many days do you have to wait before you get 

to see that doctor? How long does it take you to get from your home 

or office to the doctor’s office and back again? And once you are 

there, how long do you have to wait before you get treated? 

There is lots and lots of evidence that those non-price barriers to 

care are a greater deterrent to people getting care than the fee that 

the doctor charges. And this isn’t just true for middle-class patients, it is also true for low-income patients. 

Now, can the market work in health care? My answer is you 

show me any part of the health care system where the third-party 

payers aren’t, show me a part of health care where there is no Blue 

Cross, no Medicare, and no employer, and I will show you markets 

12 

probably working pretty well. In cosmetic surgery there is no problem with transparency; patients get a package price covering the 

doctor, the nurse, anesthetist, the facility. They know exactly what 

they are going to pay in advance. 

There is price competition. Over the last 15 years the real price 

of cosmetic surgery has gone down as the real price of every other 

kind of surgery has gone up, and this is in the face of an incredible 

increase in demand, all kinds of technological change of the type 

that we are told increases prices across everywhere else. 

Similarly, in the market for Lasik surgery, you have complete 

transparency, you have price competition, you have quality competition. Over the last 10 years, the real price of Lasik surgery has 

come down 25 percent even as other kinds of surgery is going up. 

Again, huge increase in demand; all kinds of technological change. 

In the international market for medical tourism, you can get a 

package, transparent price for almost every kind of elective surgery. Hospitals in India and Thailand and Singapore not only compete on price, they post their quality ratings; and the kind of information that Dr. Makary said we can’t get in American hospitals, 

Indian hospitals put up on the Internet and they say here is our 

infection rate, here is our mortality rate, here is our readmission 

rate, and, by the way, here is what it is at the Cleveland Clinic and 

the Mayo Clinic. When a hospital does that, you know they are 

competing on quality. 

And then what is not very well known is that we have a domestic 

market for medical tourism because hospitals don’t like to tell us 

that, so some of the very hospitals that Steven Brill was writing 

about might very well go to Canada and tell the patients coming 

down here for a knee replacement or a hip replacement, we not 

only give you a package price, but it is going to be half of what 

Blue Cross pays; it is going to be lower than what Medicare pays. 

So this is going on. Hospitals can compete for patients; they are 

competing for patients. So this is not the patients that live near the 

hospital, it is for foreigners coming to the United States, often to 

get care that they cannot get in a timely way in their own country. 

So, Mr. Chairman, I think that our problems arise because we 

have suppressed the marketplace, and if we want to solve these 

problems, we have to allow the market to exist and get the incentives right. 

[Prepared statement of Mr. Goodman follows:] 

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NATIONAL CENTER FOR POlICY ANA\..YSlS 

John C. Goodman, Ph.D. 

President and CEO 

Kellye Wright Fellow 

National Center for Policy Analysis 

Examining the Lack of Transparency and Consumer Driven Market Forces in U.S. Health Care 

House Committee on Oversight and Government Reform 

Subcommittee on Energy Policy, Health Care and Entitlements 

April 25, 2013 

Mr. Chairman and members of the Committee, thank you for the opportunity to testify on this important 

topic. I am John Goodman, president of the National Center for Policy Analysis (NCPA). A nonprofit, 

nonpartisan public policy research organization, the NCPA is dedicated to developing and promoting private 

alternatives to government regulation and control, and solving problems by relying on the strength of the 

competitive, entrepreneurial private sector. I welcome the opportunity to share my views and look forward 

to your questions. 

The principle problems in health care are well known. The cost is too high; the quality is too low; and access to 

care is too difficult. The reason for these problems should also be well known: We have replaced the patients 

with third-party payers (insurance companies, employers, and government) as the principal buyers of care. 

The party that pays for care is different from the party that is supposed to benefit. Unfortunately, the interests 

of the two parties are not always the same. 

lack of Transparency 

One consequence of the third-party payer system is the complete suppression of normal market processes. In 

health care, few people ever see a real price for anything. Employees never see a premium reflecting the real 

cost of their health insurance. Patients almost never see a real price for their medical care. Even at the family 

doctor's office, it's hard to discover what anything costs. For something complicated, like a hip replacement, 

the information is virtually impossible to obtain-at least in advance of the operation. 

Although many would like to think that our system is very different from the national health insurance 

schemes of other countries, the truth is that Americans mainly pay for care the same way people all over the 

developed world pay for care at the time they receive it-with time, not money. 

Dallas Headquarters: 12770 Coit Road, SUite 800· Dallas, Texas 7525l " 972~3R6~6272" www.ncpa.org 

Washington Office: 601 Pennsylvania Ave. NW, Ste 900, South Bldg· Washington, D,C. 20004 " 202~220~3082 
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On the average, every time we spend a dollar at a physician's office, only 10 cents comes out of our own 

pockets. The rest is paid by third-party payers (insurance companies, employers, and government). As a result, 

for most people, the time price of care (waiting to get an appointment, getting to and from the doctor's office, 

waiting in the reception area, waiting in the exam room, etc.) tends to be greater-and probably much 

greater-than the money price of care. 

When patients aren't spending their own money, doctors will not compete for their patronage based on price. 

When doctors don't compete on price, they won't compete on quality either. The services they offer will be 

only those services the third parties pay for and only in settings and ways the third parties have blessed. 

Misconceptions about Transparency 

In a very real sense, there are no prices at a typical physician's office. Medicare pays one rate, Medicaid 

another, BlueCross yet a third. These payment rates are not real prices, however, and they do not play the 

same role as prices do in other markets. Yet, there is a tendency on both the political right and the political left 

to ignore this fact. 

The right, for example, issues frequent calls to make prices transparent. A number of proposals would even 

require doctors and hospitals to post their prices. Yet, what possibly could be gained by posting these rates on 

the wall? If you are a BlueCross patient, how does knowing what an Aetna patient is paying help you in any 

way? 

On the left, a common view is that health costs are too high because health care prices are too high. They 

believe that the way to control costs is to push prices down. This idea is actually written into the Affordable 

Care Act (ACA). All kinds of efficiency ideas are included in the ACA, but when all else fails-and most 

knowledgeable people believe that all else will fail-the ACA will try to solve the problem of rising Medicare 

costs by squeezing the providers. Medicare's chief actuary predicts that by the end of the decade, Medicare 

fees for doctors and hospitals will be substantially lower than Medicaid's and one in seven hospitals will leave 

the Medicare system. 

The problem with this approach is that prices in health care are symptoms of problems, not causes of 

problems, in the same way that a high body temperature is a symptom of a fever. Just as it would make no 

sense to try to treat a fever by lowering the body's temperature, it makes no sense to try to control prices 

while ignoring why they are what they are. Plus, when we treat symptoms rather than their causes, there are 

inevitably unanticipated negative consequences. For example, if we tried to impose low fees on every provider 

for all patients, we would begin to drive the most capable doctors out of the system-into alternative paycash-far-care services and perhaps even out of health care altogether. 

But there is an even more fundamental problem with trying to solve the problem of cost by suppressing 

prices. The suppression of provider payments is an attempt to shift costs from patients and taxpayers to 

providers. Even if we get away with it, shifting costs is not the same thing as controlling costs. Doctors are just 

as much a part of society as patients. Shifting cost from one group to the other makes one group better off 

and the other worse off. It does not lower the cost of health care for society as a whole, however. 
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Competition in Health Markets without Third-Party Payers 

In those health care markets where third-party payment is nonexistent or relatively unimportant, providers 

almost always compete for patients based on price. Where there is price competition, transparency is almost 

never a problem. 

All over the country, retail establishments are offering primary care services to cash-paying patients. Because 

these services arose outside of the third-party payment system, their prices are free market prices. Walk-in 

clinics, doc-in-the-box clinics, and freestanding emergency care clinics post prices and usually deliver high 

quality care. 

Cosmetic surgery is rarely covered by insurance. Because providers know their patients must payout of pocket 

and are price-sensitive, patients can typically (1) find a package price in advance covering all services and 

facilities, (2) compare prices prior to surgery, and (3) pay a price that has been falling over time in real termsdespite a huge increase in volume and considerable technical innovation (which is blamed for increasing costs 

for every other type of surgery). 

In the market for LASIK surgery, patients face package prices covering all aspects of the procedure. As with 

cosmetic surgery, whenever there is a price transparency and price competition, the cost tends to be 

controlled. From 1999 (when eye doctors began performing Lasik in volume) through 2011, the real price of 

conventional Lasik fell about one-fourth. There is also quality competition - patients can choose traditional 

LASIK or more advanced custom Wavefront LASIK. The cost of conventional Lasik was about $1,630 per eye in 

2011, with most people opting for the more advanced Lasik surgery at an average cost of $2,150 per eye. 

Even when providers do not explicitly advertise their quality standards, price competition tends to force 

product standardization. This reduced variance is often synonymous with quality improvement. Rx.com, for 

example, initiated the mail-order pharmacy bUSiness, competing on price with local pharmacies by creating a 

national market for drugs. Industry sources maintain that mail-order pharmacies have fewer dispensing errors 

than conventional pharmacies. Walk-in clinics, staffed by nurses following computerized protocols score 

better on quality metrics than traditional office-based doctor care and have a much lower variance. 

In general, medical services for cash-paying patients have popped up in numerous market niches where thirdparty payment has left needs unmet. It is surprising how often providers of these services offer the very 

quality enhancements that critics complain are missing in traditional medical care. Electronic medical records 

and electronic prescribing, for example, are standard fare for walk-in clinics, concierge doctors, telephone, and 

email consultation services, and medical tourist facilities in other countries. Twenty-four/seven primary care is 

also a feature of concierge medicine and the various telephone and email consultation services. 

Domestic Medical Tourism 

In the international tourism market, where people travel for their care, quality is almost always a factor. Cost 

is also a factor because the patient is typically paying the entire bill out of pocket. Patients generally get 

package prices for most types of elective surgery and hospitals generally post their quality metrics online. 

Is it possible to replicate this experience in the domestiC hospital marketplace? Developments are under way. 

By one estimate 430,000 nonresidents a year enter the United States for medical care. Canadian patients 

seeking medical care at u.s. hospitals, for example, are able to get package prices that are about half of what 

BlueCross patients typically pay. 
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An essential ingredient in this market is the willingness to travel. If you ask a hospital in your neighborhood to 

give you a package price on a standard surgical procedure, you will probably be turned down. After the 

systematic suppression of normal market forces for the better part of a century, hospitals are rarely interested 

in competing on price for patients they are likely to get as customers anyway. 

A traveling patient is a different matter. This is a customer the hospital is not going to get if it doesn't 

compete. That's why a growing number of u.s. hospitals are willing to give transparent, package prices to outof-towners; and these prices often are close to the marginal cost of the care they deliver. 

North American Surgery has negotiated deep discounts with about two dozen surgery centers, hospitals and 

clinics across the United States, mainly for Canadians who are unable to get timely care in their own country. 

The company's cash price for a knee replacement in the United States is $16,000 to $19,000, depending on the 

facility a patient chooses, making it competitive with facilities in other countries. 

But the service is not restricted to foreigners. The same economic prinCiples that apply to the foreign patient 

who is willing to travel to the United States for surgery also apply to any patient who is willing to travel. That 

includes U.S. citizens. In other words, you don't have to be a Canadian to take advantage of North American 

Surgery's ability to obtain low-cost package prices. Everyone can do it. 

The implications of all this are staggering. The United States is supposed to have the most expensive medical 

care found anywhere. Yet many u.s. hospitals are able to offer traveling patients package prices that are 

competitive with the prices charged by top-rated medical tourist facilities in such places as India, Thailand and 

Singapore. 

All of this illustrates something many readers may already know. Markets in medical care can work and work 

well - especially when third-party payers are not involved. 

Creating a Market for Medical Services 

Two relatively new services are facilitating a market for medical services - with price and quality competition, 

as well as transparency. One is MediBid, which takes a Price line approach to medical care. Another service, 

Healthcare Blue Book (HCBB), offers a free service for patients - showing the average price for various 

procedures in almost every zip code in the country. Moreover, both businesses have created new tools that 

are valuable for employer plans - especially those with high-deductible health insurance. 

MediBid for Individuals 

U.s. patients willing to travel and able to pay upfront for care can take advantage of the online service, 

MediBid. Patients register and request bids or estimates for specific procedures on MediBid's website for the 

services of, say, a physician, surgeon, dermatologist, chiropractor, dentist or numerous other medical 

specialties. MediBid-affiliated physicians and other medical providers respond to patient requests and submit 

competitive bids for the business of patients seeking care. Patients can choose from medical providers in the 

United States and even some providers outside the country. MediBid facilitates the transaction but the 

agreement is between doctor and patient, both of whom must come to an agreement on the price and 

service. 

Business at the site is growing. For pxamnlp. la,t vp::tr thp romnrtnv f:::tdlitatPN' 
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More than 50 knee replacements, with an average of five bids per request and some getting as many 

as 22. The average price was about $12,000, almost one-third of what insurance companies typically 

pay and about half of Medicare's average price. 

• Sixty-six colonoscopies with an average of three bids per request and some getting as many as six. The 

average price was between $500 and $800, half of what you would ordinarily expect to pay. 

Forty-five knee and shoulder arthroscopic surgeries, with average prices between $4,000 and $5,000. 

• Thirty-three hernia repairs with an average price of $3,500. 

MediBid for Employer Plans 

Following the MediBid model, employers cover no more than the median cost - requiring the employee to 

pay excess charges if they choose a provider who charges above the median. Take a colonoscopy for example. 

The price in a large city varies considerably - and the upper estimates approach $9,000 if the procedure is 

done at an out-of-network hospital. Health plans negotiate network discounts that are lower, but these rates 

still range from $900-$3,600 in the Midwestern city that was the source of the data in the graph below. 

General Diagnostic Example 1: Colonoscopv 

In this example, the recommended price is $1,300 - which is roughly the average price in the area. If the 

employee chooses a higher cost provider, the employee pays the extra out of pocket. If the price that is lower, 

the savings are shared between employee and employer. MediBid reports it often helps patients locate 

colonoscopies prices at less than half of the recommended price. 

Healthcare Blue Book for Individuals 

Using Healthcare Blue Book, patients can unveil some of the mystery surrounding what is a reasonable 

medical price. Healthcare Blue Book tracks a range of prices in each zip code based on claims from its health 

plan clients. Although individuals cannot see the specific price each hospital and clinic charges for each 
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service, patients can see the average or reasonable price within a given area. For instance, if the Healthcare 

Blue Book recommended price for a colonoscopy in the area is $1,300, patients know that is a fair price that is 

widely available. Moreover, patients know that up to one-quarter to one-third of area providers actually 

charge less. 

Healthcare Blue Book for Employer Plans 

Healthcare Blue Book is a valuable tool that helps patients identify specific clinics, hospitals and facilities that 

have the best prices on medical procedures. Healthcare Blue Book displays the median price and a bar graph 

comparing how costs vary among area hospitals and clinics. In one Midwestern city, a patient seeking a 

colonoscopy can see that a hospital charges $3,600 compared to an ambulatory surgery center (ASe) that 

charges less than $1,000. Employees undergoing a colonoscopy at an ASC could realize savings of $2,500 

compared to the most expensive facilities. 

Allowing Medicare Patients Access to the Marketplace 

In proposing a balanced federal budget over the next ten years, House Budget Committee Chairman Paul Ryan 

proposes to spend the same amount of money on Medicare as will be spent under current law. The 

difference? Under current law, billions of dollars in reduced Medicare spending will be used to subsidize a 

new entitlement (ObamaCare). Under Ryan's approach, ObamaCare will be repealed and the Medicare 

reductions will be used to stop spiraling federal debt. 

There are also other differences. Under the administration's health reform law, there is only one effective way 

to hold Medicare to a lower spending path: reduced fees paid to doctors, hospitals and other providers. 

Seniors will become less desirable to providers than welfare mothers from a financial point of view. As they 

are relegated to the rear of the waiting lines, the elderly and the disabled may have to turn to sources of care 

that many Medicaid patients turn to today: community health centers and the emergency rooms of safety net 

hospitals. 

In contrast to this archaic approach to controlling costs, the Ryan budget will allow us to achieve savings in a 

better way. By moving Medicare into to 21st century and allowing beneficiaries to do may of the things that 

younger patients do routinely, we can reduce costs and leave beneficiaries better off at the same time. Many 

of these same reforms will help save billions of dollars in Medicaid as well. 

A central role in the Ryan budget is played by Medicare Advantage plans. About one in four seniors is enrolled 

in these plans and studies show that the best of them have lower costs and meet higher quality standards 

than traditional Medicare. These plans are also proving to be laboratories in which many of the ideas favored 

by the Obama administration are being tested and vetted, including medical homes, integrated care, 

coordinated care, etc. 

It is surprising, therefore, that the Obama administration plans to cut the funds for these plans, causing.about 

one in every two enrollees to lose coverage in the next few years. By contrast, the Ryan budget envisions 

giving more seniors the opportunity to enroll, giving the plans much more flexibility than they have today and 

erecting better rules under which the plans compete for enrollees. 

For those who remain in traditional Medicare, there is also much that can be done. Here are 10 suggestions: 
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Telephone and Email. Many conditions do not require a doctor visit. The ability to consult by phone or 

electronically could save time and money for seniors and make care more accessible. Medicare should make 

this option available and contribute toward the costs - paying less than it would pay for an office visit. The 

price paid by the patient, however, should be the market price that other patients are paying, not an arbitrary 

fee set by the government. 

Walk-In Clinics. Studies show that walk-in clinics are providing high-quality, low-cost care for a fraction of 

what similar care would cost at a doctor's office or at a hospital emergency room. Medicare should not only 

pay for these services, it should pay the market price (rather than Medicare's fee schedule price) in order to 

encourage their expansion to more of the Medicare population. A similar approach for Medicaid would 

dramatically increase access to care for low-income families all across the country and lower Medicaid's costs 

at the same time. 

Nurses. Not every medical service requires the attention of a medical doctor. Yet, Medicare's current fee 

schedule discourages the substitution of non-doctor personnel- even though these services are often 

appropriate and have the potential to greatly lower costs. Medicare (and Medicaid) could actually save money 

by paying higher fees for services delivered by nurses and other paramedical personnel. 

Chronic Care. The current system encourages one-visit-one-illness-treated medicine. This practice raises costs 

and lowers quality. Instead, physicians' should be encouraged to treat the whole patient on every visit, 

including all co-morbidities. Here is another instance where Medicare could actually save money by paying 

higher fees. 

Health Savings Accounts. The RAND Corporation finds that these accounts lower costs by as much as 30 

percent with no harm to the most vulnerable patients. For seniors, the accounts should be Roth accounts 

(after tax deposits and tax free withdrawals for any purpose) and in order to expand access to care, patients 

should be free to pay market prices rather than Medicare's fee schedule for medical services. 

Rational Insurance Design. Instead of paying Medigap premiums, a senior should be able to deposit, say, 

$2,000 a year in a Health Savings Account. The senior would be responsible for the first $2,000 of medical 

expenses, but would have complete catastrophic protection above that amount. 

Concierge Care. Seniors should be able to contract with doctors for all of their primary care services rather 

than paying on a fee for service basis. Concierge doctors spend more time with their patients, offer more 

convenient and timely care and serve as agents of their patients in negotiating the complexities of the health 

care system. There is some evidence that this type of medicine lowers the overall cost of care. Because this 

potentially saves money for taxpayers, Medicare should be willing to pay a portion of the fee. 

Medical Tourism. As noted, Canadian patients who come to the United States for procedures that are not 

readily available in their own country typically pay half as much as Americans pay. Seniors should also have 

the option to travel for lower cost, higher quality care and they should be able to share in any money they 

save taxpayers. Also, when seniors choose to retire in Mexico and other places south of our border, Medicare 

should cover their medical expenses in those countries. The bill will be a lot lower than if they return to the 

United States for their care. 

Experiments. Is Medicare encouraging the kind of services seniors most want? Would they be willing to pay 

out of pocket for better care or more convenient care? We cannot know unless we experiment to find out. 

Most doctors would remain under the current system. But a few doctors should be allowed to experiment 

with patient -pleasing alternatives. 
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Innovation. Instead of dictating a fee schedule to the provider community and trying to enforce arbitrary 

quality standards, Medicare should let the supply side of the market take the lead. Every doctor and every 

hospital should be free (and even encouraged) to propose alternative ways of being paid. Medicare should be 

willing to accept any new arrangement that (1) lowers costs to the taxpayers and (2) raises the quality of care 

patients receive. 

Finally, there is nothing in the Ryan budget that would prevent us from rational health reform for the under6S population. We could replace the existing system of tax subsidies with refundable tax credits that would 

produce a form of universal coverage without the Rube Goldberg intricacies of ObamaCare and all its perverse 

incentives. 
21 


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THE WALL STREET JOURNAL. 

THE SATURDAY ESSAY 

Updated September 21,2012,10:56 p.m. ET 

How to Stop Hospitals From Killing Us 

Medical errors kill enough people to fill four jumbo jets a 

week. A surgeon with five simple ways to make health care 

safer. 

By MARTY MAKARY 

When there is a plane crash in the U.S., even a minor one, it makes headlines. There is a 

thorough federal investigation, and the tragedy often yields important lessons for the aviation 

industry. Pilots and airlines thus learn how to do their jobs more safely. 

The world of American medicine is far deadlier: Medical mistakes kill enough people each week 

to fill four jumbo jets. But these mistakes go largely unnoticed by the world at large, and the 

medical community rarely learns from them. The same preventable mistakes are made over and 

over again, and patients are left in the dark about which hospitals have significantly better (or 

worse) safety records than their peers. 

WSJ's Gary Rosen talks to author and surgeon Marty Makary about his ideas for making 

American hospitals more transparent about their safety records and more accountable for the 

quality of their care. 

As doctors, we swear to do no harm. But on the job we soon absorb another unspoken rule: to 

overlook the mistakes of our colleagues. The problem is vast. U.S. surgeons operate on the 

wrong body part as often as 40 times a week. Roughly a quarter of all hospitalized patients will 

be harmed by a medical error of some kind. If medical errors were a disease, they would be the 

sixth leading cause of death in America-just behind accidents and ahead of Alzheimer's. The 

human toll aside, medical errors cost the U.S. health-care system tens of billions a year. Some 
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20% to 30% of all medications, tests and procedures are unnecessary, according to research done 

by medical specialists, surveying their own fields. What other industry misses the mark this 

often? 

It does not have to be this way. A new generation of doctors and patients is trying to achieve 

greater transparency in the health-care system, and new technology makes it more achievable 

than ever before. 

I encountered the disturbing closed-door culture of American medicine on my very first day as a 

student at one of Harvard Medical School's prestigious affiliated teaching hospitals. Wearing a 

new white medical coat that was still creased from its packaging, I walked the halls marveling at 

the portraits of doctors past and present. On rounds that day, members of my resident team 

repeatedly referred to one well-known surgeon as "Dr. Hodad." I hadn't heard of a surgeon by 

that name. Finally, I inquired. "Hodad," it turned out, was a nickname. A fellow student 

whispered: "It stands for Hands of Death and Destruction." 

Journal 
23 


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'Doctors absorb an unspoken rule: to overlook the mistakes of our colleagues.' 

Stunned, I soon saw just how scary the works of his hands were. His operating skills were hasty 

and slipshod, and his patients frequently suffered complications. This was a man who simply 

should not have been allowed to touch patients. But his bedside manner was impeccable (in fact, 

I try to emulate it to this day). He was charming. Celebrities requested him for operations. His 

patients worshiped him. When faced with excessive surgery time and extended hospitalizations, 

they just chalked up their misfortunes to fate. 

Dr. Hodad's popularity was no aberration. As I rotated through other hospitals during my 

training, I learned that many hospitals have a "Dr. Hodad" somewhere on staff (sometimes more 

than one). In a business where reputation is everything, doctors who call out other doctors can be 

targeted. I've seen whistJeblowing doctors suddenly assigned to more emergency calls, given 

fewer resources or simply badrnouthed and discredited in retaliation. For me, I knew the 

ramifications ifI sounded the alarm over Dr. Hodad: I'd be called into the hospital chairman's 

office, a dread scenario if I ever wanted a job. So, as a rookie, I kept my mouth shut. Like the 

other trainees, I just told myself that my 120-hour weeks were about surviving to become a 

surgeon one day, not about fixing medicine's culture. 

25% 

Hospitalized patients who are harmed by medical errors 

Source: New England Journal of Medicine 

Hospitals as a whole also tend to escape accountability, with excessive complication rates even 

at institutions that the public trusts as top-notch. Very few hospitals publish statistics on their 

performance, so how do patients pick one? As an informal exercise throughout my career, I've 

asked patients how they decided to come to the hospital where I was working (Georgetown, 

Johns Hopkins, D.C. General Hospital, Harvard and others). Among their answers: "Because 

you're close to home"; "You guys treated my dad when he died"; "I figured it must be good 

because you have a helicopter." You wouldn't believe the number of patients who have told me 

that the deciding factor for them was parking. 

There is no reason for patients to remain in the dark like this. Change can start with five 

relatively simple-but crucial-reforms. 

Online Dashboards 

Every hospital should have an online informational "dashboard" that includes its rates for 

infection, readmission (what we call "bounce back"), surgical complications and "never event" 

errors (mistakes that should never occur, like leaving a surgical sponge inside a patient). The 

dashboard should also list the hospital's annual volume for each type of surgery that it performs 

(including the percentage done in a minimally invasive way) and patient satisfaction scores. 

The Saturday Essay 
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Why Can't We Sell Charity Like We Sell Perfume? (9/15/12) 

Geography Strikes Back (9/8/12) 

Are Entitlements Corrupting Us? Yes I No (9/1/12) 

Conventional Wisdom (8/25/12) 

The Panic Over Fukushima (8/18/12) 

Can Syria's Christians Survive? (8/11112) 

Decoding the Science of Sleep (8/4/12) 

A survey of New Yorkers found that approximately 60% look up a restaurant's "performance 

ratings" before going there. If you won't sit down for a meal before checking Zagat's or Ye1p, 

why shouldn't you be able to do the same thing when your life is at stake? 

Nothing makes hospitals shape up more quickly than this kind of public reporting. In 1989, the 

first year that New York's hospitals were required to report heart-surgery death rates, the death 

rate by hospital ranged from I % to 180/0--a huge gap. Consumers were finally armed with useful 

data. They could ask: "Why have a coronary artery bypass graft operation at a place where you 

have a 1-in-6 chance of dying compared with a hospital with a 1-in-100 chance of dying?" 

Instantly, New York heart hospitals with high mortality rates scrambled to improve; death rates 

declined by 83% in six years. Management at these hospitals finally asked staff what they had to 

do to make care safer. At some hospitals, the surgeons said they needed anesthesiologists who 

specialized in heart surgery; at others, nurse practitioners were brought in. At one hospital, the 

staff reported that a particular surgeon simply wasn't fit to be operating. His mortality rate was so 

high that it was skewing the hospital's average. Administrators ordered him to stop doing heart 

surgery. Goodbye, Dr. Hodad. 

Safety Culture Scores 

Imagine that a surgeon is about to make an incision to remove fluid from a patient's right lung. 

Suddenly, a nurse breaks the silence. "Wait. Are we doing the right or the left chest? Because it 

says here left, but that looks like the right side." The surgery was, indeed, supposed to be on the 

left lung, but an intern had prepped the wrong side. I was that doctor, and that nurse saved us all 

from making a terrible error. It isn't every hospital where that nurse would have felt confident 

speaking up---but it's this sort of cultural factor that is so important to safety. 

98,000 

Annual deaths from medical errors in the U.S. 

Source: Institute of Medicine 

If anyone knows whether a hospital is safe, it's the people who work there. So my colleagues and 

I at Johns Hopkins, led by J. Bryan Sexton, administered an anonymous survey of doctors, 

nurses, technicians and other employees at 60 U.S. hospitals. We found that at one-third of them, 

most employees believed the teamwork was bad. These aren't hospitals where you or I want to 
25 


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receive care or see our family members receive care. At other hospitals, by contrast, an 

impressive 99% of the staff reported good teamwork. 

These results correlated strongly with infection rates and patient outcomes. Good teamwork 

meant safer care. The public needs to have access to such information for every hospital in 

America. 

Cameras 

It may come as a surprise to patients, but doctors aren't very good at complying with wellestablished best practices in their fields. One New England Journal of Medicine study found that 

only half of all care follows evidence-based guidelines when applicable. Fortunately, there is a 

techuology that could work wonders to improve compliance: cameras. 
26 


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You wouldn't believe the number of patients who have told me their deciding factor in choosing 

a hospital was parking. 

Cameras are already being used in health care, but usually no video is made. Reviewing tapes of 

cardiac catheterizations, arthroscopic surgery and other procedures could be used for peer-based 

quality improvement. Video would also serve as a more substantive record for future doctors. 

The notes in a patient's chart are often short, and they can't capture a procedure the way a video 

can. 

Doug Rex ofIndiana University-one of the most respected gastroenterologists in the worlddecided to use video recording to check the thoroughness of colonoscopies being performed by 

doctors in his practice. A thorough colonoscopy requires meticulous scrutiny of every nook and 

cranny of the colon. Doctors tend to rush through them; as a result, many cancers and 

precancerous polyps are missed and manifest years later-at later stages. 

Without telling his partners, Dr. Rex began reviewing videotapes of their procedures, measuring 

the time and assigning a quality score. After assessing 100 procedures, he announced to his 

partoers that he would be timing and scoring the videos of their future procedures (even though 

he had already been doing this). Overnight, things changed radically. The average length of the 

procedures increased by 50%, and the quality scores by 30%. The doctors performed better when 

they knew someone was checking their work. 

More From Review 

The Grown-Up Pleasures of 'The Hobbit' 

Are We Really Getting Smarter? 

Peer Power, from Potholes to Patents 

The same sort of intervention has been used for hand washing. A few years ago, Long Island's 

North Shore University Hospital had a dismal compliance rate with hand washing-under 10%. 

After installing cameras at hand-washing stations, compliance rose to over 90% and stayed there. 

Following Dr. Rex's camera study, he did a follow-up, asking patients if they would like a copy 

of their procedure video. An overwhelming 81% said yes, and 64% were willing to pay for it. 

Patients are hungry for transparency. 

