Have a cursing thread about Health Care in the US

I'd rather regulate the banking industry to the level we regulate doctors than regulate doctors to the level we regulate the banking industry.

But that issue, along with the issue of malpractice insurance / reform, is minuscule compared to the larger problems.

I'm having trouble figuring out how you get to this conclusion. For example, how do you get $50M for admin & insurance? Also, the author himself says that that balance is income to doctors and administrators and hospitals and pharma companies; so where is there more detailed information showing how much of this is going to salaries? I mean, if one example cost driver is performing 50% more procedures and paying 5x as much (from the article), this isn't a salary issue is it?

The linked PDF here doesn't seem to indicate paychecks are the culprit although it does clearly show Americans seem to want to buy more and higher priced care without true perception of value. Does that mean higher doctor salaries or does that just mean twice as many super-expensive tests just in case? It reads to me more of the latter than the former (note the terms "discretionary" and "diagnostic" coming up frequently).

Note further that the outpatient section covers dentistry as well. And nurses and support techs and plenty of other salaries who, I don't believe anyone here would agree are corporate fat cats living on the health care tit. Honestly I would like to see how you calculate the 2/3-as-salaries thing, that's all. Just the mathematics, not agreeing or disagreeing or politics or anything else.

The UC system is severely hampered by funding trouble right now, a significant chunk of which comes from the state. As an alum, I receive e-mails at least monthly (used to be semi-annually) stumping for donations right now. It's pretty fucking insane. In the meantime, non-UC schools are definitely building out their programs and this will lead to a whole different supply in ten years or so when they all get up to snuff. University systems are amazing in that they take long-term views to progress the way I wish other corporations would, but unfortunately because of the service they offer it may not be socially optimal in every case.

eta: just to clarify this is due to recent "austerity" measures in California; it's easier to get cuts in higher education than other areas due to how entitlements and other long-discussed screwiness in our state's political system work.

The graph is confusing, but near as I can tell, there's 450 million of "excess spending". The dark blue is the excess amount, totalling 650; health administration & insurance has 91 = ~100 extra. Unless I'm missing something inpatient and outpatient is 66% of excess.

Inside that bucket you have a bunch of stuff that's basically just "pay people money for services, e.g. hourly, per-procedure, or salaries." It's possible it's not doctors, I haven't seen a breakdown of that category, but given that we already know doctors get paid 50% more than OECD it's a likely target.

I understand your basal calculation of ~450M. What I wrote three paragraphs asking is how you figured all of that goes to salaries.

I'm guessing based on process of elimination, because everything else seems to be covered in another category. All disposable and non-disposable equipment is in others; investment is others; administration is others, etc. I guess it might include operating expenses like rent or power or something, but I can't imagine that hospitals pay uniquely high prices for that.

So you're left with either way too many procedures, or way too much cost/procedure, or some mix.

Your article itself says what it is. This will be the second time I've repeated it to you: "Needless to say, although this may be excess spending to you and me, it's excess income to doctors, nurses, hospitals, and the pharmaceutical industry." (emphasis his) Income to hospitals and pharma companies is a big chunk that is clearly differentiated away from salaries.

Yes, which is a point your article and the PDF linked in my last reply (from the article) say. What they don't say, and in fact what I read as being careful to avoid saying, is SALARY SALARY SALARY. The OP article also has a whole section on why they would order the much more expensive "nuclear option" CT (as the guy called it on page 2) instead of the regular one: decreased liability insurance cost. So charging more to the patient also reduces cost under insurance; it's a dual juice to the P&L.

Honestly you might want to re-read the article from the OP again. Here's a choice bit from page 2:

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 the chargemaster plays in our national medical crisis — and helps us understand the illegitimacy 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 Stamford $13.94 for each troponin test rather than the $199.50 Janice S. was charged.

Janice S. was also charged $157.61 for a CBC — the complete blood count that those of us who are ER aficionados remember George Clooney ordering several times a night. Medicare pays $11.02 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 $11.02 plus 10% to $157.61. Yes, every hospital administrator grouses about Medicare’s payment rates — rates that are supervised by a Congress that is heavily lobbied by the American Hospital Association, which spent $1,859,041 on lobbyists in 2012. But an annual expense report that Stamford Hospital is required to file with the federal Department of Health and Human Services offers 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.

