Our Healthcare System is Bad Medicine

It's awful now, and Obamacare is making it worse.

Scragged has criticized Obamacare from the beginning, pointing out that the law is such a disaster that it should be repealed.

That said, our current current health care monstrosity is also such an enormous disaster that even the mammoth Obamacare bill wasn't able to attempt to address all its problems.

So as we move forward into a new presidential term where, inevitably, the cost of health care will be an ongoing suppurating sore, here are some of the lesser-known but still major problems that need attention.

Illegal Pricing Schemes

One of our friends passed on some medical bills.  In bragging about the discounts they negotiate with medical providers, his insurance company must not realize that they're co-conspirators in what is, or ought to be, an illegal price-fixing scheme:

Amount Billed Discount What Your
Plan Paid
% paid
$112.00 $47.98 $64.02 57%
$32.00 $18.39 $13.61 42%
$2,470.00 $738.32 $1,741.68 70%
$7,500.00 $4,011.64 $3,488.36 46%
$1,710.15 $383.07 $1,327.08 77%
$1,364.37 $703.38 $660.99 48%
$1,875.00 $1,610.94 $264.06 14%
$15,063.00 $7503.20 $7,559.80 49%

Hospitals have complained for decades that Medicare and Medicaid reimbursements are too low.  They tell us that they have to make up for their losses on government-funded patients by adding to the bills paid by patients like my friend who're covered by private insurance.

Let's take that statement as more or less true and assume that the actual sums the hospital got for the services they provided my friend covered their costs.  On that basis, some eye-popping revelations jump out from my friend's billing statements.

Look at the difference between what the hospital bills for the service and what the insurance company actually pays.  The insurance company has negotiated "discounts" so that they pay far less than the hospital bills them.  The percent of the bill that the hospital actually collects ranges from a low of 14% of $1,857.00 to a high of 70% of $2,470.  Overall, the insurance company paid just under half of what the hospital billed.

"So what?" you might ask.  "Isn't it OK for the hospital to give the insurance company a discount because of all the business they get?"

That might sound both sensible and rational - but in fact it's illegal.  Federal law states that is OK to give quantity discounts, but only if providing the service in larger quantities results in lower costs. Shipping an entire container-load of something across the country is obviously more efficient than sending one little box by UPS, so it makes sense that container shipping charger are cheaper per pound.

Nothing could be further from the truth in medicine.  Each and every time a hospital freezes off a wart or inserts a stent, the cost is pretty much the same regardless of how often they do it.  If there are differences in cost, it;s due to peculiarities of a particular patient; it matters not at all who's paying for it.

There might be cost advantages if the hospital had enough business to keep its operating rooms going 24/7, but doctors don't want to work nights or weekends. The same is true for any other expensive medical equipment - as long as there's enough call for the device to keep it more or less busy all day, more "sales" aren't going to lower the costs. There really aren't many economies of scale in medicine as practiced in the United States.

What's more, it makes no difference whatsoever to the hospital's cost whether a patient's bill is paid by an insurance company, by someone else, or by nobody - the actual cost to the hospital of providing the service is going to be exactly the same regardless. One could argue that dealing with the insurance companies is really more expensive, because of all the extra paperwork hoops the insurance companies make the hospital jump through. There is therefore no justification for hospitals giving discounts to insurance companies.

This price-fixing scheme benefits both hospitals and insurance companies, of course.  Insurance companies use the huge list prices to frighten people who don't have health insurance into buying it.  From the hospital's point of view, the more people who're covered by insurance, the more patients they get, because uninsured patients tend not to go to the hospital at all until they're at death's door.

Giving bogus discounts is a win for both parties which is why they do it.  Nobody cares about uninsured people who have to pay their own way.  If we assume that hospitals get enough from private insurance companies to cover not only their costs but enough more to make up for the cost of government patients, even though insured patients pay barely half of the list prices, how badly are the uninsured being gouged?  This is clearly unethical, but nobody seem to care.

Sara Palin Was Right

There's another matter that needs to be fixed.  During the Obamacare debates, Sarah Palin coined the phrase "death panels" to describe Mr. Obama's committees of unelected bureaucrats who'll decide what medical procedures would be paid for and what would not.

I have another friend who's covered by Medicare and has no other coverage.  He recently had a minor issue and called around to find a specialist.  None of the specialists in his area were accepting any more Medicare patients because Medicare doesn't pay enough.  They wouldn't take him because he didn't have any supplemental coverage.

"What if I pay myself?" he asked.

"We can't do that.  If you're covered by Medicare, you aren't allowed to pay for it yourself and we aren't allowed to accept your money."

Some years back, a New Hampshire resident needed a new lung.  Lung transplants are costly and he was so old that Medicare wouldn't pay.

Being of an independent turn of mind, he sold his house, held bake sales, scratched and scrambled, got the money, and went to the doctor with a certified check.  "I can't do it," the doctor said.  "I have Medicare patients; I'm part of their system.  If they won't pay for it, I'm not allowed to let you pay."