Open Notes 

Sue, a young accountant, came to my office complaining of abdominal pain. She wasn't sure 

what was causing it. She offered various theories: "Could this be from my Bikram yoga?" "Did 

my late-night ice cream cause the pain?" "Does having unprotected sex have anything to do with 

it?" Throughout her visit, I took notes. When we were done, she looked down at them 

suspiciously. 
27 


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"What did you write about me?" she asked. 
28 


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She was concerned that I thought she was either nuts or an ice-cream addict. In the course of our 

conversation, I also leamed that she wasn't quite sure why I was recommending an ultrasound, 

though I thought I had told her. 

I decided to start dictating my notes with the patient listening in at the end of his or her visit. "I 

also 'have high blood pressure," was a correction one older patient blurted out. Another said, "My 

prior surgery was actually on the right, not the left side." Another patient interrupted me and 

said, "No, I said I take 20 milligrams, not 25 milligrams, of Lipitor." Being able to review your 

doctor's notes in writing might be even better than my method, particularly if you could add your 

own comments, perhaps via the Web. 

Harvard doctor-researchers Jan Walker and Tom Delbanco are using "open notes" at Harvard 

and Beth Israel Hospital in Boston, and my hometown hospital, Geisinger Medical Center in 

Peunsylvania, has begun giving patients online access to their doctors' notes. So far, both patients 

and doctors love it. 

No More Gagging 

Though there are many signs that health care is moving toward increased transparency, there is 

also some movement backward. Increasingly, patients checking in to see doctors are being asked 

to sign a gag order, promising never to say anything negative about their physician online or 

elsewhere. In addition, if you are the victim of a medical mistake, hospital lawyers will make 

never speaking publicly about your injury a condition of any settlement. 

We need more open dialogue about medical mistakes, not less. It wouldn't be going too far to 

suggest that these types of gag orders should be bauned by law. They are utterly contrary to a 

patient's right to know and to the concept oflearning from our errors. 

Political partisans can debate the role of govemment in fixing health care, but for either public or 

private approaches to work, transparency is the crucial prerequisite. To make transparency 

effective, government must playa role in making fair and accurate reports available to the 

public. In doing so, it will unleash the power of the free market as patients are better able to take 

charge of their own care. When hospitals have to compete on measures of safety, all of them will 

improve how they serve their patients. 

Transparency can also help to restore the public's trust. Many Americans feel that medicine has 

become an increasingly secretive, even arrogant, industry. With more transparency-and the 

accountability that it brings-we can address the cost crisis, deliver safer care and improve how 

we are seen by the communities we serve. To do no harm going forward, we must be able to 

learn from the harm we have already done. 

-Dr. Makary, a surgeon at Johns Hopkins Hospital and a developer of the surgical checklists 

adopted by the World Health Organization, is the author of "Unaccountable: What Hospitals 

Won't Tell You and How Transparency Can Revolutionize Health Care," published this month by 

Bloomsbury Press. 
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30 

Mr. LANKFORD. Thank you, Dr. Goodman. 

Ms. Quincy. 

STATEMENT OF LYNN QUINCY 

Ms. QUINCY. Thank you. Chairman Lankford, Ranking Member 

Speier, and members of the subcommittee, thank you for the opportunity to testify today. My name is Lynn Quincy. I am a senior 

health policy analyst with Consumer Reports and I have personally 

led a number of research efforts designed to test consumer disclosures. 

I would like to start off with a profound apology for being late; 

there was asymmetrical information in the marketplace and I did 

not realize I would need 15 minutes to get from the curb into this 

room. So sorry about that. 

It is really a pleasure to be here today because improving transparency of quality and prices in the health care marketplace is an 

issue that we can all get behind. Better transparency is likely to 

mean greater consumer engagement, empowerment, confidence, 

and better health from improved practice patterns by providers and 

better informed consumers. 

However, I want to offer two cautions as part of my testimony 

today. One is we can all point to consumer information or a disclosure that has confused more than helped. So I will give you, as an 

example, HIPAA privacy notices have not proven to move the market very much, but those mile per gallon stickers on cars are fabulous. 

So when we talk about transparency, I want us to talk about getting it right. 

Can I have my next slide? 

[Slide.] 

Ms. QUINCY. One of the barriers to getting transparency right is 

that the information is too dense. As an April Fool’s joke, an online 

retailer changed their terms and conditions text so that people who 

clicked yes would be selling their immortal souls. 

Click the next one, please. 

[Slide.] 

Ms. QUINCY. Eighty-eight percent of the people at this shopping 

site wanted to get on with their shopping and they agreed to sell 

their souls. 

So I think that is not the outcome we are looking for. There are 

other problems. 

May I have the next slide, please? 

[Slide.] 

Ms. QUINCY. Which is if you have transparency, but you don’t 

know which bit of transparency to believe, you have not yet been 

helped as a consumer. I borrowed this slide from an excellent presentation by Kaiser Health News and, as you can see, there are 

myriad outfits out there, including Consumer Reports, measuring 

hospital quality. 

Next slide, please. 

[Slide.] 

31 

Ms. QUINCY. They may not agree on the quality of a hospital, so, 

again, we have not yet helped consumers. 

In my written testimony I provide much more detailed examples 

of how we go about getting transparency right, and I hope that will 

be part of the focus of this subcommittee. 

But the good news is this is achievable. We have lots and lots 

of information about how to do transparency right by consumer 

testing, other things that I won’t get into, and we know that the 

benefits of doing it far outweigh the costs. So there is actually no 

reason not to do more with transparency in all these realms. So 

that is great news. 

Let me move on. The one thing I want to be careful about, 

though, is to not overstate what we get when we improve transparency, and I specifically want to talk about price transparency. 

We do have a market where there is no third-party payer for 

health care in the United States, and that is our 50 million uninsured. And they would sit here and tell you that the market is not 

working right for them. So there are two lessons we can extract 

from this: one, better price transparency by itself is not going to fix 

our problems; we need to do more than just make prices more 

transparent. 

Let me stop, because I am running out of time. 

In my testimony, I talk about some of the reasons why price 

transparency alone isn’t going to achieve all the policy goals that 

we wish it would. A key one is that right now consumers actually 

associate higher prices with better quality. So they are inclined, if 

they were given price information and that was the main determination of how they were making their choice, they might actually choose the higher price services, driving up health care costs, 

which is the outcome that we don’t want. 

Again, we have a ready solution, which is to do that original fundamental research which says how do we talk about prices with 

consumers? Perhaps we really don’t want the price, but instead we 

want the value; we need to put value measures in front of them 

so that they don’t assume that higher price is a signal for higher 

quality but, instead, we really told them something about the quality of the services that they are shopping for. 

We also have to keep in mind that many services are not 

shoppable. The opening statement by Ms. Speier told us that there 

are lots of services out there for which you really have to rely on 

your physician to navigate those treatment choices. 

I will stop here, and I really look forward to the discussion. 

Thank you. 

[Prepared statement of Ms. Quincy follows:] 

32 


Insert offset folio 21 here 80922.021

POLICY &, ACTION FROM 

CONSUMER REPORTS 

Written Testimony of 

Lynn Quincy 

Senior Policy Analyst with 

Consumers Union 

Successful Policies to Improve Health Care Transparency Will Be 

Grounded in Best Practices and 

a Real World Assessment of Policy Limits 

Submitted to 

U.S. House of Representatives 

Committee on Oversight and Government Reform 

Subcommittee on Energy Policy, Health Care and Entitlements 

April 25, 2013 
33 


Insert offset folio 22 here 80922.022

Introduction 

Consumers Union, the policy and advocacy arm of Consumer Reports, I appreciates this 

opportunity to provide testimony on the topic of consumers and health care transparency. 

Improving the public transparency of quality and prices in the health care market -

including health plans, health care providers and treatments - would be of great benefit to 

consumers. These benefits are likely to include: 

• greater consumer engagement, empowerment and confidence 

• better health from improved practice patterns by hospitals, physicians and other health 

care providers and better informed consumers 

While such transparency is necessary, it may not be sufficient to lower costs or to create a 

better functioning marketplace. 

The focus of my testimony will be to offer two cautions. 

One: we must understand and acknowledge the complex process of getting from 

the "idea of transparency" to an actual consumer or provider-facing piece of 

information for which there is wide spread awareness, ready understanding and 

that compels the recipient to act on the information. 

Two: there are limits to what improved information about health care prices for 

treatments can achieve we must be realistic about those limits. 

By offering these two cautions, we hope to provide a real world framework that 

facilitates constructive policy work in the area of increased health care transparency. 

New Transparency Requirements Must Be Effective 

We can all point to consumer disclosures that confuse more than help consumers (HIP AA 

privacy notices) and consumer disclosures that have had a tremendous impact on 

everyday lives (nutrition facts panel on food, MPG stickers on cars). 

The truth is it isn't easy to introduce new transparency requirements that achieve their 

policy goals. Fortunately, we know a lot about how to be successful- we just don't 

consistently apply the lessons? 

I Consumer Reports is the world's largest independent product-testing organization. Using its more than 50 

labs, auto test center, and survey research center, the nonprofit rates thousands of products and services 

annually. Founded in 1936, Consumer Reports has over 8 million subscribers to its magazine, website, and 

other publications. Its advocacy division, Consumers Union, works for health reform, food and product 

safety, financial reform, and other consumer issues in Washington, D.C., the states, and in the marketplace. 

2 For example, the Agency for Healthcare Research and Quality produced a three part report series on Best 

Practices in Public Reporting to provide practical approaches to designing public reports that make health 

care performance information clear, meaningful, and usable by consumers. 

2 
34 


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The first step is to agree on what constitutes "success." Some public reporting is ignored 

by most consumers but is still extremely effective because it motivates new behaviors on 

the part of providers. 

The next step is to account for all the steps that must be achieved in order for the 

consumer or provider to take appropriate action. Consumer information can't merely be 

transparent. It must be crafted and conveyed so that consumers act appropriately on it. 

For example, these steps might include: 

• Consumer is ~ of the information 

• It is easy to find information when they need it 

• The relevance of the information to them is immediately evident 

• Information is written in an understandable way, as demonstrated by consumer testing 

• Consumer trusts the information and is confident that it will help them 

• Consumer can ~ the information to make decisions and complete tasks 

• The overall design supports the goals of the communication 

• Feedback mechanisms are in place so communications success can be measured 

Too often, some but not all of these steps are followed. For example, a disclosure may be 

nicely written in plain language, but the consumer isn't aware Ofit.3

,4 Or the consumer 

doesn't know how to act on the information.s Or the information is accurate but 

consumers don't trust the source. Using data that is out-of-date can reduce the relevance 

of the information for the consumer.6 Consumers suffer from information overload. If 

potentially useful information is embedded in a mass of useless data or text, we haven't 

helped them. 

The only way to get usable, nuanced data about how consumers respond to information is 

to conduct consumer testing. Yet this step is rarely incorporated into the development 

process or required by legislation. As an example: when asked what "health plan quality" 

means to them, many consumers told us they think it refers to the comprehensiveness of 

the benefits7

, whereas policymakers and others intend it to mean health plan quality 

(HEDIS) measures and consumer experience (CAHPS) scores. 

http://www .ahrg .gov /professionals!qual ily-palient-sa felylqual ity-resourcesipubmtguide 1. html See also: 

Hibbard et aI, "An Experiment Shows TImt A Well-Designed Report On Costs And Quality Can Help 

Consumers Choose High-Value Health Care," Health Affairs, March 2012. 

3 http://www.naic.org/documents/committees it bd lim med ben related docs consumer alert.pdf 

4 Consumers Union, Early Experience With a New Consumer Benefit: The Summary of Benefits and 

Coverage Form, February 2013. http://www.consumersunion.org/wpcontentluploadsl20 13/03/Early Experience Report.pdf 

5 http://www.nytimes.comi2012101i22/sunday-review/hard-lruths-about-disclosure.html./pagewanted=all 

6 Typically, health care information is one to two years old before the public sees it. Health statistics, 

University of Chicago Library, http://www.lib.uchicago.edu/e/su/medihealthstatl 

7 Unpublished results from focus group testing sponsored by Consumer Reports. 

3 
35 


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If disclosures of any type are to work as intended, the disclosure must go through a high 

quality development effort. This development effort and a requirement for measurable 

outcomes (through testing or feedback mechanisms) should accompany every consumerfacing or provider-facing disclosure requirement affecting consumers over a certain 

number or having to do with transactions over a certain value. 

Limits Of Increased Price Transparency 

Everyone can get behind better, more usable information about the price of health care 

treatments. Ideally, this information would: 

• be the final price paid by the consumer; 

• enable consumers to price compare alternative treatments/drugs or devices andlor 

alternative providers and venues; and 

• indicate whether this was the right or the fair price, or - even better - be a summary 

measure indicating the value of the treatment (price+quality). 

However, a lot of claims are made about the benefits of better price transparency. It is 

important that policymaking in this area be grounded in a realistic assessment of what 

will and won't be accomplished by better price transparency. For the reasons stated 

below, better transparency around health care prices may not lead to lower costs or better 

functioning markets. 

Not all health care is "shoppable" 

While it is feasible to do comparison shopping for elective procedures (LASIK, cosmetic 

surgery) and non-urgent care, a lot of health care is complex andlor urgent. At a certain 

point, consumers can not choose between alternate, complex treatments just because they 

featuring different price tags. In these cases, they must rely on trained providers to 

evaluate the overall benefits of the alternate approaches. The majority of health care 

costs are tied up with the latter type of patient. The five percent of the population with the 

highest spending are responsible for nearly half of all spending. 8 

Consumers Are Starting With A Bias Against Shopping By Price-And May Erroneously 

Equate High Price With High Quality 

A large segment of consumers would prefer not to make their treatment decisions based 

on cost - at least under certain scenarios.9 Focus group testing identified four barriers to 

patients' taking cost into account: a preference for what they perceive as the best care, 

regardless of expense; inexperience with making trade-offs between health and money; a 

lack of interest in costs borne by insurers and society as a whole; and a willingness to act 

S NUfCM Foundation, The Concentration Of Health Care Spending, July 2012. 

9 Roseanna Sommers et ai, "Focus Groups Highlight That Many Patients Object To Clinicians' Focusing 

On Costs," Health Affairs, February 2013. 

4 
36 


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in their own self-interest although they recognize that by doing so, they are depleting 

limited resources. 

Research confirms that consumers, faced solelrc with cost information, often assume that 

a provider charging more provides better care. 0 Ironically, if we only provide price 

information, we may inadvertently steer consumers to higher priced services. Instead of 

focusing on price transparency, we need to move towards tested measures of quality and 

value. 

Price Per Procedure May Not Be Useful 

The price for a medical procedure (CPT code) sends an incomplete consumer signal. 

Knowing the price of an individual procedure tells the consumer nothing about the 

complete bundle of procedures and other costs that makes up the treatment, nothing about 

the long run cost of choosing one treatment regime over the other and nothing about the 

non-price dimensions of the decision such as safety, quality, convenience, and other 

outcomes. 

Which Price Should Be Displayed? 

The median market price for a service may still be the wrong price. There's plenty of 

evidence to sug¥est that even if we reference the median price in the market, we may still 

be overpaying. I Given the health and financial impact on families, ideally the price of 

health care would be close to the cost of providing the treatment and would exclude 

excessive profit taking. Billed charges and reimbursements paid do not reflect cost. The 

cost of using a resource (e.g., a physician, piece of equipment, or area of space) is the 

same whether it is reimbursed poorly or highly. A better price would be the one that 

signals to the consumer this is a fair price. 

Price Transparency Won't Overcome Market Concentration o.lProviders 

Provider market power is a key factor driving the pricing of services in the health care 

market. 12 And consumers have no market power, even if armed with price information. 

History shows us that large payers (like Medicare and CaiPERS) are much more effective 

in reining in price increases than individual consumers. So let's be sure to put our policy 

muscle where it will have the biggest impact, if we want to meaningfully address the 

upward trend in health care prices. 

10 Hibbard, et al. Op cit. 

JJ Steven Brill, "Bitter Pill: Why Medical Bills are Killing Us," Time, March 2013. 

12 For example, see the Catalyst for Payment Refonn, Provider Market Power in the US. Health Care 

Industry: Assessing its Impact and Loof.:ing Ahead. 2012 

http://www.catalyzepaymentreform.org/images/documcntsIMarket Power.pdf or Massachusetts Attorney 

General's report on the role of provider market power in the negotiation of contracts with insurers: 

http://www.mass.gov!agofdocs/healthcareI2011-hcctd-fulLpdf 

5 
37 

Mr. LANKFORD. Thank you, and thanks to all of you. 

Dr. Makary, let me ask you a little bit about the Federal registries. You bring up a unique issue in health care right now, and 

that is the transparency side that all of us have talked about. Why? 

Why aren’t the Federal registries public? Why can’t a researcher 

get those and have comparables? I understand why the patient’s 

name is not connected; that is obvious. 

But the ability to be able to compare hospital to hospital, procedure to procedure; and I have even dealt with some researchers 

that want to just study across a particular effectiveness of a certain 

procedure that happens and wants the mortality rate, and they are 

not able to be able to research that as well. Why? 

Dr. MAKARY. I honestly think there are no villains in this game; 

it is just that historically we have had very raw and unsophisticated metrics that run the risk of punishing those that take on the 

high-risk cases and rewarding those that discriminate against 

them. I appreciate that as a pancreas surgeon that takes on some 

of the most high-risk cases that no other surgeon in the Country 

will touch. I appreciate the need for risk adjustment. 

But the databases have matured now. We can give good patient 

outcome results using physician-authored formulas that come from 

the American College of Surgeons that appropriately account for a 

patient being obese or diabetic or elderly, or having other risk factors, and come up with a composite score or a performance level. 

And that makes this an exciting time because if we handle the 

data appropriately, which many groups can, we can learn a lot 

from these databases. If you are going to deliver a baby, you want 

to know which hospital has a 40 percent C-section rate in Washington, D.C. and which one has an 8 percent C-section rate? I think 

fundamentally, as this data is being tracked and we can, in a mature way, come up with outcomes for each hospital, we, as a society, are faced with the dilemma do we believe the public has a 

right to know about the quality of their hospital. I think they do. 

Mr. LANKFORD. Dr. Goodman, you have wrote extensively and 

talked extensively about HSAs and about some of the funding 

mechanisms of individuals engaging into their own health care 

choices. You talked, as well, about medical tourism. The hospital 

that I mentioned earlier in Oklahoma City that is a flat-rate price, 

that lists their prices and puts them out there, when I spoke to the 

physician there, first thing he said was, when we opened and put 

our prices online, we were surprised to the know the Canadians 

showed up first; and their hospital was flooded with Canadians 

coming because they saw the price online and made the flight to 

save the time to be able to do it. 

Obviously, those are wealthier individuals that are able to make 

that transition, but the medical tourism of moving around, once 

people saw the price, does affect things. But they also want to 

know the quality. It is not just the price, but it is the quality. 

So engaging in the price aspect of it and the individual being involved, what have you done in your research on that? 

Mr. GOODMAN. I think the most important change we can make 

in our health care system to encourage price competition and quality competition would be to allow everybody to have a flexible 

health savings account. And before there were health savings acVerDate Aug 31 2005 09:09 May 30, 2013 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 C:\DOCS\80922.TXT APRIL
38 

counts, basically the tax law encouraged us to give all our money 

to the insurance company, because all that could be paid by employer with pretax dollars, and any money we put in a bank account got taxed. 

Now, we do have the health savings accounts and 27 million 

Americans have them, but those rules are very restrictive. We 

should have a very flexible account that wraps around any thirdparty plan and then let the market determine how much should be 

paid by the patient and how much by the third-party payer. And 

I think that most primary care and most diagnostic testing, along 

with some other services, ought to be paid for by patients from an 

account which they own and control. That would radically change 

the market for primary care overnight. You would see the number 

of walk-in clinics would triple and quadruple just within weeks if 

people could go in those clinics and pay the market price. And that 

is the best way, by the way, to control costs in Medicare and Medicaid. 

Mr. LANKFORD. I have a friend of mine who told me, about a 

week ago, that she went in for a diagnostic test. They started the 

procedure, it was a routine thing for her. She has not been to the 

doctor at all this year, so asked about what the price would be, and 

they said, we don’t know what the price would be, and went 

through the whole rigamarole, figured out what it would be with 

her insurance, and said she would pay $1,600 because she hasn’t 

met her deductible yet. She said, well, what if I just pay cash and 

we don’t file this with the insurance at all? They said, oh, that 

price we can give you, it is $600. And it was this incredible shift 

that has occurred in the way the prices work, and we have to find 

some way to be able to get plain prices out there so that people can 

engage with that. 

With that, I would like to yield to the ranking member, Ms. 

Speier. 

Ms. SPEIER. Thank you, Mr. Chairman. 

In Mr. Brill’s article, he spends a lot of time talking about this 

foreign object called a charge master which every hospital has. It 

is a book of fiction that only applies to people who come into the 

hospital who don’t have insurance; who aren’t Medicare, who aren’t 

Medicaid, and they get slapped with these exorbitant prices for 

services that are rendered, much like the example you just used, 

Mr. Chairman. 

So I guess I am interested in knowing what your opinions are 

about these charge masters. Should we just get rid of them? They 

only penalize those who are uninsured; those who are working 

poor; those who aren’t eligible for Medicaid, aren’t eligible for Medicare, and don’t have health insurance. Any comments? 

Mr. GOODMAN. Well, yes, they are fiction, and they are a holdover from the old cost-plus system where all those prices figure into 

how the hospital gets reimbursed one way or another by Medicare 

and Medicaid, and then by the private insurers. No, it would be 

much better if hospitals competed on price and competed on quality. Right now, all they are doing is maximizing against reimbursement formulas; and everything they do on their charge master is 

designed, there is some computer program helping them use that 

to maximize against the third-party payer formulas. So it is a very 

39 

inefficient system and the uninsured patient who gets caught up in 

it is confronted with that bill and thinks those are real prices. They 

are not real prices and nobody should pay them, quite frankly. 

Ms. SPEIER. Dr. Makary, you put up a slide that I thought was 

quite informative on laparoscopic surgery and how those that still 

use open surgery versus those who use laparoscopic. Is there any 

distinction being made between rural and urban? Are you seeing 

more laparoscopic in urban and less in rural areas? 

Dr. MAKARY. Interestingly, we don’t see a difference in rural 

versus urban areas. We don’t see a difference in large academic 

versus smaller hospitals. It tends to be a regional variation. It 

tends to be the way somebody is trained. It tends to be a preference 

of the individual provider. Even within an institution some providers may do it open and some laparoscopic. 

Ms. SPEIER. Older physicians using open versus laparoscopic? 

Dr. MAKARY. We didn’t study the age of physicians, but we know 

that younger folks, especially those who grew up with Nintendo 

and video games, are a little more skilled with laparoscopic surgery. 

Ms. SPEIER. Okay. None of you really kind of focused on this 

issue of ancillary medical services in which a physician has an interest and then refers patients to them. I think Atul Gawande did 

a piece called The Cost Conundrum some years ago and looked at 

El Paso, Texas and McAllen, Texas, and the Medicare patient in 

McAllen, Texas, more than $14,000 was being spent per year on 

them; only $7,000 a year on an El Paso Medicare patient. And 

when he really dug down, he found out that it was the physicians 

who own the hospitals in McAllen, Texas and the home health 

services and the other ancillary medical services that was causing 

this twofold cost differential in Medicare. 

Do any of you have comments on self-referral or the fact that 

physician ownership of these services has an impact? 

Mr. GOODMAN. Well, I think Gawande sort of missed the boat on 

comparing those two cities, because while it is true that Medicare 

spends a lot more in McAllen than it does in El Paso, it is also true 

the private sector spends a lot less in McAllen than in El Paso. 

And what I think is going on is that almost everybody in McAllen 

doesn’t have any private insurance, and Medicaid in Texas pays 

very little. So I think what they are doing is they are just shifting 

every cost they can to Medicare. Bad for us as Federal taxpayers; 

probably good for them locally. 

The whole issue of what does the doctor own and what can he 

use, I think the incentives are very perverse. I don’t really think 

the best answer is to tell the doctor he can’t have that kind of 

equipment or he can’t own it. I think the best answer is to encourage a real market and let competition determine what services he 

is going to offer and what services he is not. 

Ms. SPEIER. I am running out of time. 

Ms. Quincy? 

Ms. QUINCY. I think there are a number of studies that confirm 

what he found, which is that when you have physician ownership, 

you do see more tests. You see that ancillary service used much 

more often. It could go up by like 200 percent, the usage, and it 

does cost more. The Affordable Care Act does include a transVerDate Aug 31 2005 09:09 May 30, 2013 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 C:\DOCS\80922.TXT APRIL
40 

parency provision that says that doctors, if they are self-referring, 

they have to reveal that. But I suspect that will be necessary, but 

insufficient in this case; that we need more than just transparency. 

Ms. SPEIER. Sort of like selling your soul online, right? 

Ms. QUINCY. Well, if this subcommittee would just require testing of that disclosure. 

Ms. SPEIER. Thank you. My time has been depleted. 

Mr. LANKFORD. Thank you. 

Dr. Gosar. 

Mr. GOSAR. Thank you very, very much. 

Dr. Makary, just to let you know, I am a dentist. Very different 

parameters versus physicians in cost escalation. Definitely a little 

expensive to provide, but very different tracks, medicine versus 

dentistry. I am also from Arizona, a very aggressive State dental 

board versus a very lenient medical board. So I think you know 

where I am going to go on this. 

You have seen patients that have seen and are going to see an 

inferior doctor. There seems to be some type of aspect in which we 

are protecting bad doctors. Can you elaborate on that? 

Dr. MAKARY. Right now, if you lose your license in a State, the 

common next step is that the physician will jump to another State 

and apply to get a medical license. Now, the State can inquire with 

the National Practitioner Data Bank whether or not there has been 

a prior action, but in doing the research for the book Unaccountable, I learned that some States don’t want to pay the fee, even 

though it is less than $10 to run the inquiry. They argue they can’t 

afford it for all their doctors. 

So about half of all physicians who lose their license because of 

some atrocious immediate suspension because of a category called 

immediate harm to the public, they go to another State and set up 

their shop; and it is probably one of those things where if we just 

had more coordination of care we could prevent those thousands of 

patients that are seeing these doctors from the risk. 

Mr. GOSAR. And isn’t there a timely factor here? I mean, it almost has to be an outrageous, egregious action to even get it on to 

the medical or into the public, isn’t that true? 

Dr. MAKARY. Absolutely. And most of us will be sued at one point 

in our careers. Being sued is certainly not a marker of quality, 

even though it is reported to the data bank. But the category immediate loss of license because of a threat to the public, that is 

something I think should have coordination, just as the FAA does 

for pilots. 

Mr. GOSAR. I agree. You argue that doctors spend very little 

time, now, with patients, so it is almost what they call a patient 

shuffle, a turning mechanism, so to speak. Can you tell us, from 

the perspective of docs, I talk to a lot of them, they are burned out 

based upon the way the parameters are being compensated. Because then I am going to come back to you, Mr. Goodman, because 

I want some follow-up questions in regards to that. 

Can you tell me a little bit about that mechanism and the way 

physicians are burning out? 

Dr. MAKARY. Forty-six percent of us are burned out according to 

a national Mayo Clinic trial that just came out last year. Now, 

what drives doctors to burn out is not the patient care; they love 

41 

the patient care. We love the patient care. It is the quotas that we 

get harassed with by emails on a monthly basis; it is the targets; 

it is the pressure to see 15 patients in a two hour window. This 

is not the type of medicine that my father practiced in his career, 

and it is the sort of thing that is resulting in many doctors not recommending the profession to their offspring. 

Mr. GOSAR. So, Dr. Goodman, we have talked about market factors, and something that has not been put out here is the Government is part of those market factors, because since the conception 

of rates from HHS and CMS, we have an artificial market; and I 

think the Government plays a part in it, because all we are doing 

is cost-shifting. Because when you look at our medical aspects, we 

have lots of specialties; no primary care docs because there is no 

reimbursement mechanism, we have priced them out of the aspects. 

Part of that aspect is sharing of information, particularly with 

our third-party payers. I think they are part of the solution, but 

right now they are part of the problem. They share our information. Can you address maybe looking at the true cost of medicine 

and looking at insurers not being able to use collaborative 

actuarials? 

Mr. GOODMAN. Yes, I think that is bad and I think your premise 

is correct. The reason the market has been suppressed is because 

of government action, much of it at the State level, going back for 

decades. The answer is to find ways to liberate the marketplace. 

And I think the walk-in clinics, for example, perfect example. In 

Dallas, Texas, if you have an earache or sore throat, you walk into 

the Minute Clinic, there is a posted transparent price, it is $75. 

But Medicaid only pays half that, so none of the Medicaid patients 

can go to the walk-in clinic; they all have to go to the emergency 

room or to the community health center, where they will wait a 

long time for care. 

So I think a very good thing to do in Medicare and in Medicaid 

is let those patients pay the market price, whatever it is, and reimburse at that market price, because it is a lot cheaper than what 

the doctor is charging or the emergency room, and we would, overnight, greatly improve access to care for the low income population. 

Mr. GOSAR. Okay, I am running out of time. I will wait until my 

second round. 

Mr. LANKFORD. Thank you. 

Very distinguished ranking member of the full committee, Mr. 

Cummings. 

Mr. CUMMINGS. Thank you very much. 

Dr. Makary, I listened to what you said a moment ago, what one 

of your patients said about the parking. Let me tell you something, 

as a resident of Baltimore for 62 years and as one whose family 

member just had surgery at Hopkins, people come to Hopkins for 

more reasons than parking. It is the greatest hospital, in my mind, 

in the world. So you come from a very prestigious hospital, and I 

am very familiar with Hopkins; it is smack dab in the middle of 

my district. 

I was trying to size up your testimony with Ms. Quincy’s, because she said something that was very interesting. You talk about 

transparency, but I think about the people that come to my office, 

42 

and I could give them data, but I want to make sure they are not 

so overwhelmed with data or they even know how to read the data. 

There are people in Congress that don’t know how to read data, 

with law degrees. 

So I am just trying to figure out how do you size that up. You 

follow what I am saying? In other words, I want to be practical. 

Sometimes policy is not connected with practicality. But I agree 

with everything you said, except the parking. But help me with 

that. You follow what I am saying? 

Dr. MAKARY. Absolutely. And I agree with you. Now, there is a 

good model. 

Mr. CUMMINGS. And you are going to have to talk fast, because 

I have to talk to Dr. Goodman. 