That right there says the expected (Medicare) cost includes salaries. I'm just... Having read the articles linked, I think it is grossly irresponsible and facile to say that Welp we don't have better info from five minutes of reading so it must be the case that the main problem* with healthcare costs must be paychecks to fatcat doctors and nurses! Actually it's hilarious to opine that nurses are overpaid but that's a separate topic.

*where problem is defined as the variance to expected cost for US to others as weighted by PPP, yes yes yes

That was just my guess, if you think it includes non-wages ok.

Let me just say that this is a great thread and I love all the information being tossed back and forth in here. It's refreshing to see a discussion of the US healthcare industry that consists of more than just blaming insurance companies for being greedy (or poor people for soaking the system with their free-riding.)

There are obviously a lot of inefficiencies in the healthcare market, but I don't think taking money out of the provider side is much of a solution. That strikes me as more likely to drive people out of the provider fields. There are already so many barriers to becoming a healthcare provider in the US. Reducing the reward you get for doing it is obviously going to discourage people who might otherwise go into those professions. Some of the suggestions--dissolving the AMA (which is essentially a union), making the education side of the equation less expensive to get into, etc.--they're interesting and provocative, but touch on much larger issues than direct efforts to control costs in the healthcare industry.

And even though most of us have a pretty good idea of what would help fix the problems in our system, as a country we seem to be unwilling to follow the successful examples of others. In our typically American fashion, we insist on doing everything our own way, despite all the evidence that the status quo doesn't work that well. It delivers high-quality care in a timely manner to those who can afford it, but leaves those who can't in the dust. Worse than that, the Calvinist heritage that pervades our value system lets us convince ourselves that people who are poor and suffering deserve it, because they have done something to earn such a fate. That is, I suspect, why so many are content to let their fellow citizens suffer and die for lack of adequate medical care.

What you will see a lot of are people suggesting things that are not silver bullets, but opinions of the best we could reasonably accomplish in the current climate. Single payer would fix a ton of shit that's broken here, but it's also not very likely for another decade at least.

I'm not really advocating taking money out of the provider side, as much as trying to remove incentives for poor behavior. I would absolutely love for all hospitals to switch to a salary system and have people expect that to be the norm instead of fee for service. Right now there's little reason to find lower cost ways of doing things because the higher cost ways are higher profit (since you're billing all the cost of the materials and time to someone else, and there's little market control for people to choose the lower cost alternative that they may or may not know exists or works), but in addition to switching doctors you'd also need insurance and medicare to step in and aggressively push back on expensive treatments when inexpensive and just as effective variants are available.

None of this is a silver bullet, however. Costs will be pretty much out of control until we accept that insurance is a poor model for healthcare, and healthcare is pretty much just a needed utility like water.

I agree completely that the insurance model no longer applies to healthcare. I would certainly be in favor of something like just expanding the Medicare tax to provide that coverage to everyone. Although I would also favor a dramatic simplification of Medicare itself, because its various rules generate a lot of inefficiency, confusion, and waste. For instance, go read the rules governing the Part D phases. Thankfully, Obamacare is getting rid of the "doughnut hole" gap phase and simplifying that whole area, but it's indicative of the kind of nonsense that permeates Medicare, because it is such a conglomeration of compromises, half-baked (but generally well-intentioned) ideas, and oodles of historical cruft. It also doesn't help that CMS tends to vacillate between being asleep at the wheel and running around looking for insurers to thrash, depending on who is running the executive branch at the time. Essentially, I think consolidating down to a single-payer would be a big help, but the reform should by no means end there.

That's the thing really. IF Medicare could be monitored better AND if more procedures and so forth were approved, Medicare would be a really good system. It's not poorly designed, just poorly/mediocre-ly implemented, more is the pity.

And yet: better in almost every way than the current system!

