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Healthcare industry follows Big Tobacco’s deadly blueprint

Healthcare industry follows Big Tobacco’s deadly blueprint

Picture of Steven Weissman

i. The Emperor's New Clothes

The healthcare industry’s dominance of our political process and lack of concern for public well-being, follows the same loathsome strategy employed by the tobacco industry. Healthcare is big business that aims to maximize profits. Healthcare economics, like the selling of tobacco in its heyday as a non-addictive, non-carcinogenic product, is based on manipulation of the political process, fraud and deceit.

As a vivid reminder as to how pursuit of profit can be removed from the norms of human decency, consider the day in 1994 when the CEO’s of all the major Tobacco Companies falsely testified under oath before Congress that nicotine is not addictive:

 

The actions of the tobacco industry, which included marketing to children, have been called, among other things, the most deadly crime in human history. The Centers for Disease Control and Prevention calculates that cigarette smoking is responsible for more than 480,000 deaths per year in the United States and that our healthcare system is dealing with more than 16 million Americans who are living with a disease caused by smoking.

Those who early on tried to expose the health risks of tobacco, or to expose other major scandals, such as Enron, WorldCom, Bernie Madoff or the near collapse of our banking system, were all greeted with skepticism, essentially ignored. For example, Madoff possessed the ultimate credibility and appeared to be above reproach. He was the past chairman of the NASDAQ Stock Market, a quasi-governmental organization charged with enforcing rules to protect the nation’s investors. Madoff’s respectability and credibility blinded the U.S. Securities and Exchange Commission, along with everyone else who was tipped off but refused to see what was right in front of them.

Continuing the pattern of frequent “unforeseen” scandals, the healthcare industry has used crony capitalism to enrich itself through a system that imposes unsustainable health cost misery on the people of the United States.  

Conventional wisdom, as promoted by industry supported politicians, lobbyists, researchers and other representatives, holds that determining the cause of skyrocketing costs poses an extraordinarily sophisticated and complex problem.

In actuality, our costs are sky high because U.S. law has been rigged to permit healthcare to be the only product or service sold without both real pricing and price competition. The industry foists upon our nation the highest cost medical care on earth, by a margin of at least 50% per-capita, while providing significantly lower quality than exists in other wealthy nations.

This is one of those times when the simple answer just happens to be the correct answer. In The Emperor's New Clothes two weavers sold a high priced suit of the most magnificent fabrics imaginable; with one extremely unique quality. The fabric was invisible only to those who were unfit for their positions or fools. When the emperor parades around, nobody dares to notice until a child cries out "But he isn't wearing anything at all!"

In seeking to justify its charges, the healthcare industry also weaves imaginary fabric. However, it is as plain to see as a naked emperor that the true reason for the nation’s health cost misery is the elimination of real pricing.

ii. The elimination of real pricing

Healthcare pricing has been rigged by the industry that pumps, by far, the most cash into Washington. The healthcare industry spends more on lobbying than the defense, aerospace, and the oil and gas industries combined.

Just as the tobacco industry sponsored false studies regarding the safety of cigarettes, the health industry has successfully used its resources to promote the false idea that healthcare services are too complicated to have actual prices.

Ask the price of anything and the answer is always the same: What insurance do you have?

A medical provider will charge each patient a different amount for the exact same service, depending on the individual’s insurance coverage. This system makes it difficult for a patient to shop for good value; and, assures that providers are exempt from the price competition to which all other businesses are subject.

The part of the Affordable Care Act that was intended to control insurance costs, perversely, incentivizes insurers to pay higher, not lower costs. Under the Act, premiums and profits are legally permitted to rise only as health costs rise. In short, when it comes to pricing, nobody is watching the store and the cash register is wide open.

Because actual billing rates are not set, the health industry is able to prey on patients when they are most vulnerable - - needing care. Those who are out-of-network or uninsured, are charged the highest rates.

The widely discussed concept of price transparency, in and of itself, cannot fix the health cost crisis. A simple blood test for cholesterol can range from $10 to $400 or more at the same lab. Hospitalization for chest pain can result in a bill from the same hospital for the same services ranging anywhere from $3,000 to $25,000 or more. Transparency would merely show that each healthcare provider charges extraordinarily wide-ranging different prices for each service it provides and continue to sow confusion over the real price. This kind of disclosure will not effectively enable any patient to shop and compare pricing.