Dr. MAKARY. The heart surgeons in the Country got all of their 

data, their outcomes data together and delivered it to Consumer 

Reports, that put it on their website; they have the brand recognition. And you can look up the star rating for a heart center in the 

United States. So it is possible to distill it down in a user-friendly 

way to patients. 

Mr. CUMMINGS. Okay. 

Dr. MAKARY. Just like the C-section rate. 

Mr. CUMMINGS. Dr. Goodman, you argue that, in place of the 

ACA, health care reform could be better achieved by depending on 

informed individual consumers who would be responsible for shopping for price and quality care and, of course, the bill. Mr. Goodman, you call that skin in the game. Dr. Goodman, I am sorry. I 

call that shifting costs to consumers. As seen in this slide, medical 

expenses are the number one cause of bankruptcies in America. According to the Administrative Office of U.S. Courts on behalf of 

Federal Judiciary, 1.3 million petitions for bankruptcy were filed 

last year; 62 percent of bankruptcies are the result of health-related illnesses or medical bills; 69 percent of those had medical insurance. 

I want to tell you, when I practiced law, people were very reluctant to file for bankruptcy for a lot of reasons, and usually it was 

a last resort. So, Dr. Goodman, you suggested that a uniform fixed 

dollar subsidy of $2,500 for every adult and $1,500 for every child 

is appropriate. Now, I wonder what would you say to the millions 

of Americans who have been driven into bankruptcy because they 

already had more skin in the game than they could handle? What 

about them? And I also want you to comment on the 22.3 percent 

uninsured rate in your area and how that plays in with all you are 

saying. 

Mr. GOODMAN. Okay. I believe in universal coverage, and I believe the Federal Government ought to make it possible for everyone to have health insurance, affordable health insurance. I think 

that could be done with a refundable tax credit the right way, instead of the bizarre way we are doing it under the ACA. 

Skin in the game is not really a phrase I ever use. What I believe 

is that there is a certain amount of money that people are going 

to have to spend on health care, and it should not all be given to 

the HMO, because if it is all given to the HMO, then it will decide 

how the money is spent, and I think patients need to play a role 

in deciding what kind of care they get. 

43 

I think the bankruptcy study you are referring to is a junk study, 

and it has been looked at and there are better studies. And there 

are people who go bankrupt for medical bills. There are people in 

Canada who go bankrupt because they have medical problems, and 

the bankruptcy rate in Canada is not that much different from 

what it is in the United States; not a good thing, but that is a distraction. 

Mr. CUMMINGS. Well, I don’t like distractions. I would like for 

you, since you have better numbers, I would like for you to get 

them to us, because we need to get to the agencies that are putting 

this out to make sure that they are not putting out untrue statements. 

Mr. GOODMAN. I would be happy to do that. 

Mr. CUMMINGS. All right. Thank you very much. 

Mr. LANKFORD. Thank you. 

Let me submit to the record there is a study that has been put 

out by Diana Roth that deals with that same number that said Department of Justice study and the Federal Reserve listing on it 

dealing with that, and I will be willing to certainly enter it into the 

record as well. Good chance to talk through that. 

Mr. Woodall, you are recognized for questions. 

Mr. WOODALL. Thank you, Mr. Chairman. 

I appreciate you all being here. This is one of the nearest and 

dearest issues to my heart. I just am curious, as we are debating 

so much in Congress about what the future of the American health 

care system is, do any one of you agree that the health care system 

will provide the kind of care that we want it to provide at a cost 

that we, as a Nation, can afford if we don’t improve transparency 

in the process? Can we keep going, Ms. Quincy, as we are or must 

we do better? 

Ms. QUINCY. We must do better. 

Mr. WOODALL. Dr. Goodman? 

Mr. GOODMAN. Yes, but I think that forcing transparency on the 

system without changing what the third-party payers are doing is 

not going to change very much. 

Mr. WOODALL. I certainly agree with you. In fact, I might define 

transparency as eliminating third-party payers from my life so that 

I can actually experience those costs. 

From a practitioner’s perspective, doctor, any belief that we can 

get by with the same amount of transparency or less going forward? 

Dr. MAKARY. No. I think the only way to improve the health care 

system is to get at this 30 percent of it that may be unnecessary. 

Mr. WOODALL. I certainly agree with the ranking member of the 

full committee. You can get overwhelmed with data. I have a medical savings account and I am out there making tough decisions. I 

am not a doctor; I am a lawyer, and I have to go out and sort these 

things out. 

I will confess, Ms. Quincy, as much as I fail to agree with so 

much of the policy statement that Consumers Union puts out, I 

love your magazine, and probably every day in the school library 

from age 14 to 18 I read every copy that came through; and the 

biggest purchase in my life at that time would have been an automobile. And it is complicated; it is kind of a life and death issue 

44 

in some ways. Something looks really nice, but it turns out, when 

it hits a curb, it falls apart and your head goes through the windshield. 

And you all helped me sort through those life and death decisions; complicated, big dollar decisions. Sometimes folks chose the 

less expensive, more dangerous varieties for their life; other folks 

chose the more expensive, safer, and bells and whistle along the 

way. Why won’t that model work in a health care world? 

Ms. QUINCY. I think there are a couple reasons. One is we are 

talking about purchasing a product where the spending in a year 

could exceed $100,000, as opposed to the $10,000 for a used car 

that is being spread across five or six years. And we are also talking about absolutely essential purchases, because they alleviate 

pain, they increase quality of life, they prolong life; whereas, in 

some cases you may have an option other than a car, you may have 

public transportation. 

So I think most people feel that this market is different from 

other markets where the commodities are more fungible. 

Mr. WOODALL. There is no question, I think you are right, that 

most people do feel that way. I just question whether or not they 

are right. You have made the very accurate point that some of 

these are more expensive than others. I use you for tooth whitening 

toothpaste as much as I use you for automobiles. You have managed to do things at all ends of the consumer spectrum today. I 

don’t know why we wouldn’t succeed at that going forward. 

I think about my grandparents, who died surrounded by people 

who loved them in their home. There was a choice about health 

care. These were not life and death decisions about which they had 

no choice; these were life and death decisions about which they had 

great choice, and they made those decisions. I have a great fortune 

of having physicians in the family who help guide us through 

those. I do worry about where folks go to get that information. 

Dr. Goodman, I think about Medicare Part D, for example. I 

wasn’t in Congress then; I would have voted no then. I am not in 

favor of new Federal entitlements. But I remember folks saying 

very much what Ms. Quincy just said, that these are life and death 

decisions, these are very expensive decisions, and these are too 

complicated for the American people to sort out. I think the data 

today suggests that Medicare Part D has been successful with individuals sorting out their own decisions. 

Mr. GOODMAN. Well, it has been. It seems enormously complicated, however. Remember, we still have third-parties and the 

Government determining everything. But the Minute Clinic, that is 

the real free market. Nobody tells the Minute Clinic what it has 

to make public and what it doesn’t. But if it doesn’t do it in a way 

that people can understand, no one goes in the clinic. So they are 

making lots of money, they are spreading all over the Country because they give people information in a way that they can understand. And, by the way, all the records are electronic and they can 

prescribe electronically. 

Mr. WOODALL. No question, Dr. Goodman, it is complicated, and 

no question, as Ms. Quincy pointed out, it is so hard most folks 

can’t fathom how we can get it done. But I think about folks in the 

actual provision of the business, doctor, and my family members 

45 

who are docs and docs in my communities, people who are really 

questioning whether they are going to stay in the business or not 

and, more importantly, questioning whether they are maximizing 

their ability to make a difference in people’s lives. And at some 

point the system we have today is actually diminishing the quality 

of individuals’ lives and care, rather than improving it. Have you 

had a similar experience? 

Dr. MAKARY. Absolutely. There is a debate going on right now 

within U.S. hospitals: Should we pay doctors a relatively flat 

amount, maybe with a small bonus for innovation or quality, or do 

we give them gigantic bonuses, quarter of a million dollars, half a 

million dollars, for pure volume? And the CEO of the Cleveland 

Clinic and the head of Kaiser have come out saying that they believe it is unethical to pay doctors based on volume. Other hospitals 

are going the other direction. And I think that contributes to the 

doctor burnout. 

Mr. WOODALL. I thank you all. 

Thank you, Mr. Chairman. 

Mr. LANKFORD. Thank you. 

Mr. Horsford. 

Mr. HORSFORD. Thank you very much, Mr. Chairman. I appreciate this panel and the very important information on the provisions of the Affordable Care Act that are being discussed today. 

One of which I want to touch on right now is the summary of benefits and coverage program created what is an unprecedented standardized method of communicating health plan information to the 

over 170 million consumers enrolling in private health coverage. 

The SBC requires providers to give consumers information about 

health care plans in a uniform layout and in terms they can understand, meaning consumers can make educated decisions about 

which plan is best for them. And I know, as I talk to my constituents, as I talk to small business owners, this is something that is 

very important, is having people be more educated about the decisions they make. 

We are fortunate to have a witness who is an expert in this. Ms. 

Quincy, I understand that you, while working with the Consumer 

Union and the National Association of Insurance Commissioners, 

conducted extensive research both to determine what information 

would be most useful to include in the SBC and determine how effective the programs were after implementation, is that correct? 

Ms. QUINCY. Mostly, yes. The Affordable Care Act itself included 

some requirements that we started with as to what should be in 

the SBC, and if I have a chance I will tell you about key one that 

illustrates a lot of points being made today. 

Mr. HORSFORD. Please, elaborate. What are some of those features? 

Ms. QUINCY. Okay. Well, one thing I will say to start is that this 

particular provision is absolutely beloved; it ranked higher than 

subsidies for health insurance premiums when Kaiser Family 

Foundation did a poll, because consumers do feel they need help 

picking among health plans because the information isn’t standardized. But I know we are moving quickly. 

If I could have the next slide. 

[Slide.] 

46 

Ms. QUINCY. One of the required features, and one where the 

consumer testing produced the greatest surprise, was around this 

page, which is a page called coverage examples, and it includes 

three pieces of information that consumers have never seen before. 

One, it shows how much medical care costs for the medical scenarios displayed. And that is something that consumers don’t 

know; they don’t understand how truly expensive medical care is, 

and that is why, in today’s market, they might buy a policy with 

a $20,000 annual benefit limit, not realizing they are very underprotected, may end up in bankruptcy. 

Second, it gives a bottom line for what all those myriad costsharing provisions actually mean to the consumer. By the time you 

weigh the deductible cost-sharing, blah, blah, blah, what does it actually mean if you have a baby? What do you have to pay? Consumers can’t figure that out. I couldn’t even figure it out when I 

was trying to create these for testing. 

Third, and the surprise, it shows what the plan pays for coverage 

for that medical scenario. And that may seem like a residual; it 

proved to be very important because consumers do not want to 

shop for health insurance, they would rather shop for cars, it is 

more fun. And they kind of forget the value associated with having 

health insurance. And when they saw, on this breast cancer example, which is what we tested and is not in the form today, $100,000 

service for a year, they went from saying I am not going to buy 

that plan because that deductible looks so high, to saying, you 

know what, that is chump change compared to what that plan is 

paying on my behalf. And I can show you the videotape. 

So the bottom line is here is A, consumer testing tells us what 

we need to know and we shouldn’t be guessing; B, it is powerful. 

We could be moving the market just by working with this form and 

doing more with it. 

I will stop there so I don’t use all the time. Thank you so much. 

Mr. HORSFORD. So, in your opinion and based on the testimony 

that you have given, would you say that the SBC is an effective criteria to meet those improved communication and education provisions of the law? 

Ms. QUINCY. I think that the SBC fills a great need. I actually 

do hope it will be improved over time. I think that one thing that 

did not happen is the form was not designed by a designer; and I 

have told HHS that we need to get a designer in here to tune it 

up a little bit. That is the nature of disclosures; ideally, they improve over time. But there is a report in my written testimony that 

I link to that says how well received this was by consumers, so we 

are doing great so far. 

Mr. HORSFORD. Any other recommendations or steps that you 

think this committee should take? 

Ms. QUINCY. Well, with respect to this form in particular, yes. 

The form that consumers see today only has two of the three examples you see before you; it is missing the expensive breast cancer 

example. And that was the most impactful and it needs to be 

brought back. 

Second, a change was made at the regulatory level to go from 

real world prices to Medicare prices. So you will see that having 

a baby is $10,000 in this slide. 

47 

If you go to the next slide, or the previous one. 

[Slide.] 

Ms. QUINCY. Now it is $7,540. That is not a real world price. And 

I can, afterwards, give you a whole list of things I would love for 

this committee to do. 

Mr. HORSFORD. Mr. Chairman, may I ask, do we have a copy of 

those slides? 

Mr. LANKFORD. We can certainly get a copy of those slides. They 

will be included in the record as well. 

Mr. HORSFORD. Thank you very much. 

Mr. LANKFORD. Absolutely. 

Ms. Lujan Grisham. 

Ms. LUJAN GRISHAM. Thank you, Mr. Chairman. I have to say 

that when you come into these committees this late, you often end 

up repeating many of the fine points and questions. I am actually 

going to dovetail on my fabulous colleague, Mr. Horsford. 

Ms. Quincy, I really appreciate describing that we have great 

first steps, including making sure that we have more transparency 

and we are driving folks to a consumer-based marketplace through 

the exchanges in the Affordable Care Act, but that health care information is complicated and that even the folks who have tried in 

a variety of before the Affordable Care Act have made many attempts to make billing information. 

Anybody who has tried to read a Medicare statement, for example, it used to take me months to train doctors and other health 

care professionals to be able to navigate explanation of benefits and 

Medicare bills to figure out whether or not those Medicare beneficiaries still have to pay, have reached a deductible, what that 20 

percent is or isn’t, whether it is a covered service. So it is, it is very 

complicated to navigate and I think that these are important first 

steps. 

But I want to talk to you. Mr. Horsford got you to identify other 

things that we could be doing to make this more transparent, 

which will make consumers better able to make productive choices. 

Let’s talk a little bit about how that would translate into creating 

better price structures and helping consumers help us make sure 

that we don’t have price discrimination and overcharges in the system. Do you have any suggestions about how we might do that? 

Ms. QUINCY. Yes. Some, I think, low-hanging fruit, if you will, 

things fairly easy to achieve. One of the things that stops consumers from using the price information that is on the marketplace 

today is it is by CPT code, so a single procedure. And they don’t 

bring the knowledge to the table that tells us what is the actual 

full bundle of procedures that I need to know. This is why they 

might get tripped up with respect to out-of-network charges, because they don’t realize there is an anesthesiologist charge that 

goes with this surgical charge. So, anyway, we need to provide 

them within formation that is already bundled into the entire set 

of services that they are going to need. 

Second, we have to link those things with value. We should not 

be showing price information alone. And that is pretty tricky, but 

I think it can be done. I also think that underlying all of this, like 

the testimony of others, is great information about comparative effectiveness. What are the right treatments? When you are choosing 

48 

among treatment alternatives, you, frankly, don’t want to do it on 

the basis of price; you want to know which is going to give you, the 

patient, the best outcomes. And we have that information in some 

places, but not where we should. It is shameful that that information is not always available to us. 

I will stop there just so you have enough time. 

Ms. LUJAN GRISHAM. And thank you very much. 

This is for anyone on the panel and, again, I apologize if these 

issues were covered before my attendance here at this morning’s 

hearing. And, again, I am in favor of as much transparency and not 

so in favor that I think this is over-simplistic to say that just a free 

marketplace kind of transparency environment makes this easy. 

As I said, I come from this with experience helping the Seniors 

Saving Medicare project; Operation Restore Trust, where we were 

really looking at ways to really understand what is going on; longterm care ombudsmen programs, helping folks understand what 

services they ought to be getting in nursing homes. And it is so 

complicated that the best way I could do it would be to train accountants and really looking at folks. 

I am not, for example, able to figure out, when my engine light 

goes on, just exactly what is wrong with my car. Nor am I able to 

navigate it when the mechanic tries to explain it to me. And when 

you are sick, you are not in a position to shop, and Americans are 

sicker than everybody else. And I just like these responses that we 

are not dealing with a patient population, no matter how sophisticated we are, that can navigate fairly just because people are more 

transparent. I do disagree with these statements and why. Anyone 

on the panel. 

Mr. GOODMAN. Well, I think the best way to get transparency is 

to do something like what Walmart is going to do with all its employees; it is going to have seven Centers of Excellence. You want 

to get on a plane, go to those Centers of Excellence for your elective 

surgery. They will cover all the costs. If you want to go to some 

other hospital, you have to pay the extra marginal costs. So that 

makes every employee of Walmart very aware that there is going 

to be an expense for going to another hospital or another health 

center. And then once they do that, in places where there are a lot 

of Walmart employees, the other hospitals are going to say, hey, we 

can’t get customers here with the CPT codes that nobody understands; so if we want to compete with the Mayo Clinic and other 

health centers, we better come up with a package price that people 

can understand and quality measurements that they can understand. 

It is on the provider side that we are going to solve these problems, not on the buyer side. 

Ms. LUJAN GRISHAM. Thank you, Mr. Chairman. My time is up, 

so I will yield back, but there is plenty more to debate on this 

issue. Thank you very much. 

Mr. LANKFORD. Good. We will hang around for a second round 

of questioning, if you would like to be able to stay engaged in that 

as well. 

Let me come around for a second time around on a few things. 

For all of us, we want the best in possible patient care. That is 

what this is all about. It is an individual the best and possible paVerDate Aug 31 2005 09:09 May 30, 2013 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 C:\DOCS\80922.TXT APRIL
49 

tient care. It is also best possible price not only for the individual 

that is paying it, but in the cases where the Federal Government 

is involved in health care, also for the Federal Government as well. 

But it is about the patient at the center core of this. 

Dr. Goodman, you have done a lot of work on cost issues. What 

would you propose as the most significant things that we could do 

that both improves patient care or takes good attention to individuals, but also good attention to price? 

Mr. GOODMAN. Well, again, I think we have all of these clinics 

that are opening up, all the Minute Clinics, the walk-in clinics, we 

have the doc-in-the-boxes, we have the freestanding emergency 

room clinics, and they really are in a free market and they do offer 

posted prices. The mistake we are making in our public programs, 

in Medicare and Medicaid, is that we are not allowing the patients 

to pay those prices; instead, we dictate what Medicare is going to 

pay, we dictate what Medicaid is going to pay. 

We don’t need to do all that if we have a market that is functioning and if the price looks like it is way below what we would 

otherwise pay. So there are a few simple things that we could do 

that I think would greatly expand access to care, particularly for 

low-income folks. 

Mr. LANKFORD. All right, but that is for basic data care; that is 

the flu, that is an earache, that is a broken bone. That is for simple 

things. What about when we step into more complicated? 

Mr. GOODMAN. For more complicated, just to pick up on the 

Walmart example, other employers are looking at structuring their 

insurance so that if you go to a high-quality, low-cost facility, they 

pay everything; if you want to go someplace else, you pay the extra 

cost out of your own pocket. Then that puts enormous pressure on 

the provider side of the market to begin to compete with bundled 

prices, with quality information; and I think you are going to see 

a lot more of that. Right now, in Dallas, Texas, there is not a single 

hospital that is not in Blue Cross’s network. It doesn’t matter how 

good the hospital is, how bad, what its mortality rate; they cover 

everybody. That is not the way to get to where you want to be. 

Mr. LANKFORD. What about for the individual? I mean, all those 

assume employer or a larger company that they are involved in. 

What about for a small business owner, himself and his wife or her 

husband own the business and that is it? 

Mr. GOODMAN. Well, I believe in the very flexible health savings 

account to wrap around any third-party plan, and I really think the 

ideal way to structure it is to put enough money into the account 

so that people can pay for their primary care, for their diagnostic 

tests. If something really expensive happens, then the plan pays for 

it. 

But carve out whole areas of care, especially all the diagnostic 

tests, and say, look, you can have this. We are not going to argue 

with you about how often you can have a mammogram or a pap 

smear or PSA test; we are going to put money into an account and 

you decide how often you get these and you decide if you can find 

a better way and higher quality testing. That would change a lot. 

Mr. LANKFORD. We are all in the middle of the transition to the 

Affordable Care Act and we are all kind of watching the Administration right now trying to implement things. There are a lot of 

50 

guesses what it will look like both on price on insurance and how 

it is going to work, and exchanges and State versus Federal. All 

these dynamics are out there. You are doing a tremendous amount 

of research on this as well. 

Based on just typical behavior of individuals, there is this sense 

that individuals will stay out of the insurance market until they 

are sick because they have guaranteed coverage at this point, and 

that they will then step in and pick up coverage as soon as they 

become sick. Are you tracking with that or where are we with any 

of that? Do you think that will affect premiums? Do you think that 

is a likely behavior? 

Mr. GOODMAN. I think it is going to be a huge problem, and it 

is going to be made worse if the application form is 21 pages long, 

and it is going to make worse if the HHS continues to not use systems that are already out there. E–Health has insured 3 million 

people on a private exchange. HHS is not using that private exchange. I think that is a huge mistake. They are going to go hire 

navigators who will not be insurance brokers; they have to be 

trained. And the fines for being uninsured are small and they don’t 

apply to millions of people, and it appears that the IRS can’t do 

much to enforce them except withhold refunds, so the insurance 

companies are very, very worried that only sick people will sign up, 

and it is a legitimate worry. 

Mr. LANKFORD. Okay. 

I now yield to Ms. Speier. 

Ms. SPEIER. Thank you, Mr. Chairman. 

Dr. Goodman, you are an unabashed proponent of HSAs. We 

have heard it five or six times this morning. The GAO has indicated that the average adjusted gross income for those aged 19 to 

64 who have either made a contribution to or withdrawal from an 

HSA have an income of about $139,000 a year, compared to the average filer, who is making about $57,000 a year. So the persons 

who are accessing HSAs are people who have more money, people 

who have the ability to squirrel away money. So I don’t think HSAs 

are the answer, and that is the model on which you describe much 

of your commentary. 

So I guess my question to you is if we don’t have HSAs, if the 

majority of Americans don’t access HSAs because they don’t have 

extra money, we have lots of unemployed people; we have lots of 

people who are just making it, who don’t have $5,000 to set aside 

in an HSA, how are we going to make sure that they have health 

coverage under your concept? 

Mr. GOODMAN. Well, I am not talking about extra money, I am 

talking about the money that is put aside for them by an employer 

or by the Government; and I am saying it should not all, in my 

opinion, go to the third-party payer. But I am perfectly willing to 

allow the market to work, and if people want to join an HMO and 

give all the premium dollars to HMO and let it make the decisions, 

I am willing to allow that to happen. That is basically what happens in the Medicare Advantage plan. 

But I would like to see people have the option not to give all the 

money to the insurance company, to retain part of it in an account 

that they own and control; and I would especially like to see the 

opportunity for people to carve out whole areas of care that they 

51 

will be responsible for and an employer puts money into the account. And I think this could be a real interesting way to approach 

the whole issue of chronic illness. 

In the Medicaid program, of all places, we have something called 

cash and counseling, where the homebound Medicaid disabled are 

managing their own budgets. 

Ms. SPEIER. All right, thank you. I need to go on and ask Ms. 

Quincy. 

Ms. Quincy, what has your experience been with these HSAs and 

high deductible plans, and their ability to really cover people? 

Ms. QUINCY. I think that the evidence associated with these 

plans completely comports with what theory would predict; they 

are excellent vehicles for people who are either very well off and/ 

or healthy. In fact, there is some data from the IRS that indicates 

that they are actually used to do long-term retirement savings, because it is another tax advantage way to save for your retirement. 

And there is nothing wrong with that. 

I do think we need to be careful and state so that we know it 

will not solve all of our health issues. I think there is a role for 

it, but you have already made the point better than I have that 

there are many, many families for whom they are very cashstrapped, they have no liquidity, and they may be also time-constrained; they are just not in a position to shop all these services 

and manage this large account. I just think the evidence is overwhelming that that is the case. 

Ms. SPEIER. All right. I have a question for each of you now. 

There is still a lot of pushback on the Affordable Care Act, still people that want to undo it. I think it is counterproductive at this 

point. I think it is here to stay. I think that what we should be 

doing is making sure that it works. And I know for some of you 

that is a hard concept to put your arms around because you just 

don’t support it. But having said that, there are issues that we 

have to address in the Affordable Care Act around cost containment, because the bill does not address that; and our job in Congress right now should be looking at where the areas we can impose cost containment, because a fee-for-service model is antiquated. 

So, with that, Dr. Makary, let’s start with you. 

Dr. MAKARY. I appreciate your comment, Congresswoman. Even 

the authors of the Affordable Care Act, at the time that it was 

passed, said more work needs to be done, and it was recognized 

that it was not all-inclusive of the changes that need to be made 

in health care; and, of course, no law is ever perfect. Right now, 

dealing with the cost crisis, it appears that transparency is the 

most common-sense, logical, and low-cost way to allow the free 

market to come around outcomes. But if we just talk about price 

transparency, I do worry it is a very dangerous business, because 

it will simply force the market to provide the lowest price. 

We have all talked about the importance of value and outcomes, 

but where are these outcomes? They live in these registries. And 

I think if Medicare is going to reward things, they should reward 

registry participation and public reporting in these registries. 

52 

Mr. LANKFORD. I am going to ask unanimous consent to extend 

for another minute to allow the folks to be able to answer that 

question. 

Mr. GOODMAN. I personally put together something called the 

Health Roundtable, and it includes the business roundtable, includes the drug companies, insurance companies. Basically, I said 

to them, I don’t care where you were three years ago; some of you 

supported it, some of you didn’t, but I used the very words you 

used: It is here; we have to find a way to make it work. So you 

all know better than Congress knows where the train wrecks are. 

Let’s identify them; let’s do this in a bipartisan way. So we would 

love to have your input on this because one party can’t do this next 

time around; it has to be both parties. 

Ms. QUINCY. Constraining health care costs is probably the 

thorniest dilemma that we all face; it is very complex and hard to 

do. I would actually be a bit more charitable towards the Affordable Care Act. It doesn’t solve the problem, but it contains just 

about all the seeds of policy solutions that we would explore. I 

won’t enumerate them here, even though I wish I could, but perhaps in some of the later questioning we could dig into some of 

those provisions. Like there is a new large payer, which we have 

all agreed is how you move the market, by having large payers; 

rate review; and other issues. 

Mr. LANKFORD. Dr. Gosar. 

Mr. GOSAR. I disagree. I want opportunity and I want choice, and 

that is inherent to me, and I have done it for 25 years. I built individual insurance models for patients day in and day out, so I want 

choice. And we can’t solve this problem without involving the patient in this decision process. 

But the market is broken, and it has been broken from the Government entity, it has been broken from the insurance entity, and 

it has been broken from the hospitals entity; all the way around. 

In fact, I always share this: Who has been on the Government dole 

the longest for dictated health care systems? Actually, it is the Native Americans; and they are rebelling like light years. They do not 

want it; they do not like it. They want to have an individually 

based health care model. And they are exempt, by the way, from 

the ACA, and they are actually building some of the better health 

care systems around are being built right now. 

So I want to look, Dr. Goodman, at the system, because I think 

we are built upon a flawed system based upon reimbursement 

rates dictated by CMS and HHS, as well going through an insurance industry. Would you agree with me that we can get back to 

some kind of competitive model and look at real costs, instead of 

being able to cost-shift? Because that is what we are doing right 

now, we are just cost-shifting one to the next, to the next, to the 

next; and that is why you see some of this churning that goes on. 

Mr. GOODMAN. Yes. I would go further. We are never going to 

solve the problem of cost as long as you have every patient and 

every doctor having a self-interest in making spending higher. So 

if you want to solve the problem, we have to get the economic incentives right, and health savings accounts is one way of getting 

incentives right for the patient. And if you were more creative 

about that idea, you could do the same thing in chronic care, longVerDate Aug 31 2005 09:09 May 30, 2013 Jkt 000000 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 C:\DOCS\80922.TXT APRIL
53 

term care. There are a lot of things we could do to get patients 

good incentives, and we can also do it on the provider side. 

Mr. GOSAR. But you are your health care, are you not? You, the 

patient, you are your health care. 

Mr. GOODMAN. Okay. 

Mr. GOSAR. You inherit your health, right? 

Mr. GOODMAN. Right. 

Mr. GOSAR. So you have to take an active participation in that 

aspect to drive it. So it is upon us to educate people in the genetics 

that we hold. 

Would you not also agree, Dr. Makary? 

Mr. MAKARY. Yes. 

Mr. GOSAR. So we have to involve them along those lines. 

Let me ask you a question. So we have this Affordable Care Act, 

so they say, and then we have an SGR. Does that make sense? 

How do you have an SGR and then you have reformed health care, 

and you still have an SGR sitting out there because what you are 

doing is you are trying to reimburse physicians for not being paid 

appropriately. How does that work? 

Dr. MAKARY. The Affordable Care Act addressed coverage in one 

way; it didn’t address the SGR, which desperately needs to be reformed, and it didn’t address the long-term cost crisis in a comprehensive way. There is only one thing that units every physician 

in the United States, and that is we want the SGR changed. 

Mr. GOSAR. Very, very, very interesting. And going back to 

choice, in the Affordable Care Act, what we are seeing in its implementations you are seeing also in compliance; hospitals buying up 

private sectors, Dr. Makary. Does this help or hurt rural health 

care implementation? 

Dr. MAKARY. Well, even before the Affordable Care Act there was 

a trend which I have been concerned about: massive consolidation 

in health care. Do we want our cities and some States controlled 

by one hospital corporation? There were 86 hospital mergers acquisitions and last year, representing a record in U.S. history. I think 

we all believe that it is going to hurt medical prices if there is only 

one player in town. 

Mr. GOSAR. So the question Ms. Quincy was talking about, large 

payer, that seems anti-anecdotal. There is this big move to big insurance, big hospitals, big medical groups. That is kind of contradictory to what we would solve it with, right? 

Dr. MAKARY. Well, I like shopping for a cell phone with Verizon, 

Sprint and AT&T; and if there were only one carrier, I guarantee 

the price would be higher. 

Mr. GOSAR. That is what I found in dentistry, and I found that 

in life as well. Let me ask you the next thing. Talk to me about 

the new doctor. They are very different. You alluded to it in your 

conversation. We are producing a physician that is very heavy in 

debt, I mean between $200,000 and $300,000. So their opportunities are very limited in how they can repay that. Can you elaborate 

a little bit on that, Dr. Makary? 