Mostly because it's forced to be pretty transparent and constantly under scrutiny, and running without a profit motive.

I really like Medicare. For it's occasional faults, it's an amazingly well run system. It's just got it's hands tied all over the place.

Who the fuck cares? There's already a massive glut of people wanting to be doctors. You could chop that number fourfold without actually reducing the number of doctors.

Also if (as almost certainly is the case) providers are pocketing a metric shitton of rents, you can cut those rents down without changing supply.

You'll note I mentioned "healthcare providers," not "doctors." Doctors are only one possible profession under that umbrella. Most people who are healthcare providers of one sort or another are not making astronomical salaries.

Also, just because there is a "glut" of people wanting to be doctors, doesn't mean all of them are competent to be doctors. While I do not support the obscene debt loads people take on to become doctors, I do think the entire process should be very difficult and rigorous in order to weed out those who aren't up to it. Being a doctor isn't a 9-to-5 sit-on-your-ass-and-stare-at-a-computer-screen kind of job, it's difficult and demanding, often with crazy (and excessive) hours, where mistakes can cost you lives, your career, as well as a lot of money. I'd be very surprised if even 1/4 of those who "want" to be doctors are actually up to snuff, if the financial investment were to be removed as an issue.

This, I would generally agree with.

More people die from bad engineering decisions than from doctors every year. An engineer sitting in a comfortable chair with a 9-to-5 job who makes a mistake on a bridge might kill hundreds of people. I therefore call bullshit.

The process should be rigorous. That doesn't mean it should be soulcrushingly difficult or that people should be building their college careers around taking the "right" classes so that they can have their perfect GPAs and recommendations to apply to med school with.

Frankly, I'd like more doctors partly so that the doctors we have don't work such long hours that they're constantly staggering around making sleep-deprived judgment calls. Even if they're not working 9-5, I really and truly and earnestly want the people treating me during a medical crisis to be well-rested if it's at all possible. "Adding more doctors" seems like one way to help the existing ones only work reasonable amounts of time each day/week.

One interesting thing is many HCPs I've talked to prefer working through Medicare for reimbursement far more than private insurers. For most private insurers, the general reimbursement rates are based on Medicare rates, sometimes even minus a small discount. But its not even that discount that gets the HCPs. Its that private insurers make fighting over billing codes as a practice of business, wasting a lot of time for the HCPs as they engage in billing disputes. You just get reimbursed faster with Medicare...

Having more doctors doesn't mean that hospitals would hire more doctors. Most hospitals have probably hired the "right" number of doctors already - enough to get the work done while being able to maintain the high salaries of the top administrators.

The "nice" thing about Medicare is that most claim adjudication is done through electronic submission files, and Medicare simply accepts or rejects each claim in the file. A rejection reason is also included, and oftentimes you can massage the data to get Medicare to pay the claim. You can do this as many times as you want (so long as the claim submission window is open for the billing period in question) to try to get a maximal number of claims to pay.

From the initial article, there was a reference to a new group in Medicare dedicated to bounty hunting and reclaiming costs from bad billing codes and the like. Basically, fighting over codes like normal insurance, only at the post-payment step. Anyone had experience with them and how it works or interferes with the system?

I like the idea of auditors after the fact (pay the docs in a timely manner, come back and ask questions if needed afterwords seems like an easier way to make sure proper billing is rewarded with immediate pay), but having no actual insight into the system I feel like basing the auditor's pay on amount reclaimed is basically setting up an anal retentive douche patrol who aren't primarily concerned with the quality of service provided to the consumer and the doctors.

Having borne witness to CMS audits firsthand, I'm of two minds about this.

On the one hand, insurers are trusted with processing Medicare claims (at least with Parts B and D). In essence, we hand them taxpayer money in exchange for handling the administrative work of tracking membership, adjudicating claims, and all that. This is quite profitable for them, compared to entirely private coverage. They're also motivated to get the most money possible from Medicare, and they price and bill accordingly. To me, this should require a lot of accountability to make sure they aren't ripping off taxpayers through deliberate malice or wanton negligence. The latter is very common--insurance companies are huge and inefficient. They screw up all the time. CMS comes in and makes them clean up their act, and makes those mistakes costly so they are motivated not to do it again. At worst, CMS can even take away your Medicare contracts. In some cases, that amounts to losing millions of members--potentially hundreds of millions of dollars in revenue per year.