With no real pricing for health services and the absence of normal competitive market pressure, of course healthcare costs are skyrocketing. The public is offered a variety of unlikely theories to explain ever higher costs: (a). the expense of technology (however, in all other industries technology has proven to increase efficiency and lower cost); (b). Government regulation (which is a cost in virtually every business); and (c). Malpractice claims and defensive medicine  (however, a comprehensive analysis from the Harvard School of Public Health found overall annual medical liability system costs, including defensive medicine, to be just 2.4 percent of total health care spending).

Studies show the U.S. health industry is providing worse care (in comparison to other wealthy nations), at an astounding 50% higher cost than the second highest cost nation per-capita.

A 2012 study by the Commonwealth Fund concluded, as most citizens already know, prices are too high: “this high spending cannot be attributed to higher income, an older population, or greater supply or utilization of hospitals and doctors. Instead, the findings suggest the higher spending is more likely due to higher prices. . .”

iii. Health insurers rely on predatory healthcare pricing to mislead the public and coerce the purchase of insurance

When any medical bill is incurred, health insurers ordinarily misrepresent that the insurance coverage resulted in a savings to the patient, namely, of the difference between the “list price” (sometimes referred to in the industry as the charge-master price) and the amount paid by the patient. However, list prices are billed only to the roughly 10% of patients who are not covered by any insurance or, are out of network. List prices are approximately 3 to 10 times more than the real prices billed to the 90% of patients who are insured and are widely recognized as phony, having no relationship to either cost or value.

To illustrate this point, consider a hypothetical scenario of a patient insured under a BlueCross policy. The patient has an MRI performed and pays a co-pay of $300 at the point of service. Several weeks later, the patient receives a statement from BlueCross stating that the “amount billed” for the MRI by the radiology center was $2,600 and the amount “allowed” was $375.00. BlueCross pays the $75 balance of the allowed amount, over the $300 co-pay paid by the patient at the point of service.

In this situation, following the usual routine of all insurers, the BlueCross statement sent to the patient will falsely represent that the patient saved $2,300, the difference between the “amount billed” and the $300 co-pay paid by the patient. In actuality, the $2,600 “amount billed” is a phony number and was never in play. The “allowed” amount ($375) is the pre-negotiated rate that the radiology center agreed to charge and gladly accepts from all BlueCross patients under the particular policy. Any patient willing to make a few phone calls to ask for a cash MRI price, including from the same center that BlueCross is telling you “billed” $2,600, would be likely get about the same $375 rate, give or take $100. So, on these facts, BlueCross actually pays a $75 benefit but tells the patient they saved him $2,300, giving the false impression that the insurance coverage proved itself of great value to the patient.

Once predatory healthcare pricing is understood, individuals will realize it is a very rare year in which the outcome of paying for health insurance is a real net positive.

For example, assume the cost of a family policy is $1,500 a month with a $6,000 deductible. If a family member has a serious illness resulting in a $100,000 hospital bill, the real price (i.e. allowed amount) may be just $20,000. So if the family paid $18,000 in annual premiums (i.e. $1500 per month) plus a $6,000 deductible, they are out-of-pocket $24,000. If not for the fact that predatory pricing is legal, without insurance, their bill would have been for a true market price equal to the $20,000 negotiated “allowed amount” (or less) and the total out-of-pocket cost would be the $20,000 true charge. Incredibly, with the typical phony “list price” $100,000 hospital bill, the patient would have had a net gain without insurance. This is not shown to recommend that individuals forego insurance, but merely to illustrate how the system has been sickeningly rigged by the industry.   

While I take no position as to whether the Affordable Care Act’s mandate was a good idea; it is clear that the decision to enact this legislation and much of the public acquiescence was premised on false information. By design, the healthcare industry is structured in a manner that constantly threatens consumers with the risk of incurring a phony list price bill, thereby driving frightened patients into the waiting arms of insurers.