Dr. MAKARY. Doctors are getting crushed right now. Malpractice 

premiums are going up; their Medicare payments are going down; 

their overheads are going up; and then there is this pressure to do 

more with less, and that is why we are seeing this tremendous disVerDate Aug 31 2005 09:09 May 30, 2013 Jkt 000000 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 C:\DOCS\80922.TXT APRIL
54 

satisfaction. And I think we have to look at the SGR. And these 

young doctors, they want to be honest and transparent, because 

that generation has very little tolerance for a lack of transparency 

in other aspects of their life, so they are more likely to disclose errors to patients at the bedside and they are more likely to look at 

national registries and say why aren’t these available to the taxpayers when they fund it. 

Mr. GOSAR. Thank you. 

Mr. LANKFORD. Mr. Horsford. 

Mr. HORSFORD. Thank you, Mr. Chairman. 

Dr. Goodman, I do have to just respond a little bit to your statement prior. Replacing the Affordable Care Act with a model like 

Walmart has for a Center of Excellence, it may work for Walmart, 

and I am not going to make a judgment on that, but it is not going 

to work for millions of Americans in places like my district. 

Just by way of example, my district in Nevada covers seven 

counties, it is 52,000 square miles; it is both rural and urban. I 

have rural parts of my district that have no medical services whatsoever, or public transportation. So to expect them to somehow 

navigate or be able to get to a Center of Excellence, I would take 

some objection to. And small businesses who can’t get the same volume prices as Walmart I don’t think would be advantaged. 

But I really appreciate my colleague, Representative Gosar, as a 

dentist because I found that it is not the doctors, per se, that are 

the problem. The problem, in my opinion, are the insurance companies. Until recently, insurance companies spent a substantial portion of consumers’ premium dollars on profits, including executive 

salaries and marketing. For example, in 1993, insurance companies 

typically spent 95 percent of customers’ premiums on medical benefits, the so-called medical loss ratio. 

But by 2009 many insurance companies were routinely denying 

policy claims and dropping coverage for nearly 3 million Americans. 

That allowed them to stop spending so much on health care and 

start keeping a greater share of premiums for profits and executive 

salaries; and only about 85 percent of premiums were spent on 

medical benefits. By comparison, the Government-run Medicare 

system put 97 percent of premiums into medical benefits. 

So, according to one study, profits for the 10 largest U.S. insurance companies jumped 250 percent, 250 percent between 2000 and 

2009. Now, I have no problem with the free market, and I think 

that people are entitled to a profit. But in health care, should we 

have 250 percent of insurance company profit when people do not 

have access to quality health care in America? 

Ms. Quincy, way back in 2009, was it legal for private health insurers to deny coverage and keep premiums for profit and executive salaries? 

Ms. QUINCY. Yes. 

Mr. HORSFORD. Is it legal for insurers to do that, or has something changed now? 

Ms. QUINCY. Well, many things have changed. Some changes 

have already occurred, like restricting the medical loss ratio to a 

certain range, 80 percent for individually insured and small group 

products and 85 for large group products. This is already in place; 

we can already see the evidence of how well this policy is working. 

55 

But in 2014, of course, things change fundamentally and people 

can no longer be denied or charged more because they have a preexisting condition, mostly through no fault of their own; and that 

is the fundamental change that consumers really want to embrace. 

It is just not fair; it is unethical. 

Mr. HORSFORD. So is there evidence that the MLR is actually 

driving down health insurance premiums? 

Ms. QUINCY. There seems to be. We just have one good year of 

experience with it so far. Also, when you look at MLR, you have 

to realize it is also being coupled with a much better rate review 

process, and those two things together we have observed, again, in 

our first year that rate requests were being reduced or withdrawn, 

and there is a study out there that shows there does appear to be 

a benefit. And, again, we are talking about greater transparency 

here between the MLR requirements and the rate review process. 

Mr. HORSFORD. Just quickly. Dr. Goodman’s website suggests 

that the MLR will result in higher premiums and increased profits 

for insurance companies. What do you say to that? 

Ms. QUINCY. Well, I think it depends how real world you are 

going to get. In the realm of theory you could say there is a scenario whereby MLR might increase profits, but in the real world, 

where we have competition among health plans, you can’t arbitrarily increase your medical claims in order to increase your profits while still maintaining your MLR. You wouldn’t fare very well 

in the marketplace. 

Mr. LANKFORD. Thank you. 

Quick follow-up question on that, Ms. Quincy, just to clarify. Are 

you suggesting that next year premiums will be lower for individuals for insurance, with that statement? 

Ms. QUINCY. Well, if you are you trying to get me to say what 

we know about premiums? 

Mr. LANKFORD. No, just the statement about the MLR and that 

the premiums have gone down. I am just trying to clarify is that 

total premiums or just in that one area? 

Ms. QUINCY. I am so sorry. Are you asking me to clarify what 

we already know about premiums for the prior year or are you asking about 2014? 

Mr. LANKFORD. No, no, no. 2014, yes. 

Ms. QUINCY. Okay. Well, we have lots of studies on this, and premiums will be going up for some people and down for others. And 

that is before subsidies. 

Mr. LANKFORD. Okay. 

Clarifying question as well, Dr. Goodman. You and Ms. Speier 

talked about something and you brought up a cash and counseling 

program. I just wanted you to be able to clarify what that is and 

how that works. 

And then I am going to see if there are any other quick questions, then we will close down the hearing from there. 

Mr. GOODMAN. Well, it is a remarkable program because it deals 

with the most vulnerable of our citizens, and these are Medicaid 

disabled patients. They are allowed to manage their own budget. 

It is a program initially funded by the Robert Wood Johnson Foundation. 

56 

By the way, other countries are doing this too. I was testifying 

about two years ago and I brought this up, and Senator Rockefeller 

said, well, what does that have to do with health savings accounts? 

And I said, well, that is just a health savings account for poor people. So after the hearing he came up to me and he said, you don’t 

understand, health savings accounts is a Republican idea. And I 

said, well, let’s call them Rockefeller accounts. Then we will all be 

happy. 

Mr. LANKFORD. So how do they work and where do they come 

from? How old are they? This is a pilot that currently exists? 

Mr. GOODMAN. Yes, in just about every State, I believe. The patient manages the money. Initially it was just custodial services, 

but now it is real health care. And they can hire and fire people 

who provide them with services, so if they don’t like what they are 

getting from one provider, they can go to another. 

Mr. LANKFORD. Any other clarifying questions? Any follow-up? 

Ms. Quincy, Dr. Goodman, Dr. Makary, thank you for being here 

and thanks for all you have submitted and the work you have put 

into this, both the books, the research people. Dr. Makary, I saw 

an article that you put out in The Wall Street Journal. I would like 

to enter this into the record as well. Ask unanimous consent to do 

that. So ordered. 

Mr. LANKFORD. You are doing a lot to push Americans to think 

about health care in different ways and to be able to encourage us 

to do some of those things as well. So I thank you for the research 

that you continue to do and we will look forward to continuing this 

conversation in the days ahead. 

With that, this committee is adjourned. 

[Whereupon, at 12:05 p.m., the subcommittee was adjourned.] 

57 


Insert offset folio 26 here 80922.026

4/25/13 

To the honorable Congressman, James Lankford: 

As you know The Surgery Center of Oklahoma, in a radical move four years ago, 

began to display our surgical prices online, prices which are one sixth to one tenth 

traditional hospital charges for the same procedures. We did this to make ourselves 

more known to patients who were motivated consumers (those with high 

deductibles, no insurance, or covered by a self-funded company plan) and also to 

expose the dysfunctional price fixing arrangements that characterize health pricing 

in this country. The first patients to take advantage of our pricing were Canadians 

and they continue to utilize our facility in Oklahoma City. Currently, patients from 

all over the country now travel to our facility and other facilities in Oklahoma City 

that have embraced price transparency, making Oklahoma City a medical tourist 

destination and the epicenter of medical price deflation. 

Our pricing has even helped patients who have not travelled to Oklahoma, but 

rather, have used our online pricing just a short plane ride away to leverage better 

pricing from their local medical markets. I receive 3-5 emails a week now from 

patients who have taken advantage of our pricing in this way. One Georgia man 

recently paid $4000 for his recent prostate surgery at his local hospital after having 

originally been quoted $40,000, using our pricing as his leverage. This Georgia 

hospital now finds itself in a competitive price market whether they like it or not. I 

continue to be amused at the amounts of money we have saved patients even when 

we are not doing their surgery. 

Because our facility is physician-owned we are able to customize not only the 

medical care the patients receive, but their financial arrangements as well, operating 

more like a not for profit facility than many who claim this tax-exempt label. I 

believe that a physician cannot, after all, simultaneously claim to be a patient's 

advocate on the one hand and bankrupt them as a facility owner with the other 

hand. Our model of complete physician ownership and control brings a qualityaccountability to patients that is absent in non-physician owned facility models. 

Indeed, this arrangement results in an intense policing of the entire medical staff, as 

no physician owner wants to share liability with an unethical or incompetent 

colleague. 

The national media, most recently the John Stossel Show, which actually airs a story 

on our facility tonight, has shown an intense interest in price transparency, partly 

because the topic ofthe cost of health care was never addressed in the Obamacare 

debate. The focus was rather the push to make sure everyone bought insurance 

products many didn't want or need. 
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Insert offset folio 27 here 80922.027

Our goal, already partly accomplished, is to start a price war, one which will lower 

the price of medical care to such low levels, that people in this country will show a 

renewed interest in catastrophic insurance, rather than the perverse first dollar 

coverage arrangement that is currently so widespread. We also would hope that as 

free market competition will raise the quality bar and lower prices as it has in every 

other industry, Americans will also begin to seriously question the role of the 

federal government in this industry. 

G. Keith Smith, M.D. 
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Insert offset folio 28 here 80922.028

Today's hearing will explore the problems that results from the lack oftransparency 

and consumer-driven market forces in our health care system. Today's hearing 

features the testimony of two witnesses who last year wrote important, thoughtprovoking books about the U.S. health care system. 

Both books paint a picture where doctors, nurses, and patients are trapped in a 

system filled with perverse incentives. When providers and patients act upon these 

incentives, abundant waste and abuse result. According to a report last year from 

the Institute of Medicine, 30 percent of u.s. health care spending, an amount that 

exceeds $750 billion, was wasted in 2009. 

Over the past decade, the growth in health care costs almost entirely eliminated 

income growth for average families. 

Additionally, medical errors and hospital-acquired infections are a major problem. 

According to Dr. Makary's testimony, if medical mistakes and preventable infections 

together were a disease, it would ran k as the number 3 most common cause of death 

in the U.s., after heart disease and cancer. 

Today's hearing will take a close look at the perverse incentives that lead to rampant 

waste and inappropriate and harmful medical treatment in the U.S. health care 

system. 

Nearly 90 percent of payment of health care services comes directly from third 

parties. Third party payment separates the payer ofthe care from the patient and 

provides a strong incentive for the doctor to serve the payer of the care rather than 

the patient. 

This system has also produced a massive bureaucracy focused on claims processing 

and the creation and management of cumbersome rules. This bureaucracy adds to 

the expense of health care services and creates frustration among health care 

practitioners and patients. A 2009 study in the Archives of Internal Medicine found that 

31 % of doctors are burned out and 51 % of doctors wouldn't recommend the 

profession to one of their children. 

I look forward to hearing Dr. Goodman's testimony and the implications of the 

failure of health care providers to compete on price. I also look forward to hearing 

about segments ofthe health care system where there is competition and 

transparency and how we can move public policy more in that direction. 

Dr. Makary has done a service to the country by speaking up about problems within 

his profession. Unaccountable also deals with the perverse incentives at the core of 

the health care system, but its focus is on how these incentives lead to substandard 

care at far too many U.S. hospitals. 
60 


Insert offset folio 29 here 80922.029

Here are some examples from his book: 

• In about half of hospitals in the U.S., fewer than half of employees at that 

hospital report that they "would feel comfortable having their own care 

performed in the unit in which they work." 

• 25 % of all hospitalized patients experience a preventable medical error. 

• Hospitals make roughly $30,000 more from patients who suffer at least one 

complication than they do from patients whose procedures go smoothly. 

Dr. Makary argues that hospitals and doctors fail to compete on quality because the 

public does not have the information to be able to separate high quality hospitals 

from low quality hospitals for various treatments. 

I received a letter yesterday from Dr. Keith Smith, a Physician at the Surgery Center 

of Oklahoma in Oklahoma City. His hospital is the only place in the nation where all 

prices are listed online and competition has driven up quality and driven down 

price. I ask unanimous consent to enter his letter into the record, without objection, 

so moved. 

Independent experts believe that the Affordable Care Act, despite its name, will 

increase what Americans spend on health care, both in terms of money and time. 

Moreover, Obamacare increases federal government control over the U.S. health care 

system, increases third party payment, and reduces consumer choice. 

The health care system needs real reform, and the ideal reform would aim to address 

the two primary concerns highlighted by today's witnesses - reducing the amount of 

third party payment in health care and providing patients with additional 

information related to health care quality. The health care system has to be 

reoriented toward value and better outcomes and away from increased utilization 

and waste. 
61 


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WHY BillS 

ARE KilLING US 

BY STEVEN BRill 
62 


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63 


Insert offset folio 32 here 80922.032
64 


Insert offset folio 33 here 80922.033

Routine Care, 

Unforgettable Bills WHEN SEAN REeCHI, A 42-YEAR-OLD FROM LANCASTER, 

Ohio, was told last March that he had non-Hodgkin's lymphoma, his wife Stephanie knew she had to get him to MD 

Anderson CancerCenter in Houston. Stephanie's father had 

been treated there 10 years earlier, and she and her family 

credited the doctors and nurses at MD Anderson with extending his life by at least eight years. 

Beoause Stephanie and her husband had recently started 

their own small technology business. they were unable to buy 

comprehensive health insurance. For $469 a month. or about 

20%oftheirincome, they had been able to get only a policy that 

covered just $2,oooperdayofany hospital costs, "We don't take 

that kind ofdiscountinsurance."said thewoman atMD Anderson when Stephanie called to make an appointment for Sean. 

Stephanie was then told by a billing clerk that the estimated cost of Sean's visit-just to be examined for six days 

so a treatment plan could be devised-would be $48,900, due 

in advance. Stephanie got her mother to write her a check. 

"You do anything you can in a situation like that," she says. 

The Recchis flew to Houston, leaving Stephanie's mother to 

care for their two teenage children. 

About a week later. Stephanie had to ask her mother for 

$35.000 more so Sean could begin the treatment the doctors 

had decided was urgent. His condition had worsened rapidly 

since he had arrived in Houston. Hewas "sweating andshak* 

ing with chills and pains," Stephanie recalls. "He had a large 

mass in his chest that was ... growing. He was panicked." 

Nonetheless, Sean was held for about 90 minutes in a re- ception area. she says, because the hospital could notconfirm 

that the check had cleared, Sean was allowed to see the doctor 

only after he advanced MD Anderson $7,500 from his credit 

card. Thehospitalsaystherewasnothingunusualabouthow 

Sean was kept waiting. According to MD Anderson communications manager Julie Penne. ''Asking for advance payment for services is a common. if unfortunate, situation that 

confronts hospitals all over the United States." 

The total cost, in advance. for Sean to get his treatment 

plan and initial doses of chemotherapy was $83.900. 

Why? 

The first of the 344 lines printed out across eight pages 

of his hospital bill-filled with indecipherable numerical 

codes and acronyms-seemed innocuous. But it set the 

tone for aU that followed. It read. "I ACETAMINOPHE TABS 

325 MG." The charge was only $1.50, but it was for a generic 

version of a Tylenol pill. You can buy 100 of them on Ama18 

zon for $1.49 even without a hospital's purchasing power. 

Dozens of midpriced items were embedded with similarly aggressive markups, like $283.oofora"cHEsT, PA AND LAT 

71020." That's a simple chest X-ray, for which MD Anderson 

is routinely paid $20.44 when it treats a patient on Medicare, 

the government health care program forthe elderly_ 

Every time a nurse drew blood, a OlROUTINE VENIPUNCTURE" Charge of $36.00 appeared, accompanied by charges of 

$23 to $78 for each of a dozen or more lab analyses performed 

on the blood sample, In all, the charges for blood and other 

lab tests done onRecchi amounted to morethan $15.000. Had 

Reochi been old enough for Medicare, MD Anderson would 

have been paid a few hundred dollars for all those tests, By law, 

Medicare's payments approximate a hospital's cost ofproviding a service, induding overhead. equipment and salaries. 

On the second page of the bill, the markups got bolder. Recchi was charged $13,702 for "I RITUXIMAB IN} 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%. 

When I asked MD Anderson to comment on the charges 

on Recchi's bill, the cancer center released a written statement that said in part, "The issues related to health care 

finance are complex for patients. health care providers, payers and government entities alike ... MD Anderson's clinical 

billing and collection practices are similar to those of other 

major hospitals and academic medical centers." 

The hospital's hard-nosed approach pays off_ Although it 

is officially a nonprofit unit of the University of Texas, MD 

Anderson has revenue that exceeds the cost of the worldclass care it provides by so much that its operating profit 

for the fiscal year 2010, the most recent annual report it 

filed with the U,S, Department of Health and Human Services. was $531 million. That's a profit margin of 26(Yo on 

revenue of $2.05 billion, an astounding result for such a 

service-intensive enterprise. 1 

THE PRESIDENT OF MD ANDERSON IS PAID LIKE SOMEONE 

running a prosperous business. Ronald DePinho's total 

compensation last year was $1,845,000. That does not count 

outside earnings derived from a much publicized waiver he 
65 


Insert offset folio 34 here 80922.034

Sean Recchi 

Oi>.:1gnosed with t1ol1·11o,~gl{i"'s 

lymphoma ago 

cost, in advance, for Sean's 

treatment plan and initial doses 

of chemotherapy: $83,900. 

Charges for blood and lab tests 

amQunted 
66 


Insert offset folio 35 here 80922.035

..... ' The Mess We're In' 

received from the university that, according to the Houston 

Chronicle, allows him to maintain unspecified "financial ties 

with his three principal pharmaceutical companies." 

DePinho's salary is nearly triple the $674,350 paid to William Powers Jr., the president of the entire University of Texas 

system, ofwhichMD Andersonisa part. This pay structure is 

emblematic of American medical economics and is reflected 

on campuses across the U.S., where the president of ahospital 

or hospital system associated with a university-whetherit's 

Texas, Stanford,Duke or Yale-is invariably paid much more 

than the person in charge of the university. 

I got the idea forthisartic1ewhen I was visiting Rice University last year. As I was leaving the campus, which is just 

outside the central business district of Houston, I noticed a 

group of glass skyscrapers about a mile away lighting up the 

evening sky. The scene looked like Dubai. I was looking at 

the Texas Medical Center, a nearly I,30o-acre, 28o-building 

complex of hospitals and related medical facilities, of which 

MD Anderson is the lead brand name. Medicine had obviously become a huge business. In fact, of Houston's top 10 

employers, five are hospitals, including MD Anderson with 

19,000 employees; three, led by ExxonMobil with 14,000 

employees, are energy companies. How did that happen, I 

wondered. Where's all that money coming from? And where 

is it going? I have spent the past seven months trying to find 

out by analyzing a variety of bills from hospitals like MD 

Anderson, doctors, drug companies and every other player 

in the American health care ecosystem, 

WHEN YOU LOOK BEHIND THE BILLS THAT SEAN RECCHIAND 

other patients receive, you see nothing rational-no rhyme 

or reason-about the costs they faced in a marketplace they 

enter through no choice of their own. The only constant is 

the sticker shock for the patients who are asked to pay. 

Yet those who work in the health care industry and those 

who argue over health care policy seem inured to the shock. 

When we debate health care policy, we seem to jump right 

to the issue of who should pay the bills, blowing past what 

shouldbethe first question: Why exactly are the biUsso high? 

What are the reasons, good or bad, that cancer means a 

half-million- or million-dollar tab? Why should a trip to the 

emergency room for chest pains that tum out to be indigestion bring a bill that can exceed the cost of a semester of college? What makes a single dose of even the most wonderful 

wonder drug cost thousands of dollars? Why does simple lab 

work done during a few days in a hospital cost more than a 

car? And what is sodifferent about the medical ecosystem that 

causes technology advances to drive bills up instead of down? 

Recchi's biB and six others examined line by line for this 

article offer a closeup window into what happens when 

powerless buyers-whether they are people like Recchi or 

big health-insurance companies-meet sellers in what is 

the ultimate seller's market. 

The result is a uniquely American gold rush for those who 

provide everything from wonder drugs to canes to high·tech 

implants to CT scans to hospital bilkoding and collection 

services. In hundreds of small and midsize cities across the 

country-from Stamford. Conn., to Marlton,N.f .. toOklahoma 

City-the American health care market has transfonned tax· 

exempt "nonprofit" hospitals into the towns' most profitable 

20 

businesses and largest employers, often presided over by the 

regions'mostnchly compensated executives. Andin our largest cities. the system offers lavish paychecks even to midlevel 

hospital managers, like the 14 administrators at New York 

City's Memorial Sloan-Kettering Cancer Center who are paid 

OYer $500,000 a year, including six who make over $1 million, 

Taken as a whole, these powerful institutions and the 

billstbey churn out dominatethenation's economy and put 

demands on taxpayers to a degree unequaled anywhere else 

on earth. In the u.s., people spend almost 10% of the gross 

domestic product on health care, compared with about half 

that in most developed countries. Yet in every measurable 

way, the results our health care system produces are no better and often worse than the outcomes in those countries. 

According to one of a series of exhaustive studies done 

by the McKinsey & Co. consulting finn, we spend more on 

health care than thenext 10 biggest spenders combined: Japan, 

Germany, France, China, the U.K., Italy, Canada, Brazil, Spain 

and Australia. We may be shocked at the $60 billion price tag 

for cleaning up after Hurricane Sandy. We spent almost that 

much lastweekon health care. We spend more every year on 

artificial knees and hips than what Hollywood collects at the 

boxoffice. 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% 

moreforthis equipment than it would cost at Walmart. 

The Bureau of Labor Statistics projects that 10 of the 20 

occupations that will grow the fastest in the U.S. by 2020 

are related to health care. America'slargest dtymay becom~ 

monly thought of as the world'S financial-services capital. 

but of New York's 18 largest private employers. eight are 

hospitals and four are banks. Employing all those people 

in the cause of curing the sick is, of course, not anything 

to be ashamed of. But the drag on our overall economy that 

comes with taxpayers, employers and consUmers spending 

so much more than is spent in any other country for the 

same product is unsustainable. Health care is eating away 

at our economy and our treasury. 

The health care industry seems to have the will and the 

means to keep it that way. Accordingtothe Center for Respon· 

sive 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 Washing· 

ton. 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-careindustrial complex spends more than three times what the 

military-industrial complex spends in Washington. 

WHEN YOU CRUNCH DATA COMPILED BY MCKINSEY AND OTHER 

researchers. the big picture looks like thi~ We're likely to 

spend $2.8 trillion this year on health care, That $2.8 trillion 

is likely to be $750 billion,or 27%,morethan wewouldspend 

if we spent the same per capita as other developed countries, 

even after adjusting for the relatively high pet capita in.come 

in the US. vs. those other countries. Ofthe total $2.8 trillion 

that will be spent on health care, about $800 billion will 

be paid by the federal government through the Medicare 

insurance program for the disabled and those 65 and older 
67 


Insert offset folio 36 here 80922.036
68 


Insert offset folio 37 here 80922.037

.... 1 The Mess We're In 1 

and the Medicaid program, which provides care for the poor. 

That $800 billion. which keeps rising farfasterthaninflation 

and the gross domestic product, is what's driving the federal 

deficit. The other $2 trillion will be paid mostly by private 

health-insurance companies and individuals who have no 

insuranceorwho will pay some portion of the bills covered by 

their insurance. This is what's increasingly burdening businesses that pay for their employees' health insurance and 

forcing individuals to pay so much in out-of-pocketexpenses. 

Breaking these trillions down into real bills going to real 

patients cuts through the ideological debate over health care 

policy. By dissecting the bills that people like Sean Recchi 

face, we Can see exactly how and why we are overspending, 

where the money is going and how to get it back. -....Ve just 

have to follow the money. 

The $21,000 

Heartburn Bill ONE NIGHT LAST SUMMER AT HER HOME NEAR STAMFORD, 

Conn., a 64-year-old former sales clerk whom I'll call Janice 

S. felt chest pains, She was taken four miles by ambulance 

to the emergency room at Stamford Hospital, officially a 

nonprofit institution. After about three hours of tests and 

some brief encounters with a doctor, she was told she had 

indigestion and sent home. That was the goodnews. 

The bad news was the bill: $995 for the ambulance ride. 

$3,000 for the doctors and $17,000 for the hospital-in sum, 

$21,000for a false alarm. 

Out of work for a year, Janice S. hadno insurance. Among 

the hospital's charges were three "TROPONIN I" tests for 

$199.50 each. According to a National Institutes of Health 

website, a troponin test "measures the levels of certain proteins in the blood" whose release from the heart is a strong 

indicator of a heart attack. Some labs like to have the test 

done at intervals. so the fact that Janice S. got three of them 

is not necessarily an issue. The price is the problem. 

Stamford Hospital spokesman Scott Orstad told me that 

the $199.50figureforthe troponin test was taken from what he 

cal1edthehospital'schargemaster. The chargemaster, Ileamed, 

isevery hospital'S internal price list Decadesago it wasadocumentthesizeofaphonebook;nowit'samassivecomputerfile, 

thousands of items long, maintained by every hospital_ 

Stamford Hospital's charge master assigns prices toeverything, including Janice S:s blood tests_ It would seem to be 

an important document However, I quickly found that although every hospital has a chargemaster, officials treat it 

as if it were an eccentric uncle living in the attic. Whenever I 

asked, they deflected all conversation away fremit. They even 

argued that it is irrelevant. I SOOn found that they have good 

reason to hope that outsiders pay no attention to the charge· 

master or the process that produces it. For there seems to be 

no process, no rationale, behind the care document that is the 

basis for hundreds of billions of dollars in health care bills. 

Because she was 64, not 65, Janice S. was not on Medicare. 

But seeing what Medicare would have paid Stamford Hospital for the troponin test if she had been a year older shines a 

bright light on the role thechargemasterplays in our national medical crisis-and helps us understand the illegitimacy 

22 

of that $199.50 Charge. That's because Medicare collects troves 

of data on what every type of treatment, test and other service costs hospitals to deliver. Medicare takes seriously the 

notion that nonprofit hospitals should be paid for all their 

costs but actually be nonprofit after their calculation, Thus, 

under the law, Medicare is supposed to reimburse hospitals 

for any given service, factOring in not only direct costs but 

also allocated expenses such as overhead, capital expenses, 

executive salaries, insurance, differences in regional costs of 

living and even the education of medical students. 

It turns out that Medicare would have paid Stam~ 

ford $13.94 for each troponin test rather than the $199-50 

Janice S. was Charged. 

JaniceS. was also charged $157.61 for a CBC-thecomplete 

blood count that those of us who are ER aficionados remember George Clooney ordering several times a night. Medi· 

care pays $H.02 for a CBC in Connecticut. Hospital finance 

people argue vehemently that Medicare doesn't pay enough 

and that they lose as much as 10% on an average Medicare 

patient. But even if the Medicare price should be, say, 10% 

higher, it's a long way from $H.02 plus 10% to $157.61. 

Yes, every hospital administrator grouses about Medicare's paymentrates-rates that are supervised by a Congress 

thatis heavily lobbied by the American HospitalAssociation, 

which spent $1,-859,041 on lobbyists in Ion. But an annual 

expense report that Stamford Hospitalisrequiredtofilewith 

the federal Department of Health and Human Services of· 

fers evidence that Medicare's rates for the services Janice S. 

received are on the mark. According to the hospital'S latest 

filing (covering 2010). its total expenses for laboratory work 

(like Janice s.'s blood tests) in the 12 months covered by the 

report were $27.5 million. Its total charges were $293.2 million. That means it charged about 11 times its costs. 

As we examine other bills, we'll see that like Medicare patients, the large portion of hospital patients who have private 

healthinsurancealsogetdiscountsoffthelistedchargemaster 

figures, assuming the hospital and insurance company have 

negotiated to include the hospital in the insurer's network of 

providers that its customers can use. The insurance discounts 

are not nearly as steep as the Medicare markdowns, which 

means that even the discounted insurance-company rates 

fuel profits at these officially nonprofit hospitals. Thoseprof. 

its are further boosted by payments from thetensofmillions 

of patients who, like the unemployed JaniceS .• have noinsurance or whose insurance does not apply because the patient 

has exceeded the coverage limits. These patients are asked to 

pay the charge master list prices. 

If you are confused by the notion that those least able to 

pay are the ones singled out to pay the highest rates, welcome to the American medical marketplace. 

Pay No Attention 

To the Chargemaster NO HOSPITAL'S CHARGEMASTER PRICES ARE CONSISTENT 

with those of any other hospital, nordothey seem to be based 

on anything objective-like cost-that any hospital executive I spoke with was able to explain. ''They were set in cement 

a longtime ago and just keep going up almostautomatically," 
69 


Insert offset folio 38 here 80922.038

says one hospital chief financial officer with a shrug. 

At Stamford Hospital I got the first of many brush-offs 

when I asked about the chargemaster rates on Tanice S.'s bill. 

''Those are not our real rates," protested hospital spokesman 

Orstad when I asked him to make hospital CEO Brian Grissler 

available to explain Janice S.'s bill, in particular the blood-test 

charges. "It's a list we use internally in certain cases, but most 

people never pay those prices. I doubt that Brian [Grissler] 

has even seen the list in years. So I'm not sure why you care," 

Drstad also refused to comment on any of the specifics in 

Janice S:s bill, including the seemingly inflated charges fur all 

the lab work. "I've told you I don't think a bill like this is relevant," he explained. "Veryfewpeopleactuallypaythoserates." 

But JaniceS. was asked to pay them. Moreover, the chargemaster rates are relevant, even for those unlike her who have 

insurance. Insurerswith the most leverage, because they have 

the most customers to offer ahospital that needs patients, will 

try to negotiate prices 30% to 50% above: the Medicare rates 

ratherthan discounts off the sky-high chargemasterrates. But 

insurers are increasingly losing leverage because hospitals 

are consolidating by buying doctors' practices and even rival 

hospitals. In that situation-in which the insurer needs the 

hospital more than the hospital needs the insurer-the pricing negotiation will be over discounts that work down from 

the chargemaster prices rather than up from what Medicare 

would p.y. Getting a 50% or even 6o%discount offthecharge- master price of an item that costs $13 and lists for $199.50 is 

still no bargain. "We hate to negotiate off of the charge master, 

but we have to do it a lot now," says Edward Wardell, a lawyer 

for the giant health-insurance provider Aetna Inc. 