On the other hand, that accountability belongs to the federal government, and ultimately to all of us, so rewarding individuals for milking fines out of large insurers strikes me as counterproductive. You don't want to drive insurers away from administering Medicare plans, or there will be fewer and fewer companies willing to do it, because it's just not worth the hassle and potential financial risk. Granted, there is a balance to be had.

Finally, I can tell you that Medicare tends to be very receptive to complaints about poor service from a private insurer administering Medicare plans. All it takes is a small fraction of the membership complaining to CMS to get a full-blown audit rolling, and those audits can take months, look back through many years of claim activity, occupy a huge chunk of the insurer's staff (because they have to gather and analyze tremendous amounts of data), and result in fines reaching into eight figures or more.

I will say that CMS under Obama has been much more aggressive at stamping out insurer-level Medicare fraud than it was under Bush.

One of the emerging business models that kind of mitigates the hyperbolic costs of medical care are services - often laboratories or pharmacies - that sort of act as an ancillary or intermediary service. For instance, my practice is in a contract with a specialized lab that offers literally the most comprehensive lab test package I've seen. The cash pay price for all these labs totals over $3000, and there is essentially no insurance that would cover more than 2/3-3/4 of the tests, usually much less.

What this lab does is allow my office to charge the patient a one-time $100 copay that we collect, then the lab bills the patient's insurance company, collects whatever it can, and then also covers whatever the insurance can't pay. They obviously still make a tidy profit after all that or they wouldn't be doing this. And as of today after a few years, not one of our patients has been stuck with the bill. It's $100 flat, no muss no fuss. We also get a check per patient on the backside, something like an additional $40 per patient, so that's $140 and all we have to do is collect the blood and send it. They pay and supply all our lab supplies.

In the current climate of medical costs, it's a pretty decent win-win-win -win compromise. Doctor's offices can collect a nice POS fee, the patient can get labs for things they'd have no shot of affording, the lab makes out well and the insurance carrier is happy because they get taken care of. It'd be nice to see the model gain more traction, although obviously it's limited to diagnostic/consumable services. All the same, though.

Yes indeed, something like 6 billion in recovered fraud claim money last year.

More like $6b taken from job creators and redistributed to lazy welfare bums, amirite?

Sort of the anti-Quest diagnostic billing?

Lol, pretty much!

This issue infuriates me more than any other. More than the corrupt banking system in the U.S., more than the ridiculous real-estate bubbles we see all the time, more even than the oil industry and their obvious stranglehold on the U.S. economy. Those things are all rainbows and unicorns when compared to healthcare. Healthcare has become so insanely out of touch with reality that it literally threatens to topple the entire economy if it's not brought to heel.

Obamacare is not the answer. While I applaud Obamacare for it's intent (let's get America insured) it's only going to feed the beast that Healthcare has become. Why is Obamacare a failure before it even begins? Because it does NOTHING to curtail ridiculous provider costs that are the real problem with the healhcare system (as illustrated in the Time article). Here's what is going to happen under Obamacare:

1) Many companies will get out of the health insurance management role they've traditionally played for employees. Instead employees will be told to purchase insurance on the exchanges, and the rates they receive could vary widely based on many factors. Benevolent companies will take a large chunk of what they had been paying in health insurance costs and give it directly to the employees so they can offset the cost of purchasing their own insurance on the exchanges. Asshat corporations will pocket the money instead and force the employees to shoulder the burden while cutting fat bonus checks to executives.