Talk about a death panel!  Medicare wouldn't pay so it was illegal for any doctor to save his life even though he had the money to pay for the procedure in cash upfront.  Few people realize that if you collect Social Security, the courts have ruled that you are required to sign up for Medicare, like it or not.  Once you do that, you aren't allowed to pay for treatment they don't approve even if you can afford it.

This is clearly a cost-saving measure.  By denying you the right to buy your own medical care, they system will save Social Security costs by making you die earlier than necessary.  The only thing wrong with Sarah Palin's statement is that Mr. Obama's death panels are already here, and in fact predate his rise to power by quite some years.

Is it any surprise that our lawmakers exempted themselves from Obamacare?

Will Offensicht is a staff writer for Scragged.com and an internationally published author by a different name.  Read other Scragged.com articles by Will Offensicht or other articles on Society.
Reader Comments

It looks like bad is going to be worse. This creates an opportunity for entrepreneurs, off shore hospitals, procedure junkets, etc. It's macabre but if one needed the procedure he would be glad that it is available. All you have to do is find out what Medicare won't cover, find a competent doctor to do the procedure and advertise.

obamacare must be repealed.

November 19, 2012 10:17 AM

I have long wondered if the insurance "discount" structure was just a ruse.

Consumers have been scratching their heads for awhile on why/how medical care costs so bloody much.

Yes, competition is small and regulations are high. But THAT much? Basic procedures are astronomical now. Getting an MRI is insanely expensive.

The fact that a machine costs a million bucks isn't a satisfactory reason. The local auto body shop has machines that cost tens of thousands of dollars yet small procedures are still just a few bucks. When you're running lots of volume through, prices drop. Hospitals are high volume by default.

Consider how steep a discount you get when paying with cash.

I continue to believe that the hospital/insurance reimbursement structure is nothing but a ruse.

November 19, 2012 10:23 AM

I just went on Medicare (turned 65). I am still paying part of the medical bills (Cost - discount - Medicare payment = my share). Before that time I negotiated a 20% discount for cash payment with the doctor's organization. My reasoning was that they discounted the insurance payments, then had to wait 6 weeks for payment. What was it worth it to them to get better cash flow? I am sure that the insurance/government was getting an even greater discount, but even small victories are nice.

Some may ask why I don't carry a medicare extension package. Same reason I didn't carry insurance - it is cheaper to pay your own way if you are not deadly sick and don't splurge on unnecessary healthcare. The drug benefit coverage is 99/month. I take 4 meds for hypertension and blood sugar. Monthly cost is < $20 using generics. Costco has the best prices by getting 3 months at a time, and membership is not required to use the pharmacy. When they as for the membership card at the door, just say you are here for the pharmacy. By law, the pharmacy is open to all.

November 19, 2012 11:06 AM

I am starting to notice the same thing. Except for young families that have pregnancy and toddler costs, it is beginning to make more and more sense to simply create a personal medical budget and sock your money away with a high deductible (10-15k) plan for any stratospheric problems. I recently found a 7k plan that covered every last thing after you pay 7k inside of one year. The savings on the premium equaled 6k. So it's a no-brainer. You put your 6k in the bank and save it, giving you a 6k buffer to use in case you have to use the medical plan and pay for the 7k deductible. Most years, you'd just end up pocketing the 6k at the end of the year, or most it. On any bad year, you'd only have to cough up another grand to get total coverage.

November 19, 2012 11:14 AM

My employer pays for everything health related and there is no deductible. I have no spouse or children. I've never seen how payments from the insurance company work. This is eye opening

November 19, 2012 5:47 PM

Just some big picture items:

One, heath insurance is overused and overbilled. If we could accept not going to the MD for sniffles or writing a 250$ check for setting a broken bone, a few low-end costs could get under control. The same is true with hugely generous employer-provided plans: there is no pressure on the employee / patient to keep his costs down where he can.

Two, consider my favourite example: my best friend bought a DVD player - player only - for close to 300$ in 1999. In 2007, I bought one with a timer and recorder like an old VHS system for 67$. Prices come down when you let them. Compare that to such industries as education, energy, medicine, transportation, etc, that have to do with a large degree of continuous government meddling and in which price increases are a permanent fixture.

November 20, 2012 6:25 AM

@Ifon - you are completely correct about insuring for big stuff and handling the little stuff yourself. If you set up a Health Savings Account, which exists over the Democrats' dead bodies, you can deduct what you pay for your insurance deductible.

They want everybody to be dependent on government for everything. Doctors often give discounts for cash, especially for small stuff.

November 20, 2012 5:33 PM

I was in intensive care from Sunday evening until Wednesday Morning with a bleeding ulcer. At discharge, by bill was $6,100 and change. I asked for an itemized bill. The employee asked me to wait a few minutes and left. In about 5 minutes he returned, and offered to discount the bill to $2,900 and change. I agreed, and offered to make monthly payments. He accepted quickly.
I am 66 years old, and have yet to pay one dime for Health Care Insurance. I was married and had two children. They suffered the same as other children, and when a doctor's care was needed, I paid in cash, usually with a discount of 20 to 50%.
94% of insurance premiums go to commissions and costs of the insurance companies. That figure was used by a company that was selling education to get an insurance sales license. Insurance is a fraud. Peace, Robert Walker

November 20, 2012 10:46 PM
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