Thatsofew consumers seem to be aware of the chargemaster demonstrates how well the health care industry has steered 

the debate from why bills are so high to who should pay them. 

The expensive technology deployed on Janice S. was a bigger factor in herbill than the lab tests. An"NM MYO REST! 

SPEC EjCT MOT MUL" was billed at $7,997.54. That's a stress 

test using a radioactive dye that is tracked by an X-ray computed tomography. or CT, scan. Medicare would have paid 

Stamford $554 forthat test. 

JANICE S. WAS CHARGED AN ADDITIONAL $872.441UST FOR 

the dye used in the test. Theregularstresstest patients are more 

familiar with, in which arteries are monitored electronically 

TIME March 4, 20I3 

Test 

Strips 

PATIENT 

WAS 

CHARGED 

$18 EACH 

fOR 

ACCU-CHEK 

DIABETES 

TEST 

STRIPS. 

AMAZON 

SElLS 

BOXES OF 

50 FOR 

ABOUT $27, 

OR55e 

EACH 

with an electrocardiograph, would have oost far less-$I,200 

even at the hospital's chargemaster price, (Medicare would 

have paid $96 for it.) And although many doctors view the version using the cr scan as more thorough, others consider it 

unnecessary in most cases. 

Accordingto Tack Lewin, a cardiologist and furmer CEO of 

theAmerican College of Cardiology, "Itdependson !hepatient, 

of course, but in most cases you would start with a standard 

stress test. We are doing too many of these nuclear tests. It is 

not being used appropriately ... Sometimes a cardiogram is 

enough, and you don't even need the simpler test But it usu· 

ally makes sense to give the patient the simpler one first and 

then usenuclearfor adoserlookifthereseemto be problems." 

We don't know the particulars ofJanice S.'s condition, s-o 

we cannot know why the doctors who treated her ordered 

the more expensive test. But the incentives are dear. On 

the basis of market prices, Stamford probably paid about 

$250,000 for the cr equipment in its operating room. It costs 

little to operate, so the more it can be used and billed, the 

quicker the hospital recovers its costs and begins profiting 

from its purchase. In addition, the cardiologist in the emergency room gave Janice S, a separate bill for $600 to read the 

test results on top of the $342 he charged for examining her. 

According to a McKinsey study of the medical marketplace, a typical piece of equipment will pay for itself in one 

year if it carries out just 10 to IS procedures a day. That's a 

terrific return on capital equipment that has an expected 

life span of seven to 10 years. And it means that after a year, 

every scan ordered by a doctor in the Stamford Hospital 

emergency room would mean pure profit. less maintenance 

costs, for the hospital. Plus an extra fee for the doctor. 

Another McKinsey report found that health care pro· 

viders in the U.S. conduct far more CT tests per capita than 

those in any other countrY-7I% more than in Germany, 

for example, where the government·run health care system 

offers none of those incentives for overtesting. We also pay a 

lot more for each test. even when it's Medicaredoing the pay· 

ing. Medicare reimburses hospitals and clinics an average of 

four times as much as Germany does forCTscans, according 

to the data gathered by McKinsey. 

Medicarc'sreimbursementformulasforthesetestsarereguSo too are restrictions on what Medicare 

23 
70 


Insert offset folio 39 here 80922.039

(MRI) scans when they might not be medically necessary, 

Standing at the ready to make sure Congress keeps Medicare at 

bay is, among other groups, the American College of Radiology, 

which on Nov. I4 ran a full-page ad in the Capitol Hill-centric 

newspaper PoliticourgingCongresstopass the Diagnostic Imaging Services Access Protection Act It's a bill that would block 

efforts by Medicare to discourage doctors from ordering multiple CT scans on the same patient by paying them less pertest 

to read multiple tests of the same patient (In fact, six of Politico's 

12 pages of ads that day were bought by medical interests urg- ing Congress to spend ornot cut back on one of their products.) 

The costs associated with high·tech tests are likely to accelerate. McKinsey found that the more CT and MRl scanners 

are out there, the more doctors use them. In I997 there were 

fewer than 3,000 machines available, and they completed an 

average of 3,800 scans per year. By 2006 there were more than 

!O,ooo in use, and they completed an average of 6,100 peryear. 

Accordingtoastudy in theAnnalsofEmer!J<nCJl Medicine, the useofCT scans in America's emergency rooms ''has more than 

quadrupled in recent decades." Asonefonneremergency-room 

doctor puts it, "Giving out CT scans like candy in the ER is the 

equivalent of putting a 90-year-old grandmother through a 

pat-down at the airport: Hey, you never know." 

Selling this equipment to hospitals-which has become 

a key profit center fur industrial conglomerates like General 

Electric and Siemens-is one of the U.S. economy's bright 

spots. I recently subscribed to an online headhunter's listings 

for medical-equipment salesmen and quickly found an opening in Connecticut that would pay a salary of $85,000 and 

sales commissions of up to $95,000 more, plus acar allowance. 

The only requirement was that applicants have "at least one 

year of experience selling some form of capital equipment." 

In all, on the day I signed up for that jobs website, it 

carried I86 listings for medical-equipment salespeople 

just in Connecticut. 

Medical Technology's Perverse Economics UNLIKE THOSE OF ALMOST ANY OTHER AREA WE CAN THINK 

of, the dynamics of the medical marketplace seem to be such 

that the advance of technology has made medical care more 

expensive, not less. First, it appears to encourage more procedures and treatment by making them easier and more 

convenient. (This is especially true for procedures like arthroscopic surgery.) Second, there is little patient pushback 

against higher costs because it seems to (and often does) 

result in safer. better care and because the customer getting 

24 

the treatment is either not going to pay for it or not going to 

know the price until after the fact. 

Beyond the hospitals' and doctors' obvious economic 

incentives to use the equipment and the manufacturers' 

equally obvious incentives to sell it, there's a legal incentive 

at work. Giving Janice S. a nuclear-imaging test instead of 

the lower-tech,less expensive stress test was the safer thing 

to do-a belt+and-suspenders approach that would let the 

hospital and doctor say they pulled out all the stops in case 

Janice S. died of a heart attack after she was sent home. 

"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 malpracticeinsurance 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. The most practical 

malpractice+reform proposals would not limit awards for 

victims but would allow doctors to use what's called a safeharbor defense. Under safe harbor, a defendant doctor Or 

hospital could argue that the care provided was within the 

bounds of what peers have established as reasonable under 

the circumstances. The typical plaintiff argument that doing something more. like a nuclear-imaging test,might have 

saved the patient would then he Jess likely to prevail. 

When Obamacare was being debated, Republicans 

pushed this kind of commonsense malpractice-tort reform. 

But the stranglehold that plaintiffs'lawyers have traditionally had on Democrats prevailed, and neither a safe-harbor 

provision nor any other malpractice reform was included. 

Nonprofit 

Profitmakers 

TO THE EXTENT THAT THEY DEFEND THE CHARGEMASTER 

rates at all, the defense that hospital executives offer has to do 

with charity. As John Gunn, chief operating officer of SloanKettering. puts it, "We charge those rates so that when we get 

paid by a [wealthy] uninsured person from overseas, it allows 

us to serve the poor." 

A closer look at hospital finance suggests two holes in that 

argument. First, while Sloan-Kettering does have an aggressive financial-assistanceprogram(something StamfordHospital lacks), at most hospitals it's not a Saudi sheik but the almost 

poor-those who don't qualify for Medicaid and don't have 

insurance-who are most often asked to pay those exorbitant 

chargemasterprices. Second. there is the jaw-dropping differenee between those list prices and the hospitals' c~ which 

enables these ostensiblynonprofitinstitutioostoproduce high 

profits even after all the discounts. True, when the discounts to 

Medicare and private insurers are applied,hospitalsend up being paid alot less overall than what is itemized on the original 

bills. Stamford ends up receiving about 35% of what it bills, 

which is the yield for most hospitals. (Sloan'Kettering and 
71 


Insert offset folio 40 here 80922.040

-.1 The Trouble with Hospitals 1 MD Anderson, whose great brand names make them tough 

negotiators with insurance companies, get about 50%), 

However, no matter how steep the discounts, the charge. 

master prices are so high and so devoid of any calculation related to cost that the result is uniquely American: thousands 

of nonprofit institutions have morphed into high-profit. 

high-profile businesses that have the best of both worlds. 

They have become entities akin to low-risk,must-have public 

utilities that nonetheless pay their operators as if they were 

high-risk entrepreneurs. Aswith the local electric company, 

customers must have the product and can't go elsewhere to 

buy it. They are steered to a hospital by their insurance com~ 

panies or doctors (whose practices may have a business alliance with the hospital or even be owned by it), Or they end 

up there because there isn't any local competition. But unlike 

with theelectric-company, no regulatorcapshaspital profits. 

Yet hospitals are also beloved local charities. 

The result is that in small towns and cities across the 

country, the local nonprofit hospital may be the commu· 

nity's strongest business, typically making tens of millions 

of dollars a year and paying its nondoctor administrators 

six ar seven figures. As nanprofits, such hospitals solicit 

contributions, and their annual charity dinner, a showcase 

far their good works, is typically a major civic event. But 

charitable gifts are aminarpart of their base; Stamford Hospital raised just over 1% of its revenue from contributions 

last year. Even after discounts, those $199.50 blood tests and 

multithousand-dollar CT scans are what really count 

Thus, according to the latest publicly available tax return 

it filed with the IRS, for the fiscal year ending September 

20ll, Stamford Hospital-in a midsize city serving an unusually high 50% share of highly discounted Medicare and 

Medicaid patients-managed an operating profit of $63 mil· 

lion on revenue actually received (after all thediscQunts off 

the chargemaster) of $495 million. That's a I2.i'to operating 

profit margin, which would be the envy of shareholders of 

high-service businesses across other sectors of the economy. 

Its nearly half-billion dollars in revenue also makesStamford Hospital by far the city's largest business serving only 

local residents. In fact, the hospital's revenue exceeded all 

money paid to the dtyofStamford in taxes and fees, The hospital is a bigger business than its host city, 

There is nothing special about the hospital's fortunes. Its operating ptofit margin is about the same as the aver- age for all nonprofit hospitals,lI.7%, even when those that 

lose money are included. And Stamford's 0,7% was tallied 

after the hospital paid a slew of high salaries to its management, including $744,000 to its chief financial officer and $1,860,000 to CEO Grissier, 

In fact, when MCKinsey, aided by a Bank of America survey, pulled together all hospital financial reports. it found that 

the 2,900 nonprofit hospitals across the country, which are 

exempt from income taxes, actually end up averaging higher 

operating profit margins than the 1,000 for-profit hospitals 

after the for-profits' income-tax obligations are deducted. In 

health care, being nonprofit produces more profit. 

Nonetheless, hospitals like Stamford are able to use their 

sympathetic nonprofit status to push their interests. Asthedebateoverdefidt-cuttingideas related to health care has heated 

up, the American Hospital Association has run daily ads on 

26 

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"incareforthe 

poor that hospitals now provide. But that $39.3 billion figure 

is calculated on the basisofchargemasterprices. Iudgingfrom 

the difference I saw in the bills examined between a typical 

chargemaster price and what Medicare says the item cost, 

this would mean thatthls $39.3 billion in charitycarecostthe 

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 

Under Internal Revenue Service rules, nonpro:fits are not 

prohibited fromtakinginmoremoneythan they spend. They 

just can't distribute the overage to shareholders-because 

they don't have any shareholders. 

So. whatdothesewealthynonprofitsdowithall the profit? 

In a trendsjmilartowhatwe'~seen innonprOfitcollegesand 

universities-where there has been an arms race of sorts to 

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 pushinghardertocollectbill payments. Onlywith 

health care, the upward spiral is easier to sustain. Health care 

isseen aseven more ofanecessitythan 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,ahospitalis 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. 

In December, when the New York Timesran a story about 

how a deficit deal might threaten hospital payments, Steven 

Safyer, chief executive ofMontefiore Medical Center, a large 

nonprofit hospital system in the Bronx, complained, "There 

is no such thing as a cut to a provider that isn't a cut to a 

beneficiary ... This is not crying wolf." 

Actually, Safyer seems to be crying wolf to the tunc of 

about$196.8 million,accordingtothehospital'slatest publicly 

available tax return. That was his hospital's operating profit, 

accordingto its 20IQ return. With $2.586 billion in revenucof which 99.4% came from patient bills ando.6% from fund- raising events and other charitable contributions-Safyer's 

business is more than six times as largc,as that of the Broux's 

most famous enterprise, the New York Yankees. Surely, without cutting services to beneficiaries.- Safyer could cut what 

have to be some of the Bronx's betternon-Yankee salaries: his 

own, which was $4,065,000, orthose ofms chief financial of. 

ficer {$3,243.,oOO), his executive vice president ($2,220,0'00) or 

the head of his dental department ($1.798,000). 

SHOCKED BY HER BIU FROM STAMFORD HOSPiTAL AND 

unable to pay it, Janice S. found a local woman on the Internet who is part of a growing cottage industry of people who 

call themselves medical-billing advocates_ They help people 

read and understand their bills and try to reduce them. "The 

hospitals aU know the bills are fiction, or at least only a place 
72 


Insert offset folio 41 here 80922.041

-+, The Trouble with Hospitals' 

to start the discussion, so you bargain with them," says 

Katalin Goencz, a former appeals coordinator in a hospital 

billing department who negotiated Janice S.'s bills from a 

home office in Stamford. 

Goencz is partofa trade group called the AllianceofClaim 

Assistant Professionals, which has aOOut40 members across the country. Another group, Medical Billing Advocates of 

America, has about 50 members. Each advocate seems to 

handle 40 to 70 cases a year for the uninsured and those disputinginsurance claims. Thatwould beabout5,ooopatientsa 

yearoutofwhat must betensof millionsofAmericansfadng 

these issues-which may help explain why 60% of the personaIbankrupocyfilings each year are related tornedical bills. 

"I can pretty much always get it down 30% to 50°/0' simply 

by saying the patient is ready to pay but will not pay $30ofora 

blood testoranX-ray," saysGoencz. ''They hand outblood tests 

and X-rays in hospitals like bottled water, and they know it." 

After weeks of back-and-forth phone calls, for which 

Goencz Charged Janice S. $97 an hour, Stamford Hospital cut 

its bill in half. Most of the doctors did about the same, reduc~ 

ing Janice S.'s overall tab from $21,000 to about $n,OQo. 

But the best the ambulance company would offer 

Goencz was to let Janice S. payoff its $995 ride in $2S-amonth installments. "The ambulances never negotiate the 

amount," says Goencz. 

A manager at Stamford Emergency Medical Services, 

which charged Janice S. $958 far the pickup plus $9.38 per mile, says that "our rates are all set by the state on a region- (I) 

al basis" and that the company is independently owned. E That's at odds with a trend toward consolidation that has Q,) 

seen several private-equity firms making investments in 2SQ.1' what Wall Street analysts have identified as an increaSingly _ 

high-margin business. Overall, ambulance revenues were 

more than $12 billion last year, or about 10% higher than "i 

Hollywood's box-office take. .c It's not a great deal to payoff $1,000 for a four-mile ambu· tJ)..., 

;~~~~5~~~:ond~~~~7:~J~~~~;s~~:~~~~:~o~e~~~~u~I~~~ ~ ~ on a $7,997.54 stress test that was probably all profit and may = (5 not have been necessary. But, says Goencz, "I don't go over it ~ £ line by line. I just go for a deaL The patient usually is shocked :ii i 

by the bill, doesn't understand any of the language and has 

bill collectors all over her by the time they call me. So they're .S E 

grateful. Whygive them heartache by telling them they still ~ ~ 

paid too much for some test or pil1?" =- 2 

A Slip, a Fall 

And a $9,400 Bill THE BILLING ADVOCATES AREN'T ALWAYS SUCCESSFUL. lUST 

ask Emilia Gilbert, a school-bus driver who got into a fight 

with a hospital associated with Connecticut's most venerable nonprofit institution, which racked up quick profits on 

multiple CTscans, then refused to compromise at all on its 

chatgemaster prices. 

Gilbert, now 66, is still making weekly payments on 

the bill she got in June 2008 after she slipped and fell on 

her face one summer evening in the small yard behind her 

house in Fairfield, Conn. Her nose bleeding heavily, she 

28 

~8 

'g:O~ 

::;:0 oJ!! !:s 

015 

~~ '<f'1\) 

-s ;:'01) 

fil·~ .sQ. 

was taken to the emergency room at Bridgeport HospitaL 

Along with Greenwich Hospital and the Hospital of St 

Raphaelin New Haven, Bridgeport Hospitalis now owned by 

the Yale New Haven HealthSystem, which boasts a variety of 

gleaming new facilities. Although Yale University and Yale 

New Havenareseparateentities, Yale-New Haven Hospitalis 

the teaching hospital for the Yale Medical School, and univer· 

shy representatives, including Yale president Richard Levin, 

sit on the Yale New HavenHealth System board. 

"1 wasthereformaybe six hours. until midnight," Gilbert 

recalls, "and most of it was spent waiting. I saw the resident 

for maybe 15 minutes, butl gota lot of tests." 

In fact, Gilbert got three CT scans-of her head, her 

chest and her face. The last one showed a hairline fracture of her nose. The CT bills alone were $6.538. (Medicare 

would have paid about $825 for all three.) A doctor charged 

$261 to read the scans. 

Gilbert got the same troponin blood test that Janice 

S. got-the one Medicare pays $13.94 for and for which 

Janice S. was billed $199.50. at Stamford. Gilbert got just 

one. Bridgeport Hospital Charged 20% more than its downstate neighbor: $239-

Also on the bill were items that neither Medicare nor any 

insurance company would pay anything at all for. basic in- struments and bandages and even the tubing for an IV setup, 

Under Medicare regulations and thetermsof most insurance 

contracts,thesearesupposedto be partoftbe hospital'sfaciHty 

charge, which in this case was $908 for the emergency roam. 

Gilbert's total bill was $9,418. 

"We think thechargemasteris totallyfair,"says William 

Gedge,seniorvice president ofpayerre1ationsat Yale New Haven Health System, "It's fair because everyone gets the same 

biILEven Medicare gets exactly the same charges that this pa- tient got Of course. we will have different arrangements for 

how Medicare or an insurance company will not pay some 

of the charges or discount the charges, but everyone starts 

from the same place." Asked how the chargemaster charge 

for an item like the troponin test was calculated, Gedge said 

he "didn't know exactly"but would try to find out. Hesumequently reported back that "it's an historical charge, which 

takes into account all of our costs for running the hospital" 

Bridgeport Hospitalhad $42omillioninrevenueandanoperatingprofit of $52 million in 2010) the roostrecentyearcov- ered by its federal financial reports. CEO Robert Trefry. who 

hassinee left his post, was listed as having been paid $1.8 mil- lion. The CEO of the parent Yale New Ha\'en Health System, 

:Marna Borgstrom, was paid $'2.5 million, which is 580./0. more 

than the $1.6 million paid to Levin, Yale University's president. "You really can't compare the two jobs," says Yale-New 

Haven Hospital senior vice president Vincent Petrini, "Com, 

paring hospitals to universities is like apples and oranges. 

Running a hospital organization is much more complicat- ed." Actually, the four-hospital chain and the university 

have about the same operating budget. And it would seem 

that Levin deals with what most would consider complicat· 

ed challenges in overseeing 5,900 faculty members, corral, 

ling(and complying with the terms of} hundredsofmiUions 

of dollars in government researchgrantsan~ presiding over 

a $19 billion endowment, not to mention admitting and 

educating 14,000 students spread across Yale College and a 

Photograph by Jav1ar SlfVmlt for TIME 
73 


Insert offset folio 42 here 80922.042

Emilia Gilbert 

Slipped 

WilS taken to Ihe emergency room, 

She is still paying off the $9,418 biD 

from that hospital visit in weekly 

installments. Her three Ci l'l~""S 
74 


Insert offset folio 43 here 80922.043

1 

The Mess 

We're In 

The U.S.'s uniquely high 

health care spending, 

which has been rising 

disproportionately to the 

economy, is not rej1eded 

in outcomes 

Annual health care spending 

pe:!'persoflinU.S. 

doltars, 2010 

$BK 

'OK 

S4K 

Ufe 

expectancy 

atbnth,inyears 

Infant mof'talityis 

relatively high 

so 

2 __ $1K -~Jv- What Makes 

Health Care 

So Expensive 

Average drug prices are sky.hlgh 

--- is the same as that ofthrse 

in Argentina 

OnsP!avix piU in the U.S. 

---- isthesameasthatoffuUf 

in Spain 

One Nexium plll in the U.S . 

•••• Isthe sams as that of eight 

in Ftance 

What We Can 

Do About It 

Drawing on prrolous studies, StevenBriIlhas estfmatdpctentlal 

savings in the nation's health care system. Amerietllis' bills tell us 

we don't have anything approaching a Jrte market. The changes 

Brill suggests would allow the U.s' to provide better can' at lower 

casts without substituting the kind of government-provideysystem 

typical in comparison countries 

POTE:-inAL SAVrXGS 

SOU:TlO:-; 
75 


Insert offset folio 44 here 80922.044

Health spending has maintained a steep climb 

Percentage growth since 1960 

Nonprofit hospitals are making big bucks ••• 

Top 10 largest nonprofit hospitals~ 

HOSPITAL NAME 

University of Pittsburgh Medical Center Presbyterian 

ClevelandCtinic 

Barnes-Jewish Hospital, SL Louis 

Indiana University Health Methodist Hospital, Indianapolis 

florida Hospital Orlando 

Montef1ore Medical Center-Moses Division Hospital, Bronx, N.Y. 

Methodist University Hospital. Memphis 

Norton Hospital. Louisvme, Ky. 

Health care is a majOr faetor in Personal finance 

69% 

of those who've ftPefienced 

medically related bankrupfty 

were insured at the time 

of their filing 

62% 

ofMnkruptc1esare miated: 

to illness or medical bills 

.., and hOSl)italleaders are receiving big pay 

·H.,p~.1 &1,. b:I """,bo,.!b". ", •• I .. cwt .",~.l>l.9"'Rt' "Od ,aI.n .. Ojm.1JJ>,.,.;jtIJd<IIl".dU~>.<& .. j>/,_""_",p,,,I'<. !>lUI \fl. '","""1 II.! •• QI\ 1.1 ,..Iu,", fu, d.",.d.~o" o! .... \~. In ...... o .. ~~ ... f.~ .. fNM ~ !l!G ... ! Ilro pn.ld""t ., CE(I Gflt>o- ~ ... '.I Mt!tIt "1m", 

The 

industry 

spends 

heavily 

on 

lobbying 

Congress 

Total, 

1998-

2012 

$94 

biHioo 

$84 

bUlion $7. 

binion $50 billion 

More 

outpatient 

care allows for mote procedures 

Number of 

ambulatory 

surgery 

\IICIIHH .. t*Itri ... hU .... ~f1 ... OIII\iW'~IlI"" 

•• dalll"'P"l""'n!', .... ! ...... ! ... qal>l. 
76 


Insert offset folio 45 here 80922.045

.... 1 The Trouble with Hospitals I 

varietyofgraduate schools. professional schools andforeign· 

study outposts. And surely Levin's responsibilities are as 

complicated as those of the CEO of Yale New Haven Health's 

smallest unit-the 184-bed GreenwichHospitaI, whose CEO 

was paid $II2,OOO morc than Levin, 

"WHEN I GOT THE BILL, I ALMOST HAD TO GO BACK TO THE 

hospital." Gilbert recalls, "1 was hyperventilating." Contnouting to her shock was the fact that although her employer 

supplied insurance from Cigna. one of the country's leading 

health insurers, Gilbert's policy was from a Cigna SUbsidiary 

called Starbridge that insures mostly low-wage earners. That 

made Gilbert one of millions of Americans like Sean Recchi 

who are routinely categorized as having health insurance but 

really don't have anything approaching meaningful coverage. 

Starbridge covered Gilbert for just $2.500 per hospital 

visit, leaving her on the hook for about $7,000 of a $9,400 bill. Under Connecticut's rules (states set their own guidelines for Medicaid, the federal-state program for the poor), 

Gilbert's $1,800 a month in earnings was too high for her to 

qualify for Medicaid assistance. She was also turned down, 

she says, when she requested financial assistance from the 

hospital. Yale New Haven's Gedge insists that she never applied to the hospital for aid, and Gilbert could not supply me 

with copies of any applications. 

In September 2009, after a series of fruitless letters 

and phone calls from its bill collectors to Gilbert, the 

hospital sued her. Gilbert found a medical-billing advocate, 

Beth Morgan, who analyzed the charges on the bill and compared them with the discounted rates insurance companies 

would pay. During two court-required mediation sessions, 

Bridgeport Hospital's attorney wouldn't budge; his client 

wanted the bill paid in full, Gilbert and Morgan recalL At 

the third and final mediation, Gilbert was offered a zo% 

discount off the chargemaster fees if she would pay immediately, but she says she responded that according to what 

Morgan told her about the bill, it was still too much to pay. 

"We probably {'QuId have offered more,'" Gedge acknowledges. "'But in these situations, our bill-collection attorneys only know the amount we are saying is owed, not 

whether it is a chargemaster amount or an amount that is 

already discounted." 

On July II, zon, with the school-bus driver representing 

herself in Bridgeport superior ,ourt, a judge ruled that Gil- bert had to pay aD but about $500 of the original charges. (He 

deducted the superfluous bills fur the basic equipment.) The 

judge put her on a payment schedule of $zo a week for six years. For her, the charge master prices were all too real. 

The One-Day, $87,000 Outpatient Bill GETTING A PATIENT IN AND OUT OF A HOSPITAL THE SAME 

day seems like a logical way to cut costs. Outpatients don't 

take up hospital rooms or require the expensive 24/7 observation and care that come with them. That's why in the 

1990sMedicare pushed payment formulas on hospitals that 

paid them for whatever ailment they were treating (with 

more added for documented complications). not according 

12 

to the number of days the patient spent in a bed. Insurance 

companies also pushed incentives on hospitals to move patients out faster or not admit them for overnight stays in 

the first place. Meanwhile, the introduction of procedures 

likenoninvasive laparoscopic surgery helped speed the shift 

from inpatient to outpatient. 

By 2010, average days spent in the hospital per patient had 

declinedsignificantiy, whlieoutpatientserviceshadincreased 

even more dramatically. However, the result was not the savings that reformers had envisioned. !twas just the opposite. 

Experts estimate that outpatient services are now packed 

with so much hidden profit that about two-thirds of the 

$750 billion annual U.S, overspending identified by the 

McKinsey research on health care comes in payments for 

Dutpatientservices. That includes work done by physicians, 

laboratories and clinics (including diagnostic clinics for CT 

scans or blood tests) and same·day surgeries and other hospital treatments like cancer chemotherapy. According to a 

McKinsey survey, outpatient emergency·room care aver· 

ages an operating profit margin of 1;% and nonemergency 

outpatient care averages 35%. On the other hand,inpatient 

care has a margin of just 2%. Put simply, inpatient care at 

nonprofit hospitals is. in fact, almost nonprofit. Outpatient 

care is wildly profitable. 

"An operating room has fixed costs/' explains one hospital economist. "You get 10% or 20% more patients in there 

every day who you don't have to board overnight, and that 

goes straight to the bottom line." 

The 20I! outpatient visit of someone I'll call Steve H. to 

Mercy Hospital in Oklahoma City illustrates those econom· 

ics. Steve H. had the kind of relatively routine care that patients might expect would be no big deal: he spent the day at 

Mercy getting his aching back fixed. 

A blue collar worker who was in his 30S at the time 

and worked at a local retail store, Steve H. had consulted 

a specialist at Mercy in the summer of 20n and was told 

that a stimulator would have to be surgically implanted in 

his back. The good news was that with all the advances of 

modern technology, the whole process could be done in a 

day. (The latest federal filing shows that 63% of surgeries at 

Mercywere performed on outpatients.) 

Steve H.'sdoctorintended to useaRestoreUltra neurostim· 

ulator manufactured by Medtronic. a Minneapolis·based company with $16 billion in annual sales that bills itself as 

the world's largeststand-alonemedical-technologycompany. 

"RestoreUltra delivers spinal-cord stimulation thrOUgh one 

or more leads selected from a broad portfolio for greater ens· 

tomization of therapy," Medtronic's website promises. I was not able to interview Steve H., but according to Pat 

Palmer, amedical-billingspecialist based in Salem, Va" who 

consults for the union that provides Steve H. 's health insurance, Steve H. didn't ask how much the stimulator would 

cost because he had $45.181 remaining on the $60,000 annual payout limit his union-sponsored health-insurance 

plan imposed. "He figured, How much could a day at Merry 

cost?" Palmer says. "Five thousand? Maybe !O?" 

Steve H. was about to run up against a seemingly irrelevant footnote in millions of Americans'insurance policies: 

the limit, sometimes annual or sometimes over a lifetime, 

on what the insurer has to payout for a patient's claims. 
77 


Insert offset folio 46 here 80922.046

Under Obamacare, those limits will not be allowed in most 

health·insurance policies after 2013. That might help people 

like Steve H. but is also one of the reasons premiums are going to skyrocket under Obamacare. 

Steve H:s bill for his day at Mercy contained all the usual 

and customary overcharges. One item was "MARKER SKIN 

REG TIP RULERI> for $]. That's the marking pen, presumably 

reusable, that marked the place on Steve H.'s back where the incision wasta go. Six lines down, therewas"STRAP OR TABLE 

8X2} IN" for $31. That's the strap used to hold Steve H. onto the operating table. Just below that was "BLNKT WARM UP~ 

PER BDY 42268" for $32. That's a blanket used to keep surgery 

patients warm. It is, of course. reusable,and it's available new on eBay for $13- Four lines down there's "GOWN SURG ULTRA XLG 95121" for $39, which is the gown the surgeon wore. Thirty or them can be bought online for $180. Neither Medicare nor any large insurance company would pay a hospital 

separately for those straps or the surgeon's gown; that's all 

supposed to come with the fadlity fee paid to the hospital, 

which in this case was $6,289. 