2) Now that millions of Americans are insured through policies they bought directly from insurers, policies that are mandated by the government to have no annual or lifetime payout limits and no pre-existing condition exclusions, health insurance companies will be at far greater financial risk, so policy costs will skyrocket. Don't make the mistake of thinking you will get better or cheaper insurance under Obamacare. Chances are you'll end up paying more out of pocket, even if your company is kind enough to allocate the money they previously spent to insure you back to you for your exchange policy. This out of pocket expense may come in the form of higher premiums, or it may come in the form of a $10,000 or more deducible, meaning you better be socking away hundreds of dollars per month in a Helathcare Savings account because you now only have catastrophic insurance, and you'll be paying the charge for everything under $10,000.

3) Well that's not so bad you say, especially if I don't need $10,000 worth of care in a year. I can handle the $200 office visit and $25 prescription, even the occasional $2500 outpatient bill for my kid's broken arm or my wife's kidney stone. Well, those were yesterdays prices. Once Obamacare goes into play, as the article mentions, most providers will have renegotiated their discounts to insurance companies so that instead of paying 35% over Medicare rates the insurance company will have to pay 35% under chargemaster rates. That means an x-ray on a broken arm that Medicare would pay $50 for and insurance would have previously covered at around $68 is now going to be billed at the "discounted" insurance rate of $325, or 35% off the $500 chargemaster rate. Since you're on the High Deductable Health Care plan, YOU pay the "discounted" $325 and are expected to be happy you're not paying $500. Suddenly one broken arm or one trip to the ER with kidney stones can end up maxxing your $10,000 deductable, with the added bonus of putting you in the "high risk" category the following year (and thus increasing your premiums) even though the treatment was for something non-chronic and successfully treated.

Insurance companies will continue to post record profits. "Non-Proft" hospitals will continue to rake in 150% profit magins annually. Hospital Administrators, who on average have half the education and a quarter of the professional accreditation that doctors have, will continue to make annual compensation of $1 million or more for managing it all.

If we are going to get serious as a nation about fixing healthcare, and in turn saving our economy, there has to be regulation in this industry NOW. Chargemaster has to go, and reasonable rate tables set in place by a realistic study of fixed costs need to be applied to everyone, not just Medicare patients. There will still be plenty of room for profits, just profits in the 20%-40% range (as in most businesses), not the 100%-400% that is the norm in the industry now. That also means healthcare will finally feel the pinch of the real economy, and there will be staff reductions and perhaps even a CEO or two might have to take a severe pay cut (don't count on it though). Too fucking bad. Healthcare is only the growth industry it is because it's the vampire feeding off the blood of the rest of the economy, so time to drive a stake through it's heart.

Whether it'll work is an open question, but it does try some things. Jeff probably has better links, but there's quite a bit of experimental stuff in there to try to move to outcome-based or pay-for-performance, among other things.

About 1/6th of the population doesn't have insurance, I'm not sure how even covering all of them will make health care costs "skyrocket." Go with the the completely absurd assumption that they nothing whatsoever for health care, and ignore the Obamacare revenue tax increases, and assume that all of it is paid for by people who currently have health care. It'd increase costs from 5/6 * US population * per-capita health care spending to 6/6 * same dollars. In other words, about a one-time increase of 20, or about 4 years of "normal" health care spending growth. With more realistic revenue assumptions you get a much, much smaller number.

I guess the no limits + high deductible policies could theoretically lead to more spending and higher revenue costs as a result, but I'm not sure how no annual or lifetime limits + higher deductibles = automatically more spending. That'd be a complicated planning spreadsheet to answer.

I'm curious what definitions of profits you're using where a normal business makes 30% and health care 10 times that.

Single payer would be superior to the mess we have right now, but I don't know where you're getting any of this.

Wait, what? Who is getting these 100-400% profits in healthcare? Not the insurance companies.

I guess hospitals and some providers, though I think Slainte is exaggerating just a teensy bit. :)

Again it circles back to the fact that only a certain subset of the medical field is raking in high profit margins.