Our laws have facilitated the cloaking of healthcare pricing under a veil of secrecy. In nearly all states, health insurers and providers routinely include gag provisions in their rate agreements. Neither party is permitted to disclose the rates that the insurance company has contracted to pay and that the provider agreed to accept. Such concealment hides the true market value of healthcare services and allows both insurers and providers to use the threat of “list prices” to stimulate both the purchase and subsidization of insurance.

Our elected representatives have sold out the nation by allowing healthcare providers a special exemption from the customary requirement of actually pricing products and services. This is the most vicious implementation of crony capitalism in our history. While there are no reliable statistics available on the number of people who forego doctor visits or avoid a necessary medical procedure due to cost, this national scandal is undoubtedly causing far more death, human suffering and personal bankruptcies, than any that came before.

iv. The Healthcare Industry Crushed Consumer Protection

Imagine you are at a department store and three people in line before you are each charged $19 for a particular shirt; but the same cashier charges you $175 for the exact same item. Everyone would recognize such conduct as outrageous. Only the health industry is legally permitted to impose random, predatory pricing for essential, life or death services.

Last summer, the New York Department of Consumer Affairs made national headlines when it forced Whole Foods to admit the company short-weighted customers. Our government employs thousands to protect us from being bamboozled on an ounce of ham or fruit or gasoline and in other areas as well, yet we are abandoned when it comes to healthcare pricing. 

Medical price gouging and fraud are so widespread that, to protect the U.S. treasury, there is a special Medicare Fraud Strike Force. However, individual non-Medicare patients are on their own and, because actual pricing is not disclosed, are unable to even learn what their price is supposed to be. If you eat at a restaurant with no prices on the menu, you really cannot protect yourself from being charged 10X higher than what you expected.

Citizens have no effective remedy to defend themselves against the industry that used political influence to write its own business rules. This is unfair and unsustainable, as well as un-American.

v. The Solution Is To End Predatory Pricing

The solution is for Congress to take action and require healthcare providers to bill all patients, insured and uninsured, the same amount for the same service. Hospitals, physicians and labs should have continued freedom to set their own prices, but predatory pricing - - a different rate for each patient - - must be prohibited. Patients should not be financially brutalized for being out-of-network or uninsured. Health insurers should not be permitted to mislead the public by falsely claiming credit for saving us from phony list prices.

When rates are set, patients will be able to shop for good healthcare value. Providers will be forced to compete based on price, quality and service. Healthcare costs and insurance premiums will plummet.

Politicians uniformly misdirect public attention to the cost of health insurance as the real problem. However, the cost of health insurance is simply a direct function of underlying medical costs. Debating ways to make the sale of insurance more efficient or subsidized merely sidesteps the truth and protects predatory pricing. To achieve a material reduction in the cost of health insurance, there necessarily must be a material reduction in the amounts paid out for physicians, hospitals, labs, and pharmaceutical companies. Health insurance costs will plummet when real pricing is required, which allows consumers to shop for fair value and requires providers to compete.

The healthcare industry’s abusive conduct and the tremendous misery it is causing, give a single payer system immediate appeal. However, do we really want to place our confidence in politicians to negotiate rates with the industry - - before at least giving competitive market pricing a chance? Free market pricing has proven to be the most efficient method of distributing goods and services ever known to humanity. We should give the proven system of market competition a chance before turning to a single payer system, where prices may be set in in smoke filled rooms, with healthcare lobbyists seated at the head of the table. Such a scenario, for many Americans, may evoke memories like the Pentagons purchase of $1,000 hammers and toilet seats.

Conclusion

In 2013, when my friend and client of 35 years died, I agreed to become interim president of the Miami hospital he founded a half century ago. I gained an insider’s view of the healthcare system and what I learned was sickening. I went public, vowing to seek reform.

I created a Change.org Petition (End Predatory Healthcare Pricing) which has garnered more than 100,000 signatures in a few short weeks. It is helping to galvanize support for the idea that to end skyrocketing health costs, it is essential to place real prices in the hands of patients. Thousands of public comments on the Petition (including many from people who identify themselves as physicians, nurses and others working in healthcare) are forming a growing and shameful diary of human suffering caused by industry overreach.

I also published a call to Hillary Clinton, Donald Trump, Gov. John Kasich and Senators Ted Cruz and Bernie Sanders to publically pledge support for outlawing predatory healthcare pricing. Voters need to know where the Presidential candidates stand on this vital issue.

