People often ask me “where does the money go in health care?” ”How is it that you can offer surgery for those low prices and claim to make a profit?”
It was recently revealed that the median salaries of corporate health CEO’s topped all others (military contractors, energy execs, etc.) at $11.1 million. The crazy part of this revelation is that not all of their compensation is included in this number. There are stock options and all manner of performance bonuses in addition, that are not part of this gigantic number. (Calculating the salary and benefits package of the administrator at The Surgery Center of Oklahoma is easy: we don’t have an administrator.)
Just as difficult as determining what these fat cats earn, is determining the sources of revenue of the hospitals these same fat cats run. There’s Medicare and Medicaid and provider tax kickbacks and DSH (disproportionate share hospital) payments, medical device rebates and …well, I could go on. Hospitals making gigantic revenue further complicate matters by claiming that an aspirin costs $100, then claiming that to the extent that they didn’t collect this fictitious amount, they lost money. Here you have the foundation for the fiction of the not for profit hospital. As one hospital administrator recently revealed in a court hearing, “…sure we make $40 million a month, but you must look at our cost structure.” What he wanted the jury to do was fall for the notion that an aspirin actually costs him $100, hoping they would confuse his charge with his cost.
In one medical community I know of, a physician-owned MRI facility decided to reveal their prices upfront, similar to what we have done at our surgery center. The local “not for profit”hospital, continued to bill (and collect) eight times the amount charged by the privately held facility. In a meeting with one of the representatives of a self-funded business in the area, the hospital administrator justified his high-priced MRI’s with an attempt to elicit sympathy about his “cost structure.” The benefit representative surprised this administrator by saying that ..”his hospital was a terrible place to buy MRI’s.”
In no other industry does the management, while collecting millions of dollars in salary/benefits, admit their extreme inefficiency and overhead as the primary cause of their uncompetitive pricing, all the while continuing to expect people to patronize their establishment, one which they claim provides incalculable community benefit. Indeed, the major insurance carriers direct patients to these bloated and expensive hospitals, shunning their lower-priced competitors.
How much do the hospitals really make? How much do their CEO’s really make? We will never know. I guess if you dump enough profit into a CEO’s salary and benefits, a hospital could certainly look like it didn’t make a profit! At least the giant hospitals are consistent in their dedication to price opacity, simultaneously fudging their revenue numbers and sources along with their administrators’ pay.
G. Keith Smith, M.D.