It's not complicated at all really. Right now the cost companies and their employees pay to insure themselves is fairly high relative to the benefits they receive in most cases. I happen to know for example that my employer, a small business, pays over $750,000 a year for the premiums on it's employees. When you factor out those employees who have insurance through their spouses and then factor in the family members of insured employees it comes out to be around 100 total people covered for the $750,000. That's $7,500 per person in annual premiums. This is for a HDHC plan, with a $5000 individual deductible and $10,000 family deductible. So that means that a person in the plan would need to incur $12,500 worth of qualified medical costs on themselves in a year before the insurance company even began to move into "loss" territory on that person. Now consider that this is the cost of insurance now, with the insurance companies having the liberty to exclude pre-existing conditions and deny insurance to people they deem unacceptable risks, and with the ability to set limits on annual and lifetime payouts. Obamacare removes the limits on annual and lifetime payouts, and it removes the ability of insurance companies to deny pre-existing conditions. That's going to expose the insurance companies to A LOT more risk. When insurance companies are exposed to risk, they raise rates across the board to counter that risk. If you don't think insurance rates are going to go up a whole lot more in response to Obamacare than you are in for a big surprise in 2014.

You need look no further than the article this thread is discussing. In that article the author takes a look at medical device manufacturers and compares them to Apple. He uses Apples own reported figures to gauge that they make about a 40% gross profit on the technology items they make. He then looks at medical equipment manufacturers and determines they make in the neighborhood of 75% gross profit. The article uses the example of a spinal implant that cost the medical manufacturing company $4,500 to produce. They sell it to the hospital for $19,000, a 300% gross profit. The hospital then charges the patient $49,000 for the implant (just the device, as part of an $87,000 outpatient surgery bill). The hospital just made another 150% gross profit on the sale of that device, and that's before adding in the profit for services and other items related to the implantation of the device. For more fun with profit margins, see my next answer.

No, not the insurance companies. In fact, the insurance companies are about to get screwed much like we have been for the past decade (yet another reason rates will climb). Up until recently insurance companies had the bargaining power. Because they brought thousands of patients into a hospital network, they were able to negotiate terms with the hospital systems whereby the insurance company would pay XX% more than Medicare standard rates on thousands of procedures and items. Smaller practices and hospital systems might only get 10-15% above Medicare rates, while larger healthcare systems might get 30-40% above Medicare. In recent years however, hospitals have been buying up private practices, medical groups have merged and hospital systems have combined or teamed up to the point where the suppliers are now holding more power than the insurance companies. When a large hospital system says "you'll accept these rates, or we'll drop you as an accepted insurer", the insurance companies are forced to agree to terms. Those terms are now going to be based on the insane Chargemaster system of provider pricing. Instead of 40% above Medicare, insurers will now be negotiating 40% lower than Chargemaster, which is a HUGE increase in costs.

So, who is getting 100-400% profits in healthcare? PROVIDERS. Read the article, the proof is everywhere. A hospital charges a patient $17 for a pill that costs $1.70 for a bottle of 100 on Amazon.com. $77 for guaze pads that cost $0.99 at the drug store. Those are just some of the most eye-opening examples, the list is endless. Hospitals routinely mark up common and uncommon items anywhere from 100% above cost to 1000% or more above cost. What's even more fun, they will double and triple dip. That pill you paid $5 for was part of an ICU kit that you were also charged $350 for despite the pill being in the kit. On top of that you're charged $5,750 per day to be in the ICU, a charge which should include the kit and the pill, but doesn't. When Medicare has determined that the cost of an X-ray, including the labor and overhead charges associated with it, should be $50, and the hospital charges you $300, THERE is your 500% markup. Try to convince me that doesn't equate to a 400% profit in the end.


Now you may argue that "well, nobody pays those rates, that's why we have insurance". Problem is, as detailed in the article, there are plenty of people who DO get billed at those rates, even with insurance. And it's only going to get worse unless something is done. Hospitals fully expect you to balk at their ridiculous rates and try to negotiate with them, but how many people know that and are willing to do so? Do you really want to start playing the "I'm not paying $X for Y" game when you are recovering from a serious injury or trying to survive cancer? Fuck that. Regulation is the only answer.

Slainte why are insurance companies all of a sudden automatically going to be paying below Chargemaster, instead of above Medicare? You keep asserting that, but I'm not really following the reasoning.