Unless health services are required to have real prices, just like all other goods and services sold in the United States, free market competition will continue to be blocked and patients will remain unable to shop for good value. If this change is made, healthcare costs will plummet, causing health insurance rates to plummet as well. It really isn’t complicated.

 

Comments

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Late last year, I (reluctantly) visited our local emergency room. Our insurance at the time had a $500 deductible, and $100 co-pay for emergency room visits. My math tells me the bill should be $600, but the bill I received is for $796.00. This bill showed a list price of $2,794.89 for the visit. I don't feel that I can dispute this, since our health insurer informed me the following month that the ACA subsidized plan for which we were paying $87 a month, would no longer be available. The equivalent plan would cost over $400. I think that the next time I am injured or sick, I will be better off trusting Mother Nature and self-diagnosis via the Internet.

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Please outlaw predatory healthcare pricing!

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it's about time our government actually cared about the people who are paying their ridiculous salaries.

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After receiving my bill for my recent hospitalization, I was amazed at the obvious corruption in the healthcare industry. I was there for a total of 4 days. On days 1 & 2; I was charged the same cost for my breathing treatments ... but on days 3 & 4 the same treatment was a different price each time I received it. Upon discharge, I was prescribed Levaquin. Without insurance, 10 pills would cost me $178 at my local Kroger Pharmacy (I used goodrx.com and paid less than $20)...The hospital charged me $198 each for 2 pills!!

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Wonderful article about health care' predatory pricing.

However I don't see the comparison with Big Tobacco, other than the fact that CEO's of every major corporation in America, would sell their own mother for the right price. This includes health care, hospitals, non-profit Charities, and pharmaceutical companies. What about hungry journalists. ;) And we all know about politicians on both sides. It's all about $money$.

<b>Nicotine is NOT addictive.</b>
If the data contradict the theory, throw out the data: Nicotine addiction in the 2010 report of the Surgeon General
htp://www.harmreductionjournal.com/content/8/1/12

The choice to use tobacco (nicotine) can be compulsive, ....just like the desire for freedom to make choices that enhance life.

Once exposed, just try and take it away, ...and we humans exhibit signs of "stress". It becomes very compulsive.

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Time to fix the healthcare system. Preying on those that are vulnerable is totally unacceptable. Greed is powerful & evil. It astounds me that the healthcare system has no shame. Let's become stronger & unite to get pricing in line.

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This unfair pricing needs to stop. I should be able to shop the most important service of my life as I would with any other product.

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I support fair market competition in healthcare services and products.

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We need healthcare pricing reform and a single payer universal system.

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Proud of you, Steven. Makes me think some of your "personal" stuff was rigged...Back in the 80's when I was working the doctor's lounge in South miami to require "menus" at offices and ER and Admitting, I was chuckled at...the little quirky ENT, good but a pinko democrat. Medicare even "required" on penalty of law, that one's lowest price must be their price, even if lower than the fee formula. Absolutely ignored. Anyway, good work. If I can be of help, e-mail me. Jon

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I agree that the free competition in a healthy nation not corrupted by the Concept that the State have to supply all the services free of charge to everybody and not only to the really necessitate categories is the most correct way to get the best value in term of quality prices and opportunity.

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This is just one example of why people are so angry, frustrated, and have little faith in our USA government originally meant to represent all people, not just the rich and greedy.

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I signed the petition and I would like to add that drug pricing is as corrupt as hospital and insurance pricing.

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It's quite plain that our unique system of most people getting their health insurance subsidized by employers has kept us consumers unaware and apathetic about what was being charged by healthcare providers. At the same time these providers noticed no one was even looking at these charges nor could we see them easily, so they learned they could gouge away at us and we wouldn't even know about it - unless you suddenly were self employed and had to by your own insurance. No other country has this stupid system. Imagine what a boost it would be to the economy in general if those astronomical premiums could be spent on other products and services. Why don't other industries get upset about this and pressure the government to do something? This has gotten to the point where I'm thinking of moving abroad to escape this raping taking place on the sick. It's truly shameful and I really hope there is a hell for these perpetrators.

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Wonderful article about health care' predatory pricing.