In all, Steve H.'s bill for these basic medical and surgical 

supplies was $7,882. On top of that was $I,837 under a cat· egorycalled "Pharmacy General Classification" fur items like 

bacitracin ($108). But that was the least of Steve H.'s problems. 

The big·ticket item for Steve H.'s day at Mercy was the Medtronic stimulator, and that's where most of Mercy's profit 

wascollectedduringhis briefvisit. The billforthatwas $49,2.37. 

According to the chief financial officer of another hos- pital, the wholesale list price of the Medtronic stimulator 

is "about $19,000.'1 Because Mercy is part of a major hospital 

chain. it might pay 5% to 15% less than that. Even assuming 

Mercy paid $19,000, it would make more than $ 30,000 selling it to Steve H., a profit margin of more than 150%. To the extent that 1 found any consistency among hospital chargemaster practices, this is one of them; hospitals routinely 

seem to charge 2tJl times what these expensive implantable 

devices cost them, which produces that 150% profit margin. 

As Steve H. found out when he got his bill, he had exceed· 

cd the $45,000 that was left on his insurance policy's annual 

payout limit just with the neurostimulator. And his total 

bill was $86,951. After his insurance paid that first $45,000, he still owed more than $40,000, not counting doctors' bills. 

(I did not see Steve H.'s doctors' bills.) 

TIME March 4, 2013 

Chest 

X-Ray 

PATIENT 

WAS 

CHARGED 

$333 

THE NATIONAL 

RAfE 

PAlOS'!' 

MfDlCARE 

IS $23.83 

Mercy Hospital is owned by an organization under the 

umbrella of the Catholic Church called Sisters of Mercy. Its 

mission, as described in its latest filing with the IRS as a tax~ 

exempt charity. is "to carry out the healing ministry of Jesus 

by promoting health and wellness."Withachainof 31 hospitals and 300 clinics across the Midwest, Sisters of Mercy uses 

a bill-collection firm based in Topeka, Kans., callM Berlin· 

Wheeler Inc. Suits against Mercy patients are on fileincoutts 

across Oklahoma listing Berlin·Wheeler as the plaintiff. 

Accordingtoitsmostrecenttax return, the Oklahoma City unit of the Sisters of Mercy hospital chain collected $337 million in revenue forthe fiscal year ending June 30. 20I!. It had 

an operating profit of $34 million. And that was after paying 

10 executives more than $300,000 each. including $784.000 

toa regional president and $438.000 to the hospital president. 

That report doesn't cover the executives overseeing the 

chain, called Mercy Health, of which Mercy in Oklahoma 

City is a part. The overall chain had $4.28 billion in revenue 

that year. Its hospital in Springfield, Mo. (pop, I60,660), had 

$880,7 million in revenue andan operating profit of $3r9 mil· 

lion, accordingto its federal filing. The incomes of the parent 

company's executives appear on other IRS filings covering various interlocking Mercy nonprofit corporate entities. 

Mercy president and CEO Lynn Britton made $1.930,000, 

and an executive vice president, Myra Aubuchon, was paid 

$3-7 million, according to the Mercy filing. In all,seven Mer- cy Health executives were paid morethan $1 million each. A note at the end of an Ernst &; Young audit that is at- tached to Mercy's IRS filing reported thatthe chain provided 

charity care worth 3.2% of its revenue in the previous year. 

However. the auditors state that the value of that Care is based on the charges on all the bills, not the actual cost to Mercyof 

providing those services-in other words. the chargemas- ter value. Assuming that Mercy's actual costs are a tenth of 

these chargemaster values~they're probably Iess-all of 

this charity care actually cost Mercy about three4enths of 

1% of its revenue, or about $13 million outof$4.28biIlion. 

Mercy's website lists an IS-member media team; one 

member, Rachel Wright, told me that neither CEO Brit· 

ton nor anyone else would be available to answer questions about compensation, the hospital's bill·collecting activities through Berlin-Wheeler or Steve H.'s bill, 

which I had sent her {with his name and the date of 

33 
78 


Insert offset folio 47 here 80922.047

...., I The Trouble with Hospitals I 

his visit to the hospital redacted to protect his privacy), 

Wrightsaid the hospital'slawyers had decided thatdisru5SingSteve H:s bill would violate thefederalHIPAAlawprotectingthe privacy of patient medical records. I pointed out that I 

wanted to ask questions only about the hospital's charges for 

standard items-such as surgical gowns, basic blood tests, 

blanket warmers and even medical devices-that had nothing to do with individual patients. "Everything is particular 

to an individual patient's needs," she replied. Even a surgical 

gown?"Yes, evenasurgicaI gown. Wecannotdiscussthis with 

you. It's against the law."She declined to putme in touch with 

the hospital's lawyers to discuss their legal analysis. 

Hiding behind a privacy statute to avoid talking about how 

it prices surgeons' gowns may be a stretch, but Mercy might 

have a valid legal reason not to discuss what it paid for the 

Medtronic device before seIling it to Steve H, for $49,237. Pharmaceutical and medical·device companies routinely insert 

clauses in their sales contracts prohibiting hospitals fromsharing information about what they pay and the discounts they 

receive, In January 2012, a report by the federal Government 

AccountabilityOfficefound that "the lackofpricetransparency and the substantial variation in amounts hospitals pay for 

some IMD[implantablemedicaldevicesJraisequestionsabout 

whether hospitals are achieving the best prices possible," 

A lack of price transparency was not the only potential 

market inefficiency the GAO found, "Although physicians 

arc not involved in price negotiations, they often express 

strong preferences for certain manufacturers and models 

of IMD," the GAO reported. "To the extent that physicians 

in the same hospitals have different preferences for IMDs. it 

may be difficult forthe hospital to obtain volume discounts 

from particular manufacturers," 

"Doctors have no incentive to buy one kind of hip or other implantable device as a group," explains Ezekiel Emanuel, an oncologist and a vice provost of the University of 

Pennsylvania who was a key White House adviser when 

Obamacare was created. "Even in the most innocent of cir· 

cumstances, it kills the chance for market efficiencies." 

The circumstances are not always innocent. In 2008, 

Gregory Demske, an assistant inspector general at the 

Department of Health and Human Services, told a Senate 

committee that "physicians routinely receive substantial 

compensation from medical-device companies through stock options, royalty agreements, consulting agreements, 

research grants and fellowships," 

The assistant inspector general then revealed startling 

numbers about the extent of those payments: "We found that during the years 2002 through 2006, four manufacturers, 

which controlled almost 7s%ofthe hip-andknee-replacement 

market, paid physician consultants over $800 million under 

the terms of roughly 6,500 consulting agreements." Other doctors, Demske noted, had stretched the conflict 

of interest beyond consulting fees: "Additionally, physician 

ownershipofmedical-devicemanufacturers andrelated businesses appears to be a growing trend in the medical-device 

sector." In some cases, physicians could receive substantial 

returns while contributing little to the venture beyond the 

ability to generate business for the venture," 

In 2010, Medtronic, along with several other members of a 

medical-technology trade group, began to make the potential 

14 

conflicts transparent bypostingall payments to physicians on 

a section of its website called Physician Collaboration. Thevoluntary move came just before a similar disclosure regulation 

promulgated by the Obama Administration went into effect 

governing any doctor who receives funds from Medicare or 

the National Institutes of Health (which would include most 

doctors).And the nonprofitpubIidnterest·journalism organization ProPublica has smartly organized data on doctor paymentsonitswebsite(http://projects.propublica.orgldocdollars), 

The conflicts have not been eliminated, but they are being 

aired, albeit on searchable websites rather than through a requirement that doctors disclose them to patients directly. 

But conflicts that may encourage devices to be Overprescribed or that lead doctors to prescribe a more expensive 

one instead of another are not the core problem in this marketplace. The more fundamental disconnect is that there 

is little reason to believe that what Mercy Hospital paid 

Medtronic forSteve H.'s device would have had any bearing 

on what the hospital decided to charge Steve H. Why would 

it? He did not know the price in advance, 

Besides,studiesde1ving into the economics of the medical 

marketplace consistently find that a moderately higher or 

lower price doesn't change COnsumer purchasing decisions 

much, ifatall, because in health carethere is littleoftheprice 

sensitivity found in conventional marketplaces. even on the 

rare occasion that patients know the cost in advance. If you 

were in pain or in danger of dying, 'WOuld you turn down 

treatment at a price 5% or 20% higher than the price you 

mighthave expected-that is. if you'd had anyinfonned way 

to know what to expect in the first place, which youdidn't? 

The question of how sensitive patients will be to increased prices for medical devices recently came up in a different context. Aware of the huge profits beingaccumulated 

bydevicemakers, ObamaAdministration officials decided to 

recapture some of the money by imposing a 2.39% federal ex- cise tax on the sales of these devices as wen as other medical 

technology such as CT~scan equipment. The rationale was 

that getting back some of these generous profits was a fair 

way to cover some of the cost of the subsidized. broader insurance coverage provided by Obamacare--insurance that 

in some cases will pay for more of the devices, The industry 

has since geared up in \rVashington and is pushing legisla· 

tion that would repeal the tax, Its main argument is that a 

2.39% increase in prices would so reduce sales that it would 

wipe out a substantial portion of what the industry claims 

are the 422,000 jobs it supports in a $136 billion industry. That prediction of doom brought on by this small tax contradicts the reams of studies documenting consumer price 

insensitivity in the health care maIketplace. It also ignores 

profit-margin data coUected by McKinsey that demonstrates 

that devicemakers have an open field in the current medical ecosystem. A 20I! McKinsey survey for medical-industry 

clients reported that devicemakers aIe superstar perform. 

ers in a booming medical economy. Medtronic. which perfonned in the middle of the group, delivered an amazing 

compounded annual return of 14.95% to shareholders from 

I990 to lOlO. That means $100 invested in the company in 

1990 was worth $1,622 lO years later. So if the extra 2,39% 

would be so disruptive to the market for products like 

Medtronic's that it would kill sales, why would the industry 

Photograph by Nick Veasey for TIME 
79 


Insert offset folio 48 here 80922.048
80 


Insert offset folio 49 here 80922.049

..., I The Trouble with Hospitals I 

pass it along as a price increase to consumers? It hardly has 

to, given its profit margins. 

Medtronic spokeswoman Donna Marquad says that for 

competitive reasons, her company will not discuss sales 

figures or the profit on Steve H.'s neurostimulator. But 

Medtronic'$ October 2012 quarterly SEC filing reported 

that its spine "products and therapies," which presumably 

include Steve H,'s device, "continue to gain broad surgeon 

acceptance" and that its cost to make all of its products was 

24.9% of what it sells them for. 

That's an unusually high gross profit margin-75,1%-

for a company that manufactures real physical products. 

Apple also produces high-end, high-tech products, and its 

gross margin is 40%. If the neurostimulator enjoys that 

company-wideprofitmargin,itwouldmeanthatifMedtronic was paid $Ig,OOO by Mercy Hospital, Medtronic's cost was 

about $4,sooanditmade a gross profitof about $14,500 before 

expenses for sales, overhead and management-including 

CEO Omar Ishrak's compensation, which was $25 million 

for the 2012 fiscal year. 

Mercy's 

Bargain 

WHEN PAT PALMER. THE MEDICAL-BILtING SPECIALIST WHO 

advises Steve H:s union, was given the Mercy bill to deal 

with. she prepared a tally of about $4,000 worth ofline items 

that she thought represented the most egregious -charges, 

such as the surgical gown, the blanket warmer and the 

marking pen. She restricted her list to those she thought 

were plainly not allowable. "I didn't dispute nearly all of 

them." she says.. "Because then they get their backs up." 

The hospital quickly conceded those items. For the 

remaining $83,000, Palmer invoked a 40% discount off 

chargemaster rates that Mercy allows for smaller insurance 

providers like the union. That cut the bill to about $50,000, 

for which the insurance company owed 80%. or about 

$40,000. That left Steve H. with a $10,000 bill. 

Sean Recchi wasn't as fortunate. His bill-which included not only the aggressively marked-up charge of $13.702 for 

the Rituxan cancer drug but also the usual array of chargemaster fees for basics like generic Tylenol, blood tests and 

simple supplies-had one item not found on any other bill 

I examined: MD Anderson's charge of $7 each for ''A LeOHOt 

PREP PAD."Thisis a littlesquareofcotton used to apply alcohol 

to an injection. A box of 200 can be bought online for $1.91. 

We have seen that to the extent that most hospital admin, 

istrators defend such chargemaster rates at all, they maintain 

that they are just starting points fora negotiation. But patients 

don'ttypkally know they are ina negotiation when they enter 

the hospital, nor do hospitals let them know that And in any 

case, at MO Anderson, the Recchis were made to pay every 

penny of the chargemaster bill up front because their insurance was deemed inadequate. That left Penne, the hospital 

spokeswoman, with only this defense for the most blatantly 

abusive charges for items like the alcohol squares: "Itisdifficult 

to compare a retail store charge for a common product with a 

cancer center that provides the item as part of its highly spedalizedand personalized. care," she wrote in an e-mail. Yet the 

36 

hospital also charges for that "specialized and personalized~ 

catethrough,amongotheritems, its $1.79I,a-dayroomcharge. 

Before MD Anderson marked up Recchi's Rituxan to 

$13.702, the profit taking was equally aggressive, and equally routine, at the beginning of the supply chain-at the 

drug company. Rituxan is a prime product of Biogen Idee. a 

company with $5.5 billion in annual sales. Its CEO. George 

Scangos, was paid $1l.33I,441 in 20ll, a 20% boost over his 

20IC income. Rituxan is made and sold by Biogen Idec in 

partnership with Genentech, a South San Francisco-based 

biotechnology pioneer. 

Genentech brags about Rituxan on its website, as did 

Roche, Genentech's $45 billion parent, in its latest annual 

report. And in an Investor Day presentation last September, 

Roche CEO Severin Schwann stressed that his company is 

able to keep prices and margins high because of its focus 

on "medically differentiated therapies." Rituxan, a cancer 

wonder drug, certainly meets that test. 

A spokesman at Genentech for the Biogen IdecGenentech partnership would not say what the drug cost 

the companies to make. but according to its latest annual re· 

port, Biogen Idee's cost of sales-the incremental expense of 

producing and shipping each of its products compared with 

what it sells them for-was only 10%. That's lower than 

the incremental cost of sales for most software companies, 

and the software companies usually don't produce anything 

physical or have to pay to ship anything. 

This would mean that Sean Recchi's dose ofRituxan cost 

the Biogen Idec-Genentech partnership as little as $300 to 

make, test, package and ship to MD Anderson for $3.000 to 

$3.500, whereupon the hospital sold it to Recchi for $11702. 

As 2013 began, Recchi was being treated back in Ohio 

because he could not pay MD Anderson for more than his 

initial treatment. As for the $13.702-a-dose Rituxan, it turns 

out that Biogen Idec's partner Genentech has a charityaccess program that Recchi's Ohio doctor told him about 

that enabled him to get those treatments free. "MD Anderson neversaid a word to us about the Genentech program," 

says Stephanie Recchi. "They just took our money up front." 

Genentechspokeswoman ChariotteArnold would not disclose how much free Rituxan had been dispensed to patients 

like Recchi in the past year. saying only that Genentech has 

"donated $2.85 billion in free medicine to uninsured patients 

in the u.s." since "1985. That seems like a lot until thenumbers 

are broken down. Arnold says the $2.85 billion is based on 

what the drugmaker sells the product for, not what it costs 

Genentech to make. On the basisofGenentech'shistoric costs 

and revenue since 1985, that would make the cost of these 

donations less than 1% ofGenentech's sales-not something 

likely to take the sizzle out of CEO Severin's Investor Day. 

Nonetheless, the company provided more financial support than MD Anderson did to Recchi, whose wife reports 

that he "is doing great He's in remission." 

Fenne ofMD Andersonstressed that the hospital provides 

its own financial aid to patients but that the state legislature 

restricts the assistance to Texas residents. She also said MD 

Anderson "makes every attempt" to inform patients of drugcompany charity programs and that soofthehospital's 24,000 

inpatients and outpatients, one of whom was from outside 

Texas, received charitable aid for Rituxan treatments in 2012, 
81 


Insert offset folio 50 here 80922.050

Catastrophic IIInessAnd the Bills to Match WHEN MEDICAL 'CARE BECOMES A MATTER OF LIFE AND 

death, the money demanded by the health care ecosystem 

reaches a wholly different order of magnitude; churning out reams of bills to people who can't focus on them. 

let alone pay them. 

Soon after he was diagnosed with lung cancer in January 

2011, a patient whom I will call Steven D. and his wife Alice 

knew that they wercQnly buying time. The crushing question was, How much is time really worth? As Alice, who 

makes about $40,000 a year running a child-care center in 

her horne, explained, 'lSteven] kept saying he wanted every 

last minute he could get, no matter what. But I had to be 

thinking about the cost and how all this debt would leave 

me and my daughter," 

By the time Steven D. died at his horne in Northern California the following November. he had lived for an additional II months. And Alice had collected bills totaling $902,452. 

The family's first bill-for $348,000-which arrived 

when Steven got home from the Seton Medical Center in 

Daly City, Calif., was full of all the usual chargemaster 

profit grabs: $18 each for 88 diabetes-test strips that Amazon sells in boxes of 50 for $27,85; $24 each for 19 niacin pills 

that are sold in drugstores for about a nickel apiece. There 

were also four boxes of sterile gauze pads for $77 each, None 

of that was -considered part of what was provided in return 

for Seton's facility charge for the intensive-care unit for two 

days at $13.225 a day, 12 days in the critical unit at $7.315 a 

day and one day in a standard room (all of which totaled 

$I20,II6 over IS days). There was also $20,886 for CT scans 

and $24,251 for lab work. 

TIME Match 4, 2013 

Alice responded to my question about the obvious overcharges on the bilI for items like the diabetes~test strips or 

the gauze pads much as Mrs. Lincoln, according to the famous joke, might have had she been askedwhat she thought 

of the play. "Are you kidding?" she said. "I'm dealing with 

a husband who had just been told he has Stage IV cancer. 

That's all I can focus an.,. You think I looked at the items on 

the bills? I just looked at the total." 

Steven and Alice didn't know that hospital billing people 

consider the chargemaster to be an opening bid. That's be· 

cause no medical bill ever says. "Give us your best offer."The 

couple knew only that the bill said they had maxed out on 

the $50.00'0 payout limit on a UnitedHealthcare policy they 

had bought through a community college where Steven 

had briefly enrolled a year before. "We were in shock," Alice 

recalls. "We looked at the total and couldn't deal with it. So 

we just started putting all the bills in a box. We couldn't 

bear to look at them." 

The $50,000 that UnitedHealthcare paid to Seton 

Medical Center was worth about $80,000 in credits because any charges covered by the insurer were subject 

to the discount it had negotiated with Seton. After that 

$80,000. Steven and Alice were on their own, not eligible 

for any more distounts. 

Fourmonthsinto her husband'sillnes&; Alice by chance 

got the name of Patricia Stone, a billing advocate based in 

Menlo Park, Calif. Stone's typical clients are middle-class 

people having trouble with insurance claims. Stone felt 

so bad for Steven and Alice-'-she saw the blizzard of bills 

Alice was going to have to sort through-that, says Alice. 

she ~'gave us many of her hours." for which she usually 

charges $100. "for free." 

Stone was soon able to persuade Seton to write off 

$'97,000 of its $348,000 bill. Her argument was simple: 

There was no way the D:s could pay it now or in the future, 

though they would scrape together $3,000 as a show of good 

faith. With the couple's $3,000 on top of the $50,000 paid 

by the UnitedHealthcare insurance, that $297.000 write-off 

amounted to an 85% discount. 

According to its latest financial report, Seton applies 

so many discounts and write·offs to its chargemaster 

bills that it ends up with only about 18% of the revenue 

it bills for. That's an average 82% discount, compared 

with an average discount of about 65% that I saw at the 
82 


Insert offset folio 51 here 80922.051

.... 1 When IUness Turns Fatal I 

other hospitals whose bills were examined-except for 

the MD Anderson and Sloan-Kettering cancer centers, 

which collect about 50% of their chargemaster charges. 

Seton's discounting practices may explain why it is 

the only hospital whose bills I looked at that actually reported a small operating 1055-$5 million-on its last 

financial report. 

Of course, had the O.'s not come across Stone, the incomprehensible but terrifying bills would have piled up in a box, and the Seton Medical Center bill collectors 

would not have been kept at bay. Robert Issai, the CEO 

of the Daughters of Charity Health System, which owns 

and runs Seton, refused through an e-mail from a public 

relations assistant to respond to requests for a comment on 

any aspect of his hospital's billing or collections policies. 

Nor would he respond to repeated requests for a specific 

comment on the $24 charge for niacin pills, the $r8 charge 

for the diabetes·test strips or the $77 charge for gauze pads. 

He also declined to respond when asked, via a follow.up 

e-mail, if the hospital thinks that sending patients who 

have just been told they are terminally ill bills that reflect chargemaster rates that the hospital doesn't actually 

expect to be paid might unduly upset them during a par· 

ticularly sensitive time. 

To begin to deal with all the other bills that kept coming 

him into a special h' 

state of California. It but not much. The insurance 

premium was $1,000 a month, quite a burden on a family 

whose income was maybe $3,500 a month. And it had an 

annual payout limit of $75,000. The D.'s blew through that 

in about two months. 

Thebillskeptpilingup.SequoiaHospital-whereSteven 

was an inpatient aswellas an outpatient between the end of 

Januaryand November following his initial stay at Setonweighed in with 28 bills, all at chargemasterprices. including invoices for $99,000, $ur,ooo and $29,000. Doctor-run 

outpatient chemotherapy clinics wanted more than $85,000. 

One outside lab wanted $II,900. 

Stone organized these and other bills into an elaborate 

spreadsheet-a ledger documenting how catastrophic ill· 

ness inAmerica unleashes its own mini-GDP. 

In July, Stone figured out that Steven and Alice should 

qualify for Medicaid, which is called Mcdi·Cal in California. But there was a catch: Medicaid is the joint federal· 

state program directed at the poor that is often spoken 

of in the same breath as Medicare. Although most of the 

current national debate on entitlements is focused on 

Medicare. when Medicaid's subsidiary program called 

Children's Health Insurance, or CHIP, is counted, Med· 

icaid adual1y covers more people: 56.2 million compared with 50.2 million. 

As Steven and Alice found out, Medicaid is also morc 

vulnerable to cuts and conditions that limit coverage, probably furthe same reason that most politicians and the press 

don't pay the same attention to it that they do to Medicare: 

its<:onstituents are the poor. 

The major difference in the two prog,ams is that while 

Medicare's rules are pretty much uniform across state 

lines, the states set the key rules for Medi<:aid becaus.e the 

38 

state finances a big portion of the claims. According to 

Stone, Steven and Alice immediately ran into one of those 

rules. For people even with their modest income, the D.'s 

would have to pay $3,000 a month in medical bills before 

Medi-Cal would kick in. That amounted to most of Alice's 

monthly take-home pay. 

Medi·Cal was even willing to go back five months, to 

February, to cover the couple's mountain of bills, but first 

they had to corne up with $15,000. "We didn't have any thing 

closetothat," recalls Alice. 

Stone then convinced Sequoia that if the hospital wanted 

to see any of the Medi-Cal money necessary to pay its bills 

(albeit at the big discount Medi·Ca1 would take), it should 

give Steven a «credit" for $I5,ooo-in other words, write it off. Sequoia agreed to do that fur most of the bills. This was 

dearly a maneuver that Steven and Alice never could have 

navigated on their own. 

Covering most of the Sequoia debt was a huge relief, but 

there were still hundreds of thousands of dollars in bills 

left unpaid as Steven approached his end in thefaH of 2011. 

Meantime, the bills kept coming. 

"We started talking about the cost of the chema." Alice 

recalls. "It was a source of tension between us ... Finally," 

she says, "the doctor told us that the next one scheduled 

might prolong his life a month, but it would be really 

painful. So he gave up." 

By the one·year anniversary of Steven's death, late last 

year, Stone had made aslew of deals with his doctors, clinks 

and other providers whose services Medi·Cal did not cov- er. Some.1ike Seton, were generous. The home health care 

nurse ended up working forfreein the final days of Steven's 

life, whichwereoverthe Thanksgiving,veekend. "Hewas a 

saint," says Alice. "He said he was doing it to become accredited, so he didn't charge us." 

Others, including some of the doctors, were more hard. 

nosed, insisting on fun payment or offering minimal 

discounts. Still others had longsincesold the bills to professional debt collectors, who, by definition. are bounty hunt. 

ers. Alice and Stone were still hoping Medi·Cal would end 

up covering some or most of the debt. 

As 2012 closed. Alice had paid out about $30,000 of her 

own money (including the $3,000 to Seton) and still oweU 

$t42,ooo-her losses from the fixed pokergamethatshewas 

forced to play in the worst of times with the worst of cards. 

She was-still getting letters and calls from bill collectors. "I 

think about the $142.000 all the time. It just hangs over my 

head." she said in December. 

One lesson she has learned, she adds: "rm never going to 

remarry.l can't risk the liability."'2 

$132,303: The 

Lab·Test Cash Machine AS 2012 UGAN, A COUPLE J'LL CALL REfI'F.CCA AND SCOTT $., 

both in their 50S, seemed to have carved out a comfort· 

able semiretirement in a suburb near Dallas. Scott had 

2, In e;!rly f~br""ry. Ali"" oofd TIME that $n;" h .. d m.ntly ellnllll'ltoo ~rtMY!t!)f" the deb! thtmlllhptQcwl~frQmth<:u!eQf~sm~l1(ar<t>lnOkhho>;\:l~th""N.nJhad mMrlt~dand 

afre~f"nhllfp<lyll\J1nt;frtlJ'n Merli·ClI anda $!'Mllllfe.!nw!afla~l'Il!iq 
83 


Insert offset folio 52 here 80922.052

successfully sold his small industrial business and was 

working part tim~ advising other industrial companies. Rebecca was running a small marketing company. 

On March 4, Scott started having trouble breathing. By 

dinnertime he was gasping violently as Rebecca raced him 

to the emergency room at the University ofTexasSouthwestern Medical Center. BothRebecca and her husband tho~ght 

he was about to die. Rebecca recalls. It was not the time to 

think about the bills that were going to change their lives if 

Scott survived,and certainly not the time to imagine, much 

less worry about, the piles of charges for daily routine lab 

tests that would be incurred by any patient in the middle of 

a long hospital stay. 

Scott was in the hospital for 32 days before his pneumonia was brought under controL 

Rebecca recalls that "on about the fourth or fifth day, 1 

was sitting around the hospital and bored,so I went down to 

the business office just to che<:k that they had all the insurance information." She remembered that thercwas, she says, 

"some kind of limit on it." 

"Even by then, the bill was over $80,000," she recaUs. "I 

couldn't believe it." 

The woman in the business office matter-of-factly gave 

Rebecca more bad news: Her insurance policy, from a company called Assurant Health, had an annual payout limit of 

$100,000. Because of some prior claims Assurant had pro~ 

cessed, the S:s were well on their way to exceeding the limit. 

Just the room-and-ooard charge at Southwestern was 

$2,293 a day. And that was before aU the real charges 

were added. When Scott checked out, his 161-page 

bill was $474,064. Scott and Rebecca were told they 

owed $402,955 after the payment from their insurance 

policy was deducted, 

The top billing categories were $73.376 for Scott's room; 

$94,799 for u RESP SERVICES," which mostly meant supplying Scott with oxygen and testing his breathing and included multiple charges per day of $134 for supervising 

oxygen inhalation, for which Medicare would have paid 

$17.94; and $108,663 for "'SPECIAL DRUGS," which included 

mostly not-sa-special drugs such as "SODIUM CHLORIDE 

-9%." That's a standard saline solution probably used intravenously in this case to maintain Scott's water and salt 

levels. (It is also used to wet contact lenses.) You can buy a 

TIME March 4. 2013 

liter of the hospital version (bagged for intravenous use) 

online for $5.16. Scott was charged $84 to $134 for dozens 

of these saline solutions. 

Then there was the $132.)03 charge for "LABORATORY," 

which included hundreds of blood and urine tests ranging from $30 to $333 each, for which Medicare either pays 

nothing because it is part of the room fee Ot pays'S! to 

$30. Hospital spokesman Russell Rian said that neither 

Daniel Podolsky, Texas Southwestern Medical Center's 

$I,244,00o-a-yearpresident, nor any other executive would 

be available to discuss billing practkes. ''The law does not 

allow us to talk about how we bill," he explained. 

Through a friend of a friend, Rebecca found Patricia 

Palmer. the same billing advocate based in Salem. Va" 

who worked on Steve H.'s bill in Oklahoma City. Palmerwhose firm, Medical Recovery Services, now includes her 

two adult daughters-was a claims processor for Blue 

Cross Blue Shield. She got into her current business after 

she was stunned by the bill her local hospital sent after 

one of her daughters had to go to the emergency room after an accident. She says it induded items like the shade 

attached to an examining lamp. She then began looking at bills for friends as kind of a hobby before deciding 

to make it a business. 

The best Palmer could do was get Texas Southwestern Medical to provide a credit that still left Scott and 

Rebecca owing $313,000. 

Palmer claimed in a detailed appeal that there were also 

overcharges totaling $113,Odo-not because the prices were 

too high but because the items she singled out should not 

have been charged for at aU. These included $5,890 for all 

of that saline solution and $65,600 fnr the management of 

Scott's oxygen. These items are supposed to be part of the 

hospital's general room-and-services charge, she argued, so 

they should not be billed twice. 

In fact, Palmer-echoing a constant and convincing refrain I heard from billing advocates across the countryalleged that the hospital triple-billed for some items used 

in Scott's care in the intensive·care unit. "First they charge 

more than $2,000 a day for the ICU, because it's an leU and 

it has all this special equipment and personnel." she says. 

"Then they charge $1,000 for some kit used in the ICU togivt! 

someone a transfusion or oxygen ... And then they charge 

39 
84 


Insert offset folio 53 here 80922.053

-+1 When Illness Turns Fatal 1 

$50 or $IDO for each tool or bandage or whatever that there 

is in the kit. That's triple billing." 

Palmer and Rebecca are still fighting, but the hospital 

insists that the S.'s owe the $313,000 balance. That doesn't 

include what Rebecca says were «thousands" in doctors' 

bills and $70,000 owed to a second hospital after Scott 

suffered a relapse. 