Usually you measure it by net profit margin...and looking at Yahoo Finance's list of profit margin by industry:

Major Pharma companies average 16.8% profit (ranked 19th); Non-major pharma companies are at 13.7%. Hospitals are at 4.7%. Accident & Health Insurance is 6%.

Health care industry makes money, no doubts. But I think perception is off from reality. Just think, by comparison, the beverage industry sits at 17.4%. Application software at 19.2%.

Clearly the health care industry is making 100-400% profit.

The hospital number is distorted pretty heavily; as the Time article makes clear a lot of the money hospitals net they just turn into fancy buildings (that nobody uses; there are a surplus of hospital beds in most markets) and lavish salaries for executives. They're technically running without profits, but a closer look indicates that they're very much collecting a megaton of rents.

I believe (thought I may be mistaken) Slainte's numbers (which are coming from the Time article) are representing the profit margin of various products as a ratio of the sale price to the marginal cost of production; he's not talking about the profit margin of the manufacturer as a whole. So e.g., the process of manufacturing a replacement foozle valve may cost $6,500 and the valve gets sold for $20,000 and that looks like a lot of money, but it doesn't reflect R&D, operational overhead, etc for the company making the foozle valve. The valve company is still quite profitable, but the x% profit per sale thing is kind of a misleading way to measure such things. Measured that way, Microsoft probably makes an enormous profit margin selling Windows 8 at $30.00 or whatevs; the marginal cost of production for a copy of Windows 8 probably approaches zero.

He made some assumptions about the per unit manufacturing cost, but mostly he was chatting about the markups. Medical Company A sells item for $5,000. Let's not assume too much about how much that actually costs in raw parts. His complaint is that Hospital B bills said part at $15,000. It's made a bit stranger in that the billing column they were using (cost of the item) they were not supposed to include cost to install/salaries/etc, and that's all supposed to be part of another fee. It's what the medical billing advocates were bitching about. The Surgeon may cost $300/hr, but the hospital uses iffy billing practices to bundle that $300/hr into multiple codes. So you paid the hospital fee (which includes the surgeon's costs), the surgery fee (which includes the surgeon's costs), and the medical device fee (which includes the surgeon's costs..)

It was also mostly complaining that non profit hospitals are the ones making absolutely stupid profits. (when compared to other industries or for profit hospitals)

It has to do with the consolidation of the healthcare industry over the past several years. The Time article touches on it briefly, and I don't have time at the moment to dig up other articles on the subject, but they are out there. Essentially, insurance companies used to be the larger, more dominant partner in the insurance-provider relationship. Insurance companies could tell small providers that "you'll accept XX% over Medicare rates or we'll drop you from our network", and since that would mean the loss of patients (and thus revenue), small and mid-size providers were loathe to complain. In recent years however there have been a lot of mergers, partnerships, buyouts and just plain consolidation among healthcare providers, with the most recent trend being that large hospital networks are buying up family medicine and specialty practices in large numbers. This has turned the tables, so that now the providers have the power. They can literally tell an insurance company "agree to our terms, or we will no longer accept your coverage", which may result in the loss of some patients from the provider's network, but chances are those patients would simply seek out insurance that WAS accepted instead, thereby costing the insurance company customers. This will be even more true once the new healthcare insurance exchange markets go into effect and consumer choice becomes much greater. So the tide is turning, meaning providers have the opportunity to charge INSURED people a great deal more than they have been able to in the past. Many industry experts believe the result will be negotiating down from Chargemaster as opposed to up from Medicare.


And yeah, I'm not saying that net operational profits at hospitals at 400%. I'm saying that there is tons of proof out there that markups on services, devices, tests and other facets of the provider system are easily in the 100%-400% or more range. Net profits at providers (even those claiming to be non-profits) are robust, and we're not even seeing the whole story as most providers take a good chunk of that money and sink it into new fancy buildings they don't need with beds they will never fill and into replacing medical equipment that hasn't even begun to serve it's useful lifespan yet. Artificially inflated operating costs are a time honored way to mask ridiculous profit margins.