However I don't see the comparison with Big Tobacco, other than the fact that CEO's of every major corporation in America, would sell their own mother for the right price. This includes health care, hospitals, non-profit "charities", and pharmaceutical companies. What about hungry journalists. And we all know about politicians on both sides. It's all about $money$.

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Very informative and I would like to share my story of high costs significantly reduced. I suffered a couple of years to what I thought was the return of Lupus due to not having insurance and remembering how much it all cost when I contracted it years earlier. Once on insurance I learned it was my hips and not Lupus that was causing my pain. Hip replacement was preformed costing me just under $2500. Total "list price" indicated on insurance documents was approximately $165,000 with insurance paying approximately $50,000 total. So, with no insurance I never would have had the surgery and would have lived with the excruciating pain and most likely would have committed suicide. I understand that full transparency and actual prices listed to the public would be good, however, I really would like to see a "single pay" medical system in the United States. This type of system would eliminate the "out of network" higher costs that would still exist with a better pricing system and a private insurance system that still has to produce profits for their shareholders.

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Signed this as soon as I saw it and posted it to my medical blog I do weekly and asked all to re-post to spread the word. I will again post a link to this longer article. As a patient with chronic illness I will have to treat for the rest of my life I wholeheartedly support this change. For decades I have questioned the disparity between the "real" price charged and the so called "allowed" amount and hope to see an end to it.

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The reason all this is allowed to go on is the insurance companies and healthcare lobby's are lining the pockets of the greedy congressional leaders.
It will be hard to get it under control because of that. They know if they pass laws to control healthcare pricing they will lose money. That's why congress is so resistant to reforming healthcare.

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This problem began when care of the sick began to be seen as a "business" and profit-making opportunity to be exploited, and fraternal mutual protection societies became businesses selling insurance policies for profit. Can it be said that these are early examples of "privitazation for personal and corporate profits" instead of been seen with a their historical roots as acts of Mercy, compassion and mutual support in time of suffering and need? The other phrase that comes to mind is "exploitation of suffering".

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Thank you very much for your effort re predatory pricing. Because of predatory pricing and other bloated costs to consumers, costing us ridiculous sums of money in medical care and insurance, we do need universal health care. It works in every other developed country.

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Very persuasive article. To take it further, however, is perplexing. What if we were able to remove the current 'pricing' models and insurance models and force providers to use uniform pricing? I'll bet no one knows how much anything really costs? Would a hospital system be thrown into chaos if required to provide 'real' pricing? I'm willing to go there, but I would like to hear someone propose a transition strategy that would cause the least damage to patients and healthcare staff.

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It just blows my mind that this issue it never talked about by the pres. candidates. Preditory pricing should be rectified and weeded out with current technology.

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.And then the insurance companies blatantly deny coverage for covered charges, either by accident or on purpose. Billing is so complicated we consumers cannot tell what's really covered and what's not. It's becoming all too common to hear health care providers say, your insurer has been denying a lot of claims lately." I say: question everything! This has got to stop.

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Tried to address and fix most if not all of these problems, and there is one side in America who just does not believe this, wants it gone, with nothing to replace it. Unless and until all Americans demand this, it is a dead issue in Washington. It is hanging by a thread.

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Wow, this is about 50 years overdue! What an excellent perspective Steven Weissman has first hand on this long established, abusive, all pervasive form of financial abuse of Americans. This is absolutely the time to change it and bring back the real choices in individual health care.

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Finally someone has the guts to call out the "king's new suit." Having to deal with multiple major medical issues for years, I was always intrigued at the cost to the insurance company, and the ins. co's. claim that I had been saved so many $$. It is time to get the conscienceless shysters (and I include both healthcare administrators and politicians) out of the hospitals and healthcare.

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This a job well done with the article and thank you. I wish you would also publish the responses you got from our presidential candidates. Our politicians are no different than (pardon my analogy) prostitutes hired and paid for by the health care lobbyist. I hate all of them.

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I have been saying this for years! Talk about preaching to the choir. I am a nurse for 30 years and a healthcare comsumer.
Not only do we need to have hospitals list their prices if they want to run like a business which unfortunately they are now, we need to get rid of the "middle man" the health insurerers!
Oh, and please don't tell me that U.S. has the best healthcare. Seriously?

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