The only offer the hospital has made so far is to cut 

the bill to $200,000 if it is paid immediately. or for the full 

$313,000 to bepaidin 24 monthly payments. "How am I supposed towrite a check right now for $200,OOO?" Rebecca asks. 

"I have boxes full of notices from bill collectors ... We can't 

apply for charity, because we're kind of well off in terms of 

assets." she adds. "We thought we were set, but now we're 

pretty much on the edge." 

Insurance 

That Isn't "PEOPLE, ESPECIALLY RELATIVELY WEALTHY PEOPLE, ALWAYS 

think they have good insurance until they see they don't," 

says Palmer. "Most of my clients are middle-or upper-middleclass people with insurance." 

Scott and Rebecca bought their plan from Assurant, 

which sells health insurance to small businesses that will 

pay only for limited coverage for their employees or to individuals who cannot get insurance through employers and 

are not eligible for Medicare or Medicaid. Assurantalso sold 

the Recchis their plan that paid only $2,000 a day for Sean 

Recchi's treatment at MD Anderson. 

Although the tight limits on what their policies cover 

are clearly spelled out in Assurant's marketing materials 

and in the policy documents themselves, it seems that 

for its customers the appeal of having something called 

health insurance for a few hundred dollars a month is far 

more compelling than comprehending the details. "Yes, we 

knew there were some limits," says Rebecca. "But:-vhen you 

see the limits expressed in the thousands of dollars, it looks 

O.K., I guess. Until you have an event." 

Millions of plans have annual payout limits, though the 

more typical plans purchased by employers usually set those 

limits at $500,000 or $750,000-which can also quickly be consumed by a catastrophic illness. For that reason, Obamacare prohihited lifetime limits on any policies sold after 

the law passed and phases out all annual dollar limits by 

2014-. That will protect people like Scott and Rebecca, but it 

will also make everyone's premiums dramatically higher, 

because insurance companies risk much more when there 

is no cap on their exposure. 

BUT OBAMACARE DOES LITTLE TO ATTACK THE COSTS THAT 

overwhelmed Scott and Rebecca. There is nothing. for example. that addresses what may be the most surprising 

sinkhole-the seemingly routine blood, urine and other 

laboratory tests for which Scott was charged $132,000, or 

more than $4,000 a day. 

By my estimates, about $70 billion will be spent in 

the U.S. on about 7 billion lab tests in ZOl3. That's about 

$223 a person for 16 tests per person. Cutting the over40 

ordering and overpricing could easily take $25 billion 

out of that bill, 

Much of that overordering involves patients like Scott S. 

who require prolonged hospital stays. Their tests become a 

routine, daily cash generator. "When you're getting trained 

as a doctor," says a physician who was involved in framing health care policy early in the Ohama Administration, 

"you're taught to order what's caUed 'morning labs.' Every 

day you have a variety of blood tests and other tests done, 

not because it's necessary but because it gives you something to talk about with the others when you go on rounds. 

It's like your version of a news hook ... 1 bet 60% of the labs 

are not necessary." 

The country's largest lab tester is Quest Diagnostics, 

which reported revenues in 2012 of $7.4 billion. Quest's operatingincome in 2012 was $1.2 billion. about 16.1oJoofsales. 

But that's hardly the spectacular profit margin we have 

seen in other sectors of the medical marketplace. The reason is that the outside companies like Quest, which mostly 

pick up specimens from doctors and clinics and deliver 

test results back to them, are not where the big profits are. 

The real money is in health care settings that cut out the 

middleman-the in-house venues, like the hospital test· 

ing lab run by Southwestern Medical that billed Scott and 

Rebecca $I32,ooO. In-house labs account for about 60°/0 of 

all testing revenue. Which means that for hospitals, they 

are vital profit centers. 

Labs are also increasingly being maintained by doctors 

who,as they form group practices with other doctors in their 

field. finance their own testing and diagnostic clinics. These 

labs account fur a rapidly growing share of the testing revenue, and their share is growing rapidly. 

These in·house labs have no selling costs, and as pricing surveys repeatedly find, they can charge more because they have a captive consumer base in the hospitals 

or group practices. 

They also have an incentive to order more tests because 

they're the ones profiting from the tests. The Wall Street 

Journal reported last April that a study in the medical journal Health Affairs had found that doctors' urology groups 

with their own labs "bill the federal Medicare program far 

analyzing 72% more prostate tissue samples per biopsy 

while detecting fewer cases of cancer than counterparts who 

send specimens to outside labs." 

If anything, the move toward in·house testing, and 

with it the incentive to do more of it, is accelerating the 

move by doctors taconsolidate into practice groups.. As one 

Bronx urologist explains, "The economics of having your 

own lab are so alluring." 

More important, hospitals are aligning with these 

practice groups, in many cases even getting them to sign 

noncompete clauses requiring that they steer all patients 

to the partner hospital. 

Some hospitals arc buying physicians' practices outright; 54% of physician practices were owned by hospitals in 2012, according to a McKinsey survey, up from 22% 

10 years before. This is primarily a move to increase the 

hospitals' leverage in negotiating with insurers. An expensive by-product is that it brings testing into the hospitals' high-profit labs, 

Photograph by Nick Veasey for TIME 
85 


Insert offset folio 54 here 80922.054
86 


Insert offset folio 55 here 80922.055

When Taxpayers Pick Up ttie Tab WHETHER IT WAS EMILIA GILBERT TRYING TO GET out FROM 

under $9.418 in bills after her slip and fall or Alice D. vowing 

never to marry again because of the $142,000 debt from her 

husband's losing battle with cancer, we've seen how the med~ 

ical marketplace misfires when private parties get the bills. 

When the taxpayers pick up the tab, most of the dynam~ 

ks of the marketplace shift dramatically. 

In July 20n, an 88-year-old man whom I'll call Alan A. 

collapsed from a massive heart attack at his home outside 

Philadelphia. He survived, after two weeks in the intensive~ 

care unit of the Virtua Marlton hospital. Virtua Marlton 

is part of a four-hospital chain that, in its 20ID federal fil· 

ing. reported paying its CEO $3,073,000 and two other executives $1.4 million and $t.7 million from gross revenue of 

$633.7 million and an operating profit of $91 million. Alan A. 

then spent three weeks at anearby convalescent-care center. 

Medicare made quick wo.rk ofthe $268.227 in bills from 

the two. ho.spitals, paying just $43.320, Except for $100 in 

incidental expenses, Alan A. paid nothing because 100% of 

inpatient hospital care is co.vered by Medicare. 

The ManorCare convalescent center, which Alan A. says 

gave him «good care" in an "O.K. but not luxurious room," 

got paid $11,982 by Medicare for his three-week stay. That is 

about $571 a day for all the physical therapy. tests and other 

services. As with all hospitals in nonemergency situations, 

ManorCare does not have to accept Medicare patients and 

their discounted rates. But it does accept them. In fact, it 

welcomes them and encourages doctors to refer them. 

Health care providers may grouse about Medicare's fee 

schedules, but Medicare's payments must be producing prof. 

its for ManorCare. It is part of a for-profit chain owned by 

Carlyle Group, a blue-chip private-equity firm. 

ABOUT A DECADE AGO, ALAN A. WAS DIAGNOSED WITH 

non-Hodgkin's lymphoma. He was 78, and his doctors in 

southern New Jersey told him there was little they could do. 

Through a family friend, he got an appointment with one 

of the lymphoma specialists at Sloan-Kettering. That doctor 

told Alan A. he was willing to try a new chemotherapy regimen on him. The doctor warned, however, that he hadn't 

ever tried the treatment on a man of Alan A's age. 

The treatment worked. A decade later, Alan A. is still 

in remission. He now travels to Sloan-Kettering every six 

weeks to be examined by the ductor who saved his life and 

to get a transfusion of Flebogamma, a drug that bucks up 

his immune system. 

TIME March 4, lOI3 

With some minor variations each time, Slo.an-Kettering's 

typical bill for each visit is the same as or similar to the 

$7,346 bill he received during the summer of 20n. which 

included $340 for a session with the doctor. 

Assumingeightvisits(but only four with the doctor}, that 

makes the annual bill $57,408 a year to keep AlanA. alive. His 

actual out-of-pocket cost for each session is afraction of that. 

For that $7.346 visit, it was about $50. 

Insomeways, thesetoftransactionsaroundAlanA.'s SloanKettering care represent the best the American medical marketplace has to offer. First, obviously, there's the fact that he is 

alive after other doctors gave him up for dead. And then there's 

the fact that Alan A, a retired chemist of average means, was 

able to get care that might otherwise be reserved for the rich 

but was available to him because he had the rightinsurance. 

Meciicareisiliecoreofthatinsurance,althoughAlanA.-as 

d0900f0 of those on Medicare-has asupplemental·insurance 

policy that kicks in and generally pays 90% of the 20%ofcosts 

for doctors and outpatient care that Medicaredoes not cover. 

Here's how it all computes for him using that summer 

20n bill as an example. 

Not counting the doctor's separate $340 bill, SloanKettering's bill for the transfusion is about $7.006. 

In addition to a few hundred dollars in miscellaneous 

items, the two basic Sloan-Kettering charges are $414 per 

hour for five hours of nurse time for administering the 

Flebogamma and a $4,615 charge for the Flebogamma. 

According to Alan A., the nurse generally handles three or 

four patients at a time. That would mean Sloan-Kettering is 

billing more than $1,200. an hourforthatnurse. WhenI asked 

Paul Nelson, Sloan,Kettering's directoro.f financial planning, 

about the $414-per-hourcharge.heexplained that IsO/o.ofthese 

charges ismeanttocoveroverheadandindirectexpenses, 20% 

is meant to be profit that will cover discounts for Medicare 

or .Medicaid patients, and 6S% covers direct expenses. That 

would still leave the nurse's time beingvaluedat about $8ooan 

hour (65% of $1,200). again assuming that just three patients 

were billed for the same hour at $414 each. Pressed on that, 

Nelson conceded that the profit is higher and is meant tocover 

other hospital costs like research and capital equipment. 

Whatever Sloan·Kettering's calculations may be, 

Medicare-whose patients. including Alan A., are about a 

third of all Sloan-Kettering patients-buys into none of that 

math. Itscost-based pricingformulasyie1da priceof-$302 foreverything other than the drug, including those hourly charges 

for the nurse and the miscellaneous charges. Medicare pays 

80% of that, or $241, leaving AlanA and his privateinsurante 

company together to pay about $60 more to Sloan-Kettering. 

AlanA. pays $6, and hissupplemental insurer, Aetna. pays $54. 

Bottom line: Sloan-Kettering gets paid $302 by Medicare 

for about $2,400 worth of its chargemaster charges, and 

Alan A. ends up paying $6. 

The Cancer 

Drug Profit Chain IT'S WITH THE BILL FOR THt TRANSFUSION THAT THE PECUliar economics of American medicine take a different turn, 

even when Medicare is involved. 'We have seen that even 

43 
87 


Insert offset folio 56 here 80922.056

..... 1 The Bill for Taxpayers 1 

with big discounts for insurance companies and bigger dis~ 

counts for Medicare, the chargemaster prices on everything 

from room and board to Tylenol to CTscansare high enough 

to make hospital costs a leading cause of the $750 billion 

Americans overspend each year on health care. We're now 

going to see how drug pricing is a major contributor to the 

way Americans overpay for medical carc. 

By law, Medicare has to pay hospitals 6% above what 

Congr rice," 

which drugmake gress 

does not control what drugmakers charge. The drug companies are free to set their own prices. This seems fair in a 

frec-market economy, but when the drug is a onc·ofa-kind 

lifesaving serum, the result is anything but fair, 

Applying that formula of average sales price plus the 6% 

premium, Medicarecuts Sloan·kttering's $4,615chargefor 

Alan A.'s Flebogamma to $2,123. That'swhat the drugmaker 

tells Medicare the average sales price is plus 6%. Medicare 

again pays 80% of that, and Alan A. and his insurer split 

the other 20%, 10% for him and 90% forthe insurer, which 

makes Alan A.'s cost $4i.50, 

In practice, the average sales price does not appear to be a 

real average. 'IWo other hospitals I asked repbrted that after taking into account rebates given by the drug company, they 

paid an average of $r,650 for the same dose of FIebogamma, 

and neither hospital had nearly the leverage in thecancer-care 

marketplace that Sloan.Kettering does, One doctor at SloanKettering guessed that it pays $r,400. "The drug companies 

give the rebates so that the hospitals will make more on the 

drug and therefore be encouraged to dispense it," the doctor 

explained. (Aspokespersonfor Medicarewould say only that 

the average sales price is based "on manufacturers' data submitted to Medicare and is meant to include rebates.") 

Nelson, the Sloan-Kettering head of financial planning. 

said the price his hospital pays for Alan A's dose of Fiebogamma is "somewhat higher" than $1,400, but he wasn't 

specific, adding that "the difference between the cost and 

the charge represents the cost of running our pharmacywhich includes overhead cost-plus a markup." Even assuming Sloan-Kettering's real price for Flebogamma is 

"somewhat higher" than $1,400, the hospital would be mak· 

ing about 50% profit from Medicare's $2,I23 payment. So even Medicare contributes mightily to hospital profit-and 

drug-<:ompany profit-when it buys drugs, 

Flebogamma's 

Profit Margin THE SPANISH BUS1N£SS AT THE BEGINNING OF THE FLEBDgamma supply chain docs even better than Sloan-Kettering. 

Made from human plasma. Flebogamma is a sterilized 

solution that is intended to boost the immune system. SloanKettering buys it from either Baxter International in the 

U.S. or, as is more likely in Alan A.'s case, a Barcelona-based 

company called Grifols. 

In its half-year 2012 shareholders report, Gdfols fea· 

tured a picture of the Flebogamma plasma serum and 

its packaging-"produced at the Clayton facility, North 

44 

Carolina," according to the caption. Worldwide sales of all 

Grifols products were reported as up r5-2%, to $dJ2 billion, 

in the first half of 2012. In the U.S. and Canada. sales were up 

20.5°/0., "Growth in thesales ... of the main plasma derivatives" 

was highlighted in thercport,aswas thefactthat"thecostper 

liter of plasma has fallen." (Grifolsoperates 150 donation centers across the U.S. where it pays plasma donors $25 apiece,) 

Grifols5pokesman Christopher Hcaleywouldnotdiscuss 

what it cost Grifols to produce and ship Alan A.~ dose. but 

he did say that the company's average cost to produce its bio· 

science products. Flebogamma induded. was approximately 

5s%ofwhatitsells them for. However,a doctorfatniUarwith 

theeconomksofcancer-caredrugssaid that plasma products 

typically have some ofthe industry's higher profit margins, 

He estimated that the Flebogammadose for Alan A.-which 

Sloan-Kettering bought from Grlfols for $I,4000r $1.500 and 

sold to Medicare for $2,135-''can't cost them morethan $200 

or $300 to collect, process, test and Ship.'" 

InSpain,asin the restofthcdevelopedworld. Grifols'pront 

margins on sales are much lower than they are in the U.S., 

where it can charge much higherprlces.Awareofthe leverage 

thatdrugcompanies-es.pedallythosewith unique lifesaving 

products-have on the market, most developed countries 

threatentheirhighmargins~t ug notintheUS. 

The difference between the regulatory environment 

in the U.S. and the environment abroad is $0 dramatic 

that McKinsey & Co. researchers reported that overall prescription-drugpricesin the U.S, are '150% higherforcomparable products" than in other developed countries. Yet 

those regulated profit margins outside the U.S. remain high 

enough that Grifols, Baxter and other drug companies still 

aggressively sell their products there. For example, 37% of 

Grifols' sales come from outside North America, 

More than $280 billion will be spent this year on prescription drugs in the U.S. If we paid what other countries 

did for the same products, we would save about $94 billion 

a year. The pharmaceutical industry's common explanation for the price difference is that U.S. profits subsidize 

the research and development of trailblazing drugs that 

are developed in the U.s. and then marketed around the world. Apart from the question of whether a country with 

a health-eare-spending crisis should subsidize the: rest of 

the developed world-not to mention the question of \vbo 

signed Americans up for that mission-there's the fa-etthat 

the companies' math doesn't add up, 

According to securities filings of major drug companies, 

their R&D expenses are generally 15-% to 20% of gross rev· 

enue. In fact. Grifolsspentonlys%onR&D furtfie firsthine 

months of 2012, Neither 5%' nor 20% is enough to have cut deeply into the pharmaceutical companies' stellar bottom~ 

line net profits. This is not gross profit, which counts only the 

cost of producing the drug, but the profit after those R&D 

expenses arc taken into account. Grifols made a 32.3% net 

operating profit after all its R&D expenses-as well as 

sales, management and other expenses-were tallied, In 

other words, even counting all the R&D across the entire 

company, including research fordrugs that did not pan out, 
88 


Insert offset folio 57 here 80922.057

..... 1 The Bill for Taxpayers I 

Grifols made healthy profits. All the numbers tell one consistent story: Regulating drug prices the wayothercountries 

do would save tens of billions of dollars while still offering 

profit margins that would keep encouraging the pharmaceutical companies' quest for the next great drug. 

Handcuffs 

On Medicare OUR LAWS DO MORE THAN PREVENT THE GOVERNMENT 

from restraining prices for drugs the way other countries 

do. Federal law a1so restricts the biggest single buyerMedicare-from even trying to negotiate drug prices. As 

a perpetual gift to the pharmaceutical companies (and an 

acceptance of their argument that completely unrestrained 

prices and profit are necessary to fund the risk taking of research and development), Congress has continually prohibited the Centers for Medicare and Medicaid Services (eMS) of 

the Department of Health and Human Services from negotiating prices with drugmakers. Instead, Medicare simply has 

to determine that average sales price and add 6% to it. 

Similarly, when Congress passed Part D of Medicare in 

2003, giving seniors coverage for prescription drugs, Congress prohibited Medicare from negotiating. 

Nor can Medicare get involved in deciding that a drug 

may be a waste of money. In medical circles, this is known 

as the comparative·effectiveness debate. which nearly derailed the entire Obamacare effort in 2009. 

Doctors and other health care reformers behind the 

comparative·effectiveness movement make a simple ar· 

gument: Suppose that after exhaustive research, cancer 

drug A, which costs $300 a dose, is found to be just as effec· 

tive as or more effective than drug B, which costs $3,000. 

Shouldn't the person or entity paying the bill, e,g. Medicare, be able to decide that it will pay for drug A but not 

drug B? Not according to a law passed by Congress in 2003 

that requires Medicare to reimburse patients (again, at average sales price plus 6%) for any cancer drug approved 

for use by the Food and Drug Administration. Most states 

require insurance companies to do the same thing. 

Peter Bach, an epidemiologist at Sloan-Kettering who 

has also advised several health-policy organizations, reported in a 2009 Nw England Journal of Medicine article that Medicare's spending on the category dominated by cancer 

drugs ballooned from $3 billion in 1997 to $n billion in 2Q04. Bach says costs have continued to increase rapidly 

and must now be more than $20 billion. With that escalating bill in mind, Bach was among the 

policy experts pushing for provisions in Obamacare to 

establish a Patient-Centered Outcomes Research Institute to expand comparative-effectiveness research efforts, 

Through painstaking research. doctors would try to determine the comparative effectiveness not only of drugs 

but also of procedures like CT scans. 

However, after all the proviSions spelling out elaborate 

research and review processes were embedded in the draft 

law, Congress jumped in and added eight provisions that 

restrict how the research can be used. The prime restric· 

tion: Findings shall "not be construed as mandates for prac46 

tice guidelines, coverage recommendations, payment, or 

policy recommendations." 

With those 14 words, the work of Bach and his colleagues 

was undone, And costs remain unchecked. 

"Medicare could see the research and say, Ah, this drug 

works better and costs the same or is even cheaper," says 

Gunn, Sloan·Kettering's chief operating officer. "But they 

are not allowed to do anything about it." 

Along with another doomed provision that would have 

allowed Medicare to pay a fee for doctors' time spent counseling terminal patients on end-of-life care (but not On 

euthanasia), the Obama Administration's push for com· 

parative effectiveness is what brought opponents' cries 

that the bill was creating "death panels." Washington 

bureaucrats would now be dictating which drugs were 

worth giving to which patients and even which patients 

deserved to live or die, the critics charged. 

The loudest voice sounding the death-panel alarm be· 

longed to Betsy MCCaughey, former New York State lieu· 

tenant governor and a conservative health-policy advocate. 

McCaughey, who now runs a foundation called the Committee to ReducelnfectionDeaths.isstill fiercely opposed toMedicare's making comparative-effectiveness decisions. "There is 

comparative-effectivenessresearch beingdone in the medical 

journals all the time, which isfine." she says. "But it should be used bydoctorstomakedecisions-notbytheObama bureaucrats at Medicare to make decisions for doctors." 

Bach, the Sloan-Kettering doctor and policy wonk, has 

become so frustrated with the rising cost of the drugs he 

uses that he and some colleagues recently took matters into 

their own hands. They reported in an October op-edin the 

New York Times that they had decided on their own that 

they were no longer going to dispense a colorectal-cancer 

drug called Zaltrap, which cost an average of $II,063 per 

month for treatment. All the research shows, they wrote, 

that a drug called Avastin, which cost $5,000 a month, is 

just as effective. They were taking this stand, they added, 

because "the typical new cancer drug coming on the market a decade ago cost about $4.500 per month (in 2012 dol- lars);since 2010, the median price has been around $10,000. 

rno ofthe new cancer drugs cost more than $35,000 each 

per month of treatment. The burden of this cost is borne, 

increasingly, by patients themselves-and the effects can be devastating." 

The CEO ofSanofi, the company that makes Zaltrap, ini- tially dismissed the article by Bach and his Sloan-Kettering 

colleagues, saying they had taken the price of the drug out 

of context because of variations in the required dosage. But 

four weeks later, Sanofi cut its price in half, 

Bureaucrats 

You Can Admire BY THE NUMBERS, MEDICARE LOOKS LIKE, A GOVERNMENT 

program run amok. After President Lyndon B. Johnson 

signed Medicare into law in 1965, the House Ways and 

Means Committee predicted that the program would cost 

$12 billion in 1990.lts actual cost by then was $IlO billion. 

It is likely to be nearly $600 billion this year. That's due to 

Photograph by Stephen VOss f()f TIME 
89 


Insert offset folio 58 here 80922.058

Jonathan Blum 

Medicaid Se!1llce", 'Hospitals 

don't lose money when they 

serve Medicare patlentsi 
90 


Insert offset folio 59 here 80922.059

~ I The Bm for Taxpayers I 

the U.s:s aging population and the popular program's expansion to cover more services, as well as the skyrocketing 

costs of medical services generally. It's also because Medicare's hands are tied when it comes to negotiating the prices 

for drugs or durable medical equipment. But Medicare's 

growth is not a matter of those "bureaucrats'" that Betsy 

MCCaughey complains about having gone off the rails in 

how they operate it. 

In fact, seeing the way Alan A.'s bills from SloanKettering were vetted and processed is one of the more eyeopening and least discouraging aspects of a look inside the 

world of medical economics. 

The process is fast, accurate, customer-friendly and impressively high-tech. And it's all done quietly by a team of 

nonpolitical civil servants in close partnership with the 

private sector. In fact, despite calls to privatize Medicare by 

creating a voucher system under which the Medicare population would get money from the government to buy insurance from private companies, the current Medicare system 

is staffed with more people employed by private contractors 

(8,500) than government workers (700), 

$1.5 Billion 

A Day SLOAN·KETTERING SENDS ALAN A.'S BILLS TO MEDICARE 

electronically, all elaborately coded according to 

Medicare's rules. 

There are two basic kinds of codes for the services billed. 

The first is a number identifying which of the 7,000 procedures were performed by a doctor, such as examining a chest 

X-ray, performing a heart transplant or conductingan office 

consultation for a new patient(which costs more than a con· 

sultation with a continuing patient-coded differentlybecause it typically takes more time), If a patient presents 

more complicated challenges, then these basic procedures 

will be coded differently; for example, there are two varieties of emergency-room consultations. Adjustments are also 

made for variations in the cost of living where the doctor 

works and for other factors, like whether doctors used their 

own office (they'll get paid more for that) or the hospital. A 

panel of doctors set up by the American Medical Associa- .. . 

w 

expertise or are worth relatively more, Medicare typically 

accepts most of the panel's recommendations. 

The second kind of code is used to pay the hospital for 

its services. Again, there are thousands of codes based on 

whether the person checked in for brain surgery, an appendectomy or a fainting spell. To come up with these numbers, Medicare takes the cost reports-including allocations for 

everything from overhead to nursing staff to operatingroom equipment-that hospitals across the country are 

required to file for each type of service and pays an amount 

equal to the composite average costs. 

The hospital has little incentive to overstate its costs be· 

cause it's against the law and because each hospital gets paid 

not on the basis of its own claimed costs but on the basis of 

48 

the average of every hospital's costs, with adjustments made 

for regional cost differences and other local factors_ Except 

for emergency services, no hospital has to accept Medicare 

patients and these prices, but they all do. 

Similar codes arecalculated for laboratory and diagnostic 

tests like CT scans, ambulance services and, as we saw with 

Alan A's bill, drugs dispensed. 

"When I tell my friends what I do here, it sounds boring, 

but it's exciting," says Diane Kovach, who works at Medicare's Maryland campus and whose title is deputy director 

of the provider billing group, "We are implementing a pro· 

gram that helps millions and millions of people, and we're 

doing it in a way that makes everyone of us proud," sheadds. 

Kovach, who has been at Medicare for 21 years, operates 

some of the gears of a machine that reviews the more than 

3 million bills that come into Medicare every day, figures 

out the right payments for each and chums out more than 

$I.5 billion a day in wire transfers, 

Thepartofthat process that Kovachand three colleagues, 

with whom I spent a morning recently, are responsible for 

involves overseeing the writing and vetting of thousands 

of instructions for coders, who are also private contractors, 

employed by HP, General Dynamics and other major technology companies. The codes they write are supposed to 

ensure that Medicare pays what it is supposed to pay and 

catches anything in a bill that should not be paid. 

For example, hundreds of instructions for code changes 

were needed to address Obamacare's requirement that cer, 

tain preventive~care visits, such as those for colonoscopies 

or contra.ceptive services, no longer be subject to Medicare's 

usual outpatient co-pay of 20%_ Adding to the complexity, 

the benefit is limited to one visit per year for some services, 

meaning instructions had to be written to track patient 

time lines forthe codes assigned to those services. When performing correctly, the codes produce "edits" 

whenever a bill is submitted with something awry on it-if 

a doctor submits two preventive-care colonoscopies for the 

same patient in the same year, for example. Depending on 

the code, an edit will result in the bill's being sent back 

with questions or being rejected with an explanation. It 

all typically happens without a human being reading it 

"Our goal at the first stage is that no one has to touch the 

bill," says Leslie Trazzi, who focuses on instructions and 

edits for doctors' claims, 

Alan A:s bills from Sloan-Kettering are wired to a data 

center in Shelbyville, Ky" run by a private company (owned 

by WelIPoint, the insurance company that operates under 

the Blue Cross and Blue Shield names in more than a dozen 

states) that has the contract to process claims originating from New York and Connecticut. Medicare is paying the 

company about $323 million over five years-which, as with 

the fees of other contractors serving othe-rregions, works out 

to an average of 84¢ per claim, 

In Shelbyville, Alan A:s status as a beneficiary is verified, 

and then the bill is sent electronically to a data center in Columbia, S.c., operated by another contractor,alsoa subSidiary 

of an insurance company, There, the codes are checked for 

edits,afterwhkhAlanA.'sSloan-Kettering billgoeselectronically to a data center in Denver, where the payment instructions are prepared and entered into what Karen Jackson, who 
91 


Insert offset folio 60 here 80922.060

supervises Medicare's outside contractors. says is the largest 

accounting ledger in the world. Thewhole process takes three 

days-and that long only because the data is sent in batches. 

There are multiple backups to make sure this ruthlessly 

efficient system isn't just ruthless. Medicare keeps track 

of and publicly reports the percentage of bills processed 

"clean"-i.e .• with no rejected items-within 30 days. Even 

the speed with which the contractors answer the widely 

publicized consumer phone lines is monitored andreported. 

The average time to answer a call from a doctor or other 

provider is 57.6 seconds, according to Medicare's records, 

and the average time to answer one of the miHions of calls 

from patients is 2 minutes 4I seconds, down from more than 

eight minutes in 2007. These times might come as a sur· 

prise to people who have tried to call a private insurer. That 

monitoring process is, in turn, backstopped by a separate 

ombudsman'soffice, which has regional and national layers.. 

Beyond that, the members of the House of Representa~ 

tives and the Senate loom as an additional 535 ombudsmen. 

"We get calls every day from congressional offices about 

complaints that a beneficiary's claim has been denied," says 

Jonathan Blum, the deputy administrator of eMS. As are· 

suIt. Blum's agency has an unusually large congressional 

liaison staffof 52, most of whom act as caseworkers trying 

to resolve these complaints. 

All the customer-friendliness adds up to only about 10% 

of initial Medicare claims' being denied, according to Medi~ 

care's latest published Composite Benchmark Metric Report Of those initial Medicare denials. only about 20% (2% of total 

claims) result in complaints or appeals, and the decisions 

in only about half of those (or 1% of the total) end up being 

reversed, with the claim being paid. 

Theastonishing efficiency. of course, raises the question of 

whether Medicare is simply funneling money out the door as 

fast as it can. Some fraud is inevitable-even a rate of 0.1% is 

enough to make headlillfs when $600 billion is being spent. 

It's also possible that people can game the system without 

committing outright fraud. But Medicare has multiple layers 

of protectionagainstiraudthatthe insurance companies don't f/J 

and pemapscan'tmatch because they lack Medicare's scale_ E 

Accordingto Medicare's Jackson, the contractors are "vig~ C 

orously monitored for all kinds of metrics" and requited 

every quarter "todo a lot of data analysis and submit review 

plans and error-rate~reduction plans." 

And then there are the RACs-a wholly separate gtoup 

of private "recovery audit contractors." Established by Congressduringthe George W. Bush Administration, the RACs, 

says one hospital administrator, "drive the doctors and the 

hospitals and even the Medicare claims processors crazy." 

The RACs' only job is to review provider bills after they have 

been paid by Medicare claims processors and look for system errors1 like faulty processing, or errors in the bills as 

reflected in doctoror hospital medical records that the RACs 

have the authority to audit. 

