One of the tragedies of the debate on health care that led up to the Unaffordable Care Act (UCA) was the lack of any serious discussion about the justification of the high cost of care.  Hint:  it isn’t justified.  The careful avoidance of this topic was intentional, as any realization of the availability of high quality surgical care at 1/5th-1/10th of the price at a “not for profit” hospital, for instance, would have taken a large amount of steam out of the argument that “everyone needs health insurance.”  Someone might have said, “Whoa!  Let’s take a few deep breaths before we insure everyone based on Lamborghini prices.”  That would have spoiled the plans for BCHIP (big computer, hospital, insurance and pharma), the players that wrote this bill.

Why do hospitals charge so much?  ”Because they take care of so many indigent patients and must maintain an emergency room,” most would say.  Answer me this:  why is there a construction crane in front of almost every emergency room at large hospitals in the U.S.? Would you build on to a part of your business that was bankrupting you?  ”Not for profit” hospitals don’t pay tax.  The value of this concession far outweighs the value of any indigent care they deliver.  Seriously, what is the additional marginal cost of treating an indigent patient in an emergency room that is already staffed and open?  

There’s more.  Much more.  Hospitals charge gigantic amounts to intentionally rack up points in the “Uncompensated Care” scam.  ”Uncompensated Care” is simply hospital bill charges minus their collections.  Hospitals claim they supplied care equal to this number for which they weren’t paid and submit that to Uncle Sam.  Taxpayers reward them for their “charity” with padded Medicare and Medicaid payments called DSH (disproportionate share hospital) payments.  This means that hospitals get paid even when they don’t get paid.  This means that hospitals are perversely inclined to charge the most to those who have the least, as this difference will significantly contribute to their DSH account.  

Sorry, there’s more.  The extent to which hospitals don’t collect on their charges, actually helps them maintain the fiction of their “not for profit” status.  This means that they probably need all of the “non-payers” in their emergency room they can get, as billions in the black require false billions in the red.  Building campaigns are another way to dump massive profits, and we have seen hospitals building satellites, clinics and buying out competitors.  They also dump profits by engaging in hostile takeovers of physician practices, paying with money they can’t afford to keep.  Here’s a new one.  One hospital I know of formed a buying group company for their supplies, which marks up the price sold to their own fleet of hospitals.  This ingenious strategy is yet another way  hospitals can dump massive profits by overpaying for their own supplies.  You didn’t think they would pass any savings realized from forming a large buying group to the patient did you?

Now the shocking part.  What if I told you that the higher the hospital bill, the more the insurance companies make?!  The “repricing” of claims is the reason and it works this way.  An insurance company pays $10,000 on a hospital bill of $25,000.  The insurance company then charges the employer insurance group a percentage of the “savings.”  They make more by doing this than they do on the premiums they charge.  This is the primary reason that no politician on either side of the aisle will advocate a change in the tax code that currently discriminates against individual purchases of health insurance in favor of business purchases.  This gift to the insurance companies enables their  ”repricing” profiteering, the termination of which would have a devastating effect on the fundraising efforts with the big insurance companies.

The more hospitals charge, the more the insurance companies make.  The more the hospitals “lose,” the more they take from the taxpayers in DSH payments.  It took me a long time to figure this out, but as a physician and managing partner of a surgery center it never made sense to me why insurance companies didn’t want to make sure patients they insured came to my facility, where the quality is as good or better and the prices are a fraction of what they are charged by the hospitals.  This didn’t happen overnight.  Politicians competing with each other for the political contributions of the insurance companies have bestowed these gifts to their contributors over the years.  Nothing has changed, except the democrats are now the party of big insurance.  Did you see what the court’s decision did to the BCHIP stocks?

The UCA will drive the costs of insurance and medical care through the roof.  Maybe this will finally result in an examination of the costs and the perverse incentives in this distorted marketplace.  

And you thought it was the greedy doctors that were responsible for the high price of care.  

G. Keith Smith, M.D.