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. 2018 Mar-Apr;115(2):128–129.

An American Sickness: How Health Care Became Big Business and How You Can Take It Back

Reviewed by: Elisabeth Rosenthal
Reviewed by  Arthur Gale, MD. .  Penguin Press. Hardcover.  416 pp. ISBN-10:  1594206759. ISBN-13:  978-1594206757A.
PMCID: PMC6139860

A new book titled “An American Sickness How Health Care Became Big Business and How You Can Take it Back” by Elisabeth Rosenthal, MD, is the most up to date and comprehensive description of our current dysfunctional health care system.

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Rosenthal is a graduate of Harvard Medical School. She is board certified in internal medicine and worked as an emergency room physician. She then worked for 22 years as a reporter, correspondent, and senior writer for the New York Times. She is now editor in chief of Kaiser Health News, an independent journalism news room which focuses on health and health policy. Kaiser Health News has no connection to Kaiser Permanente-the large staff model HMO based in California.

The book focuses on the high cost of health care and covers all the major drivers of high health care costs including hospitals, insurance, and drug and device companies. In the interest of brevity this article will focus on the role of hospitals as a major cause of high health care costs.

How Consultants Caused Hospital Costs To Spiral Out Of Control

In the 1990s I practiced internal medicine at the Jewish Hospital of St. Louis. Jewish Hospital was a well respected teaching hospital and community hospital. It always operated in the black. Many of the doctors held teaching positions at Washington University School of Medicine. There was high morale among the medical and nursing staffs. It had a large dedicated volunteer staff.

One day the Jewish Hospital Board of Trustees told the medical staff that there was to be a merger of Barnes and Jewish Hospitals. The reasons we were told was that the merger would increase efficiency and produce “economies of scale.” “Integration and coordination” would be achieved to produce a “seamless” system of health care delivery that was necessary to lower health care costs.

As noted above Jewish Hospital, at that time when health care costs were nowhere near as high as they are today, operated efficiently and profitably. Although many physicians opposed the merger it nevertheless did occur. Eventually the merger between Barnes and Jewish hospitals morphed into BJC the largest hospital network in Missouri. The merger was backed by the business community.

The Board of Directors told the medical staff that “consultants” had advised them that such mergers were necessary. At that time consultants visited just about every hospital in America and told their respective boards of trustees essentially the same story. If the boards followed their advice the hospitals would prosper and overall health care costs would drop. Twenty-five years later half of the consultants’ prediction is true. Half is false. The hospitals prospered enormously while costs to the public have skyrocketed.

Until I read “An American Sickness” I never knew who the consultants were and precisely what they told hospital boards of directors. That information was kept secret from the American public and physicians. Rosenthal writes that before the business consultants from Deloitte and Touche arrived the hospitals ran on such thin margins that consultants had to offer a pay for results model.

Rosenthal quotes a consultant from Deloitte and Touche: “We came to them with this proposal that with little up-front cost you can increase the amount you bring in just by manipulating how you bill. This is called strategic pricing. Deloitte advised hospitals to stop billing for items like gauze rolls which insurers rarely or never reimburse, and to boost charges for billing like O.R. time, oxygen therapy, and prescription drugs…you can increase the amount you bring in just by manipulating how you bill.”

The consultants’ advice basically was all about increasing hospital profits not reducing health care costs Rosenthal records a few absurdities of strategic pricing.

“Everyone knows about the $17 Tylenol pill. In one instance a family was billed $21,000 after the father had a heart attack in the living room of his home. He was driven by relatives to the hospital only to be declared dead in the lobby before a single test was done.”

A surgeon who stuck himself with a needle during an operation as per protocol went to the emergency room for a blood test for HIV and hepatitis. [He] received a bill for $3,400 including $1,137 from the ER doctor and $2,198 for hospital services. The surgeon said, “What is written down and what is charged bear little relation. The net charges are just dissociated from reality. All I needed was a blood draw, nothing else. I have discussed this with the ER docs and with the Hospital Administration but they stand by their practices.”

Rosenthal then discusses the “up coding” that hospitals engaged in. She describes how doctors were advised to up code their patient visits to levels 4 and 5 before Medicare began to crack down on this practice. She describes the outrageous charges for “facility fees” that did not even exist two decades ago.

She describes hospital billing using the chargemaster which has no relation to actual costs and varies according to the payer. She discusses the inflated multimillion dollar salaries of hospital CEOs. She writes about the actual amount of money hospitals spend on charity care which is no more than for profit hospitals. She describes how cities such as Pittsburg which have tried in vain to have the University of Pittsburg Medical Center with its 60,000 employees pay property taxes. The government places this tax advantage at $24.6 billion 2011.

Hospitals care for large numbers of low income people but they purchase their pharmaceuticals at a discount through a federal program. Medicare gives them “disproportionate share” payments which are essentially bonuses for treating poor people. Rosenthal cites one study that concluded that 196 hospitals received $3.3 billion in state and federal tax exemptions and actually spent only $1.4 billion on charity care.

The author relates how hospitals profit from observation status. When a patient is admitted on observation status hospitals can charge patients and Medicare much more than when they are admitted on the regular service. Patients are then stuck with higher out of pocket bills. Hospital consultants soon homed in on observation status with articles like “How Your Hospital Can Succeed Under the Two Midnight Rule.”

In the remainder of the book Rosenthal gives examples of real people coping with huge bills from the other major players in the medical industrial complex-the insurance and pharmaceutical and medical device industries. She describes how the business consultants have shown these entities how to improve profits through strategic pricing just as they did with the hospitals.

Although Rosenthal offers some specific advice to persons coping with health care financial issues she does not recommend any general solution although she does briefly mention how other countries have dealt with high health care costs.

For years there has been much hand wringing about high health care costs. The experts and policy makers have been promoting various solutions most of which boil down to a form of capitation. Current proposals are Accountable Care Organizations (ACOs), Value Based Care (VBCs), Population Health Management, clinical outcomes, etc. Most of these proposals have been tried in the past in one form or another and have failed to result in any significant effect in lowering costs. Nor in my view will they ever have any success in the future. Competition and transparency were supposed to control health care costs. There is very little of either in hospital networks. Instead these networks have often become powerful monopolies.

What the Washington policy wonks and bureaucrats won’t admit and won’t address is that a significant source of high hospital costs (and also for that matter the high costs engendered by all of the members of the medical industrial complex) is strategic pricing or simply put over charging for services. The ACOs and other capitation schemes place the blame for high health care primarily on doctors who are convenient scapegoats. It is easier to blame doctors than hospitals. Doctors are an easy target. It is not politically feasible to take on the powerful health care lobby at the present time

In my estimation the most informative section of the book is the short section on the business consultants who showed the boards of directors how to use strategic pricing and increase hospital profits. Strategic pricing made hospitals very wealthy. It is also in large part responsible for giving Americans the most expensive health care system in the world. That’s not what the consultants and hospital boards told the public and physicians when they began their merger mania in the 1990s.


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