The RACs have an incentive that any champion of the 

private sector would love. They get no up-front fees but instead are paid a percentage of the money they retrieve. They 

eat what they kill. According to Medicare spokeswoman 

Emma Sandoe, the RAe bounty hunters retrieved $797 million in the lO'll fiscal year, for which they were paid 9% to 

TIME March 4, 2013 

12,5% of what they brought in. depending on the region 

where they were operating. 

This process can «get quite anal," says the doctor who 

recently treated me for an ear infection. Although my 

doctor is on Park Avenue. she. like 96% of all specialists, 

accepts Medicare patients despite the discounted rates it 

pays. because, she says! "they pay quickly." However. she 

recalls getting bills from Medicare for 2I¢ or 8S¢ for supposed overpayments. 

The OHHS's inspector general is also on the prowl to 

protect the Medicare checkbook. It reported recovering 

$I.2 billion last year through Medicareand Medicaid audits 

and investigations (though the recovered funds had probably been doled out over several fiscal years)_ The inspector 

general's work is supplemented by a separate. multiagency 

federal he.l~h-cardraud task f?,"e, which brings criminal 

anything, all 

that recovery activity suggests fallibility, even as it suggests 

more buttoned~up operations than those run by private insurers, whose payment systems are notoriously erratic. 

Too Much 

Health care? IN A REVIEW OF OTHER BILtS OF THOSE ENROLLED IN 

Medicare, a pattern of deep. deep discounting of charge· 

master charges~merged that Il?<irrored how Alan A.'s bins 

were shrunk down to realiW_A $121,4'4 Stanford Hospital bill for a 90-year-old California woman who fell and broke 

her wrist became ~I,6,949. A $5I,44SJlm for the three days an ailing 9,-year-old spent getting tests and being sedated in the hospital before dying of old age became $'9,242. 

Before Medicare went to work, the bill was, chock-fun of 

creative chargemaster charges from the California Pa· 

cific Medical Cenler-part of Sutte, Health, a dominant nonprofit Northern California chain whose CEO made 

$5,241.305 in 20ll. 

Another pattern emerged from a look at these bills: some 

seniors apparently visit doctors almost weekly oreven daily, 

for all varieties of ailments. Sure, as patients age they arc increasingly in need of medical care_ But at least some of the 

time, the fact that they pay almost nothing to spend their 

days in doctors' offices must also be a factor. especially if 

they have the supplemental insurance that covers most of 

the 20% not covered by Medicare. 

Alan A. is now 89, and the mound ofbilIs and Medicare 

statements he showed me for 2on-when he had his heart 

attack and continued his treatments at Sloan-Ketteringseemed to add up to about $350,000, although I could not 

tell for sure because a few of the smaller ones may have 

been duplicates. What is certain-because his insurance 

company tallied it for him in a year-end statement-was 

that his total out-of-pocket expense was $:1,139. or less than 

0.2% of his overall medical bills. Those bills included what 

seemed to be 33 visits in one year to 11 doctors who had 

nothing to do with his recovery from the heart attack or 

his cancer. In all cases, he was routinely asked to pay almost 

49 
92 


Insert offset folio 61 here 80922.061

.... 1 The Bill for Taxpayers I 

nothing: $2.20 for a check of a sinus problem, $1.70 for an 

eye exam, 33¢ to deal with a bunion. When he showed me 

those bills he chuckled. A comfortable member of the middle class, Alan A, could 

easily afford the burden of higher co-pays that would encourage him to use doctors less casually or would at least 

stick taxpayers with less of the bill if he wants to get that 

bunion treated. AARP (formerly the American Association 

of Retired Persons) and other liberal entitlement lobbies 

oppose these types' of changes and consistently distort the 

arithmetic around them. But it seems clear that Medicare 

could save billions of dollars if it required that no Medicare 

supplemental-insurance plan for people with certain income 

orassetlevelscouldresultin their paying less than, saY.IO% of 

a doctor's bill until they had paid $2,000 or $3,000 outoftheir 

pockets in total bills in a year. (the AARP might oppose this 

idea for another reason: it gets royalties from UnitedHealthcare for endorsing United'ssupplemental-insuranceproduct) 

Medicare spent more than $6'5 billion last year to pay 

doctors (even at the discounted Medicare rates) for the service codes that denote the most basic categories of office visits, 'By asking people like Alan A. to pay more thana negligible share, Medicare could recoup $1 billion to $2 billion 

of those costs yearly. 

F;Profit Of Prestigious Cancer Care 

50 

Uke MD AndersM's aggressive priclng fot Sean Recchi's 

stay, Sioan-Kettering's markup 

on drugs like the Rebogamma 

given to Alan A. is one reason 

cancer eare Is so profitable, 

In 2011, the hospital and 

research institutkm of SloanKettering had an operating 

profit of $406 million even 

after everything It spent on 

research and the education 

of a small anny of young 

cancer doctors. 

The cash flow comes from 

more than just drug markups. 

It also comes from the high 

pricing enabled by a great 

br;md and an enterprise that 

has learned how to expand the 

reach of its brand. 

One of Sloan·Kettering's 

major revenue sources is the 

outpatient clinics It has been 

ope.ning around New YOlK City 

In recent years $0 that patients 

don't have to travel to the busy 

Upper East Side of Manhattan 

for the kind of treatments Alan 

A. gets every six weeks. There 

is a cancer-screening and 

treatment outpost (run In part· 

nership with Ralph lauren's 

foundation) In Harlem and a 

Too Much 

Doctoring? 

ANOTHER DOCTOR'S BILL, FOR WHICH ALAN A:S SHARE WAS 

19¢, suggests a second apparent flaw in the system. This was 

one of 50 bills from 26 doctors who saw Alan A. at Virtua 

Marlton hospital or at the ManorCare convalescent center 

after his heart attack or read one of his diagnostic tests at 

the two facilities. "They paraded in once a day or once every 

other day, looked at me and poked around a bit and left," 

AlanA, recalls. Other than the doctor in charge of his heart· 

attack recovery, "I had no idea who they were until I got 

these bills. Butfor a dollar or two, sowhat?" 

The "sowhat," of course, is that although Medicare deeply 

discounted the bills. it-meaning taxpayers-still paidfrorn 

$7·48(fora "Oneof 

hospitals 

a Medicare patient room and rack upa few dollars.'" says a doctor who has worked at several hospitals acrossthecountry. "In some places it's a Monday-morning tradition, You 

go see the people who came in over the weekend There's 

always an ostensible reason, butthere's also a lot of abuse." 

When health care wonks focus on this kind of 

chemotherapy clinic In Brooklyn, and clinlcal·care facilities 

can also M found in fWe of the 

New York City metropolitan at· 

ea's weafthier s.ubutbs, such as 

Sleepy Hottow in Westchester 

County. New York, and Basking 

Ridge, N.J. A sixth Is being con· 

struetoo In Harrison, another 

wealthy Westchester town. 

Building on the deserved 

allure of the Sloan·Kettering 

brand, thes(!' outposts eat into 

the profits of area hOSpitals, 

which would otherwise be providing the same high.margin 

outpatient cancer care either 

on the basis of what their 

own dodors prescribed l')f acell/ding to Instructions from 

Sloan-KetterIng's specialists.. 

"Sloan·Kettering can open 

these clinics and treat people 

9 to 5 at their [hlgh1 rates. 

and because: they've got the 

brand name, they'll be very 

successful because they don't 

have to run a 24/1 operation." 

complains the president of one 

hOspital In a wealthy suburb 

north of New York Clty. ''But 

if those pattents need help at 

midnight on Saturday, they'll 

end up In our emergency 

room.~ That may be true, but 

Sloan· Kettering's foray beytlnd 

the Upper East Slde4'f Manhattan al$o represents a tare 

outbreak of competition in the 

current hospital marketplace, 

Sloan-Kettering may be 

fishing for business In these 

wealthy suburbs. but it -does 

have a flnaneia}-ald process 

that Is both Pl'oacllve and well 

publiciled to patients seeking 

care. It provIdes discounts of 

varying amounts fOf those who 

are uninsured or underinsured 

and have incomes of less than 

500% above the p()verty line, 

which comes out to about 

$115,000 a year ror a famity 

of four, Counselors al$o betl' 

patients get other aid frQm 

the state or local government, 

from feseareh programs Of, as 

happened with Sean Reechlln 

Ohio, hom drug companies, 

That still leaves out many 

people, especially the uninsured or IJnclerins~red whose 

Incomes are above $U5,OOO 

but wen oolow wbat they would 

pay ror treatment at SloanKettering. And It tmdouhtedty 

leaves ()ttUHs struggling just 

to meet the -co-pays requited 

even with good insurance:, 

Sioan-Kettenng chief operating 
93 


Insert offset folio 62 here 80922.062

overdoctoring, they complain (and write endless essays) 

about what they call the fee-for-service mode, meaning that 

doctors mostly get paid for the time they spend treating patients or ordering and reading tests. Alan A. didn't care how 

much time his cancer or heart doctorspentwith him or how 

many tests he got. He cared only that he got better, 

Some private care organizations have made progress 

in avoiding this overdoctoring by paying salaries to their 

physicians and giving them incentives based on patient 

outcomes. Medicare and private insurers have yet to find a 

way to do that with doctors, nor are they likely to, given the 

current structure that involves hundreds of thousands of 

private providers billing them for their services. 

In passing Obamacare, Congress enabled Medicare to 

drive efficiencies in hospital care based on the notion that 

good care should be rewarded and the opposite penalized. 

The primary lever is a system of penalties Obamacare 

imposes on hospitals for bad care-a term defined as unacceptable rates of adverse events, such as infections or injuries during a patient's hospital stay or readmissions within 

a month after discharge. Both kinds of adverse events are 

more common than you might think: I in 5 Medicare 

patients is readmitted within 30 days, for example. One 

Medicare report asserts that "Medicare spent an estimated 

officer John Gunn says patients flot formatly in the 

financial-assistance program 

might still be offered discounts 

of SQme kind and that only "2% 

or 3% of our patients pay our 

full list p.rice$~-c-hargemastef 

prices that he acknowledges 

are high "becaose we have 

better outcomes." 

Most of those asked to pay 

chargemaster rates. Gunn 

adds, are "wealthy foreign· 

ers, whom we screen and tell 

In advance what it's lik.ely to 

cost them," Insurance compa· 

nies negotiate discQUnts off 

of Sioan-Kettering's chargemaster prices. but Gunn 

acknowledges that hIs hospital can drive a hard bargain because insurers want "to, make 

sure we are In" their netwQrk, That kind of brand strength 

produces not only lavish cash 

flow but also lavish irn;:omes 

for the nondQctors who work to 

generate it, Six Sloan-Kettering 

administrators made salaries 

(If over $1. million in 2010, the 

most recent year for which 

the hospitai flied its nonprofit 

tal( retum, (The 2011 return 

Is "on extension," says Gunn, 

$4,4 billion in 2009 to care for patients who had been harmed 

in the hospital, and readmissions cost Medicare another $26 

billion," The anticipated savings that will be produced by the threat of these new penalties are what has allowed the 

Obama Administration to claim that Obamacare Can cut 

hundreds of billions of dollars from Medicare over the next 

10 years without shortchanging beneficiaries. "These payment penalties are sending. shock through the system th.t 

will drive costs down:' says Blum, thedeputyadministrator 

of the Centers for Medicare and Medicaid Services. 

There are lots of other shocks Blum and his -colleagues 

would like to send. However, Congress won't allow him 

to, Chief among them, as we have seen. would be allowing 

Medicare, the world's largest buyer of prescription drugs, 

to negotiate the prices that it pays for them and to make 

purchasing decisions on the basis of comparative effective· ness,Butthere'salsothecanethatAlanA,gotafterhisheart 

attack. Medicare paid $21,97 for it. AlanA. couldhavebought 

it on Amazon for about $12. Other than ina few pilot regions that Congress designated in 20Il after a push by the Obama Administration. Congress has not allowed Medicare to drive down the price of any so~called durable medical equipment 

through competitive bidding. 

This is morethan a matter of the 124,ooocanes Medicare 

who was paid $1.,531,99110 

2010.) Includlngthose six. 14 

made over $500.000, 

Compared with their peers 

at equally venerable nonprofits, these executives are 

comfortably ensconced in a 

me<licaf ecosystem that's in a 

world of its own. For example. 

Sloan-Kettering fisted two 

development-office executives. 

or tundraisets, as making 

$:1.,483,000 and $844,000, 

Another venerable New York 

nonpront: that mines the same 

field for donors-the Metro· 

politan Museum of Art pays 

its top development officer 

$345,000. Harvard pays its 

chief fund raiser $392,000, 

Asked why saJaries at 5103nKettering are so much higher 

than those at nonproflts like 

the Met and Harvard. Gunn 

replies, "AU of us hospitals 

have the same compensation 

consultants, so I guess it's a 

self-fUlfilling prophecy," 

Whatever the origins of the 

compensation rates, the pfQ~ 

spec-tos that Sloan*Kettering's 

bankers and iaw~rs used to 

sell the bonds that helped 

finance those suburban clinics: 

struck a tone that Is at odds 

with the daily sight of men and 

women rushing through the 

halls of Sloan-Kettering doing 

God's work. The halls may be 

sprinkled with cheerful post· 

ers aimed at patIents. but the 

prospectus is sprinkled with 

phrases like market share, improved pricing and rate and voJ~ 

ume increases. Then again. the 

same prospectus describes the 

core of the business this way: 

"higher five-year survival rates 

for cancer patients as cum· 

pared to other institutions:' 

51 
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~ I The Bill for Taxpayers I 

reports that it buys every year. It's about mail-orderdiabet· 

ic supplies, wheelchairs, home medical beds and personal 

oxygen supplies too. Medicare spends about $15 billion 

annually for these goods. 

In the areas of the country where Medicare has been allowed by Congress to conduct a competitive-bidding pilot 

program. the process has produced savings of 40%, But so 

far, the pilot programs cover only about 3% of the medical 

goods seniors typically use. Taking the program nationwide 

and saving 4o%oftheentire $15 billion would mean saving 

$6 billion a yearfortaxpayers. 

The Way Out 

Of the Sinkhole "I WAS DRIVING THROUGH CENTRAL FLORIDA A YEAR OR TWO 

ago," says Medicare's Blum. "And it seemed like every billboard I saw advertised some hospital with these big shiny 

buildings or showed some new wing of a hospital being 

constructed ... So when you tell me that the hospitals say 

they are losing money on Medicare and shifting costs from 

Medicare patients to other patients, my reaction is that Central Florida is overflowing with Medicare patients and all 

those hospitals are expanding and advertising for Medicare 

patients. So you can't tell me they're losing money ... Hospitals don't lose money when they serve Medicare patients." 

If that's the case, I asked, why not just extend the program to everyone and pay for it all by chargingpeopleunder 

65 the kinds of premiums they would pay to private insurance companies? "That's not for me to say," Blum replied. 

In the debate overcontrollingMedicare costs, politicians 

from both parties continue to suggest that Congress raise 

the age of eligibility for Medicare from 65 to 67. Doing so, 

they argue, would save the government tens of billions of 

dollars a year. 50 it's worth noting another detail about the 

case of Janice 5., which we examined earlier. Had she felt 

those chest pains and gone to the Stamford Hospital emergencyrooma month later, she would have been on Medicare, 

because she would have just celebrated her 65th birthday. 

Ifcovered by Medicare. Tanice S:s $21,000 bill would have been deeply discounted and, as is standard, Medicare would 

have picked up So% of the reduced cost. The bottom line is 

that Janice S. would probably have ended up paying $500 

to $600 for her 20% share of her heart-attack scare. And she 

would have paid only a fraction of that-maybe $Ioo-if, 

like most Medicare beneficiaries, she had paid for supplemental insurance to cover most of that 20%. 

In fact. those numbers would seem to argue for lowering 

the Medicare age. not raising it-and not just from Janice S:s 

standpoint but also from the taxpayers' side of the equation. 

That's nota liberal argument for protecting entitlements while 

the deficit balloons. It'sjustamatterofhardheadedarithmetic. 

As currently constituted, Obamacare is going to require 

people like Janice$. to get private insurancecov,erage and will 

subsidize those who can't afford it. But the cost of that private 

insurance-and therefore those subsidies-will be much 

higher than if the same people were enrolled in Medicare 

at an earlier age. That's because Medicare buys health care 

services at much lower rates than any insurance company. 

52 

Thus the best way both to lower the deficit and to help save 

money for people like Janice 5. would seem to be to bring her 

and other near seniors into the Medicare system before they 

reach 65. They could be required to pay premiums based on their incomes, with the poor paying low premiums and the 

better off paying what theymighthavepaida private insurer. 

Thosewhocanafforditmightalso herequired to pay a higher 

proportion of their biUs-say. 25% or 300f0-rather than the 

20% they're now required to pay for outpatient bills. 

Meanwhile, adding younger people like Janice S. would 

lower the overall cost per beneficiary to Medicare and help 

cut its deficit stillmore, because younger members are like· 

lier to be healthier. 

From Janice s:s standpoint, whatever premium she 

would pay forthis age-64 Medicare protection would still be 

less than what she had been paying under the COBRA plan 

that she wished she could have kept after the rules dictated 

that she be cut off after she lost her job. 

The only way this would not work is if 64-year·olds start· 

ed using health care services they didn't need. They might 

be tempted to. because, as we saw with Alan A" Medicare's 

protection is so broad and supplemental private insurance 

costs so little that it all but eliminates p<l.tients' obligation to 

pay the 20% of outpatient-care costs that Medicare doesn't 

cover. To deal with that, a provision could be added requiring that 64-year·olds taking advantage of Medicare could 

not buy insurance freeing them from more than, say, 5% or 

10% of their responsibility for the bills, with thepercentage 

set according to their wealth. It would be a similar, though 

more stringent, provision of the kind I've already suggested 

for current Medicare beneficiaries as a way to cut the cost of 

people overusing benefits. 

If that logic applies to 64·year·olds, then it would seem to 

apply even more readily to healthier 40·year-olds or IS-yearoIds. This is the single-payer approach favored by liberals 

and used by most developed countries. 

Then again, however much hospitals might survive or 

struggle under that scenario, no doctor could hope for anythingapproachingtheincome heorshedeserves{and that will 

make future doctors want to practice) if IOo%oftheirpatients 

yielded any thing close to the low rates Medicare pays. 

"If you could figure out a way to pay doctors better and 

separately fund research '" adequately, I could see where a single-paye . " 

saysGunn, 

certainly be 

hundreds of people sitting around filling out dozens of different kinds ofbiUs for dozensofinsurancecompanies." Maybe, 

but the prospect of overhauling -our system this way. displac· 

ing all the private insurers and other infrastructure after all 

these decades, isn't likely. For there would be one group of 

losers-and these losers have lots ofclout. They're the health 

care providers like hospitals and cr·scan·cquipmentmakers 

whose profits-embedded in the bills we have examinedwould be sacrificed. They would suffer because of the lower 

prices Medicare would pay them when the patient is 64, compared with what they are able to charge when that patient is 

either covered by private insurance or has no insurance at alL 

That kind of systemic overhaul no.t only seems unrealistic but is also packed with all kinds of risk related to 

Pootograpb by Nick Veasey for 11M! 
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.... 1 The Bill for Taxpayers 1 

the microproblems of execution and the macro issue of giving government all that power. 

Yet while Medicaremaynot be arealisticsystemwidemodel for reform, the way Medicare works does demonstrate, by 

comparison, how the overall health care market doesn't work. 

Unless you are protected by Medicare, the health care 

market is not a market at all. It's a crapshoot. People fare differentlyaccordingtocircumstancestheycanneithercontrol 

nor predict They may have no insurance. They may have 

insurance. but their employer chooses their insurance plan 

and it may have a payout limit or not cover a drug or treatment they need. They may ormay not be old enough to bean 

Medicare or. given the different standards of the sostates, be 

poor enough to be on Medicaid. If they're not protected by 

Medicare or they're protected only partly by private insurance with high co-pays, they have little visibility into pricing, let alone control of it. They have littlechoiceofhospitals 

or the services they are billed for, evenifthey somehow know 

the prices before they get billed for the services. They have 

no idea what their bills mean, and those who maintain the 

chargemasterscouldn'texplain them if they wanted to. How 

much of the bills they end up paying may depend on thegen. 

erosity of the hospital or on whether they happen to get the 

help of a billing advocate. They have no choice of the drugs 

that they have to buy or the lab tests or CT scans that they 

have to get, and they would not know what to do if they did 

have a choice. They are powerless buyers in a seller's market 

where the only sure thing is the profit of the sellers. 

Indeed, the only player in the system that seems to have 

to balance countervailing interests the way market players 

in a real market usually do is Medicare. It has to answer to 

Congress and the taxpayers for wasting money, and it has to 

answer to portions of the same groups for trying to hold on to 

moneyitshouldn'1. Hospitals, drug companies and othersuppliers,even the insurance companies, don't have those worries. 

Moreover, the only players in theprivatesectorwhoseem to 

operate efficiently are the private contractors working-dare 

I say it?-under the government's supervision. They're the 

Medicare claims processors that handle claims like Alan A.'s 

for 84¢ each. With these and all other Medicare costs added 

together, Medicare's total management, administrative and 

processing expenses are about $3.8billion for processing more 

than a billion claims a year worth $550 billion. That'sanoverall administrative and management cost of about two-thirds 

of 1% of the amount of the claims,oriessthan $3.8operclaim. 

According to its latest SEC filing, Aetna spent $6.9 billion on 

operatingexpenses(includingclaims processing,accQunting, 

sales and executive management) in 2012. That's about $30 for 

each of the 229millionclaimsAetna processed, anditamounts 

to about 29% of the $23.7 billion Aetna pays out in claims. 

The real issue isn't whether we have asingle payerormultiple payers, It's whether whoever pays hasa fairchance in a 

fair market. Congress has given Medicare that power when 

it comes to dealing with hospitals and doctors, and we have 

seen how that works to drive down the prices Medicare pays, 

just as we've seen what happens when Congress handcuffs 

Medicare when it comes to evaluating and buying drugs, 

medical devices and equipment. Stripping away what isnow 

the sellers' overwhelming leverage in dealing with Medicare in those areas and with private payers in all aspects of 

54 

the market would inject fairness into the market. We don't 

have to scrap our system and aren't likely to. But we can 

reduce the $750 billion that we overspend on health care 

in the u.s. in part by acknowledging what other countries 

have: because the health care market deals in alife-or-death 

product, it cannot be left to its own devices. 

Put simply, the bills tell us that this is not about interfering in a free market. It's about facing the reality 'that 

our largest consumer product by far-ane-fifth of our 

economy-does not operate in a free market. 

So how can we fix it? 

Changing 

Our Choices WE SHOULD TIGHTEN ANTITRUST LAWS RELATED TO HOSPItals to keep them from becoming so dominant in a region 

that insurance companies are helpless in negotiating prices 

with them. The hospitals' continuing consolidation of both 

lab work and doctors' practices is one reason that trying to 

cut the deficit by simply lowering the fees Medicare and 

Medicaid pay to hospitals will not work. It will only cause 

the hospitals to shift the costs to non-Medicare patients in 

order to maintain profits-which they will be able to do 

because of their increasing leverage in their markets over 

insurers, Insurance premiums will therefore goup-which 

in turn will drive the deficit back up. because the subsidies 

on insurance premiums that Obamacare will soon offer to 

those who cannot afford them will have to go up. 

Similarly. we should tax hospital profits at 75% and have 

a tax surcharge on aU nondoctor hospital salaries that exceed, say, $750,000. Why are high profits athospitals regarded as a given that we have to work around? Why shouldn't 

those who are profiting the mostfromamarket whose costs 

are vktimizingeveryoneelsechipin to help? Ifwe recouped 

75('1}o of all hospital profits (from nonprofit as well as forprofit institutions), that would save over $80 billion a year 

before counting what we would save on tests that hospitalS 

might not perform if their profit incentives were shaved. 

To be sure, this too seems unlikely to happen. Hospitals 

may be the most politically powerful institution in any congressional district. They're usually admired as their community'S most important charitable institution, and their influential stakeholders run the gamut from equipment 

makers to drug companies to doctors to thousands of rankand-file employees. Then again, if every community paid 

more attention tothose administrator salaries, to those nonprofits' profit margins and to charges like $77 for gauze pads, 

perhaps the political balance would shift. 

that<:onsidersactuaiand thoroughly transparent costs? After 

all,hospitalsaresupposedto be government-sanctionedinstitutions accountable to the publi-c. Hospitals love the charge· 

master because it gives them a big number to put in front of 

rich uninsured patients (typically from outside the U.S.) or, 

as is more likely, to attach to lawsuits or give to bill collectors, 
97 

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Insert offset folio 66 here 80922.066

establishing a place from which they can negotiate settlements. It's also a great place from which to start negotiations 

with insurance companies, whichaJso love the chargemaster 

because they can then make their customers feel good when 

they get an Explanation of Benefits that shows the terrific 

discounts their insurance company won for them. 

But for patients, the chargemasters are both the real and 

the metaphoric essence of the broken market. They are any· 

thing but irrelevant. They're the source of the poison coursing through the health care ecosystem. 

We should amend patent laws so that makers of won~ 

der drugs would be limited in how they can exploit the 

monopoly our patent laws give them. Or we could simply 

set price limits or profit-margin caps on these drugs. Why 

are the drug profit margins treated as another given that 

we have to work around to get out of the $750 billion annual 

overspend, ratherthan a problem to be solved? 

rust bringing these overall profits down to those of the 

software industry would save billions of dollars. Reducing 

drugmakers' prices to what they get in other developed 

countries would save over $90 billion a year. It could save 

Medkare-meaningthe taxpayers-more than $25 billion 

a year. or $250 billion over 10 years, Depending on whether 

that $250 biHion is compared with the Republican or Democratic deficit-cutting proposals, that's a third or a half of the 

Medicarecuts now being talked about. 

Similarly. we should tighten what Medicare pays for CT 

or MRI tests a lot more and even cap what insurance com~ 

panies can pay for them. This is a huge contributor to our 

massive overspending on outpatient costs. And we should cap profits on lab tests done in-house by hospitals or doctors, 

Finally, we should embarrass Democrats into stopping 

their fight against medical-malpractice reform and instead 

provide safe-harbor defenses for doctors so they don't have 

to order a CT scan whenever, as one hospital administrator 

put it. someone in the emergency room says the word head. 

Trial lawyers who make their bread and butter from civil 

suits have been the Democrats' biggest financial backer for 

decades. Republicans are right when they argue that tort 

reform is overdue. Eliminating the rationale or excuse for 

all the extra doctor exams, lab tests and use of cr scans and 

MRIs could cut tens of billions of dollars a year while drastically cutting what hospitals and doctors spend on malpractice insurance and pass along to patients. 

Other options are more tongue in cheek, though they Hlustratethe absurdityoftheholewe have faHeninto. We could 

limit administrator salaries at hospitals to five or six times 

what the lowest·paidlicensed physician gets forcaringforpatients there. Thatmight take care of the self-fulfilling peer dynamkthatGunn of Sloan-Kettering dted when he explained, 

"We all use the same compensation consultants. "Then again, 

it might unleash a wave of salary increases for junior doctors. 

Or we could require drug companies to include a promi+ 

nent. plain-English notice of the gross profit margin on the packaging of each drug, as well as the salary of the parent 

company's CEO. The same would have to be posted on the 

company's website. If nothing else. it would be a good test of 

embarrassment thresholds. 

None of these suggestions will come as a revelation to 

the policy experts who put together Obamacare or to those 

TIME March 4. 2013 

before them who pushed health care reform for decades. 

They know what the core problem is-lopsided pricing and 

outsize profits in a market that doesn't work. Yet there is 

little in Obamacare that addresses that core issue or jeopardizes the paydays of those thriving in that marketplace_ In 

fact, by bringing so many new customers into that market 

by mandating that they get health insurance and then providingtaxpayer support to pay their insurance premiums, 

Obamacare enriches them. That, of course, is why the bill 

was able to get through Congress. 

Obamacare does some good work around the edges of the 

core problem. It restricts abusive hospital-bill collecting. It 

forces insurers to provide explanations of their policies in 

plain English. It requires a more rigorous appeal process conducted by independent entities when insurance coverage is 

denied. These are all positive changes, as is putting the insurance umbrella overtens of millions more Americans-a 

historic breakthrough, But noneofit isa path to bending the 

health care cost curve. Indeed. while Obamacare's promotion of statewide insurance exchanges may help distribute 

health~insurance policies to individuals now frozen out of 

the market, those exchanges could raise costs, not lower 

them, With hospitalsconsoUdatingbybuying doctors' practices and competing hospitals, their leverage overinsurance 

companies is increasing. That's a trend that will only be ac· 

celerated if there are more insurance companies with less 

market share competing in a new exchange market trying 

to negotiate with a dominant hospital and its doctors. Similarly, higher insurance premiums-much of them paid by 

taxpayers through Obamacare's subsidies for those who 

can't afford insurance but now must buy it-will certainly 

be the result of three of Obamacare's best provisions: the 

prohibitions on exclusions for pre..existing conditions, the 

restrictions on co-pays for preventive care and the end of 

annual or lifetime payout caps. 

Put simply, with Obamacare we've changed the rules 

related to who pays for what, but we haven't done much to 

change the prices we pay. 

WHEN· YOU FOLLOW THE MONEY, YOU SEE THE CHOICES 

weve made, knowingly or unknowingly. 

Over the past few decades. we've enriched the labs, drug 

companies. medical device makers, hospital administrators and purveyors of cr scans, MRIs, canes and wheelchairs. 

Meanwhile, we've squeezed the doctors who don't own 

their own clinics, don't work as drug or device consultants 

or don't otherwise game a system that is so gameable, And 

of course, we've squeezed everyone outside the system who 

gets stuck with the bills. 

We've created a secure. prosperous island in an economy 

that is suffering under the weight of the riches those on the 

island extract. 

And we've allowed those on the island and their lobbyists 

and allies to control the debate. diverting us from what Gerard Anderson, a health care economist at the Johns Hopkins 

Bloomberg School of Public Health, says is the obvious and 

only issue: "All the prices are too damn high." • 

Brill, the author of Class Warfare: Insidethe Fight to Fix Ameri" 

ea's Schools, is the founderofCourt TV and the-American Lawyer 

55