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Our Healthcare System is Bad Medicine

It's awful now, and Obamacare is making it worse.

By Will Offensicht  |  November 19, 2012

Scragged has criticized Obamacare from the beginning, pointing out that the law is such a disaster that it should be repealed.

That said, our current current health care monstrosity is also such an enormous disaster that even the mammoth Obamacare bill wasn't able to attempt to address all its problems.

So as we move forward into a new presidential term where, inevitably, the cost of health care will be an ongoing suppurating sore, here are some of the lesser-known but still major problems that need attention.

Illegal Pricing Schemes

One of our friends passed on some medical bills.  In bragging about the discounts they negotiate with medical providers, his insurance company must not realize that they're co-conspirators in what is, or ought to be, an illegal price-fixing scheme:

Amount Billed Discount What Your
Plan Paid
% paid
$112.00 $47.98 $64.02 57%
$32.00 $18.39 $13.61 42%
$2,470.00 $738.32 $1,741.68 70%
$7,500.00 $4,011.64 $3,488.36 46%
$1,710.15 $383.07 $1,327.08 77%
$1,364.37 $703.38 $660.99 48%
$1,875.00 $1,610.94 $264.06 14%
$15,063.00 $7503.20 $7,559.80 49%

Hospitals have complained for decades that Medicare and Medicaid reimbursements are too low.  They tell us that they have to make up for their losses on government-funded patients by adding to the bills paid by patients like my friend who're covered by private insurance.

Let's take that statement as more or less true and assume that the actual sums the hospital got for the services they provided my friend covered their costs.  On that basis, some eye-popping revelations jump out from my friend's billing statements.

Look at the difference between what the hospital bills for the service and what the insurance company actually pays.  The insurance company has negotiated "discounts" so that they pay far less than the hospital bills them.  The percent of the bill that the hospital actually collects ranges from a low of 14% of $1,857.00 to a high of 70% of $2,470.  Overall, the insurance company paid just under half of what the hospital billed.

"So what?" you might ask.  "Isn't it OK for the hospital to give the insurance company a discount because of all the business they get?"

That might sound both sensible and rational - but in fact it's illegal.  Federal law states that is OK to give quantity discounts, but only if providing the service in larger quantities results in lower costs. Shipping an entire container-load of something across the country is obviously more efficient than sending one little box by UPS, so it makes sense that container shipping charger are cheaper per pound.

Nothing could be further from the truth in medicine.  Each and every time a hospital freezes off a wart or inserts a stent, the cost is pretty much the same regardless of how often they do it.  If there are differences in cost, it;s due to peculiarities of a particular patient; it matters not at all who's paying for it.

There might be cost advantages if the hospital had enough business to keep its operating rooms going 24/7, but doctors don't want to work nights or weekends. The same is true for any other expensive medical equipment - as long as there's enough call for the device to keep it more or less busy all day, more "sales" aren't going to lower the costs. There really aren't many economies of scale in medicine as practiced in the United States.

What's more, it makes no difference whatsoever to the hospital's cost whether a patient's bill is paid by an insurance company, by someone else, or by nobody - the actual cost to the hospital of providing the service is going to be exactly the same regardless. One could argue that dealing with the insurance companies is really more expensive, because of all the extra paperwork hoops the insurance companies make the hospital jump through. There is therefore no justification for hospitals giving discounts to insurance companies.

This price-fixing scheme benefits both hospitals and insurance companies, of course.  Insurance companies use the huge list prices to frighten people who don't have health insurance into buying it.  From the hospital's point of view, the more people who're covered by insurance, the more patients they get, because uninsured patients tend not to go to the hospital at all until they're at death's door.

Giving bogus discounts is a win for both parties which is why they do it.  Nobody cares about uninsured people who have to pay their own way.  If we assume that hospitals get enough from private insurance companies to cover not only their costs but enough more to make up for the cost of government patients, even though insured patients pay barely half of the list prices, how badly are the uninsured being gouged?  This is clearly unethical, but nobody seem to care.

Sara Palin Was Right

There's another matter that needs to be fixed.  During the Obamacare debates, Sarah Palin coined the phrase "death panels" to describe Mr. Obama's committees of unelected bureaucrats who'll decide what medical procedures would be paid for and what would not.

I have another friend who's covered by Medicare and has no other coverage.  He recently had a minor issue and called around to find a specialist.  None of the specialists in his area were accepting any more Medicare patients because Medicare doesn't pay enough.  They wouldn't take him because he didn't have any supplemental coverage.

"What if I pay myself?" he asked.

"We can't do that.  If you're covered by Medicare, you aren't allowed to pay for it yourself and we aren't allowed to accept your money."

Some years back, a New Hampshire resident needed a new lung.  Lung transplants are costly and he was so old that Medicare wouldn't pay.

Being of an independent turn of mind, he sold his house, held bake sales, scratched and scrambled, got the money, and went to the doctor with a certified check.  "I can't do it," the doctor said.  "I have Medicare patients; I'm part of their system.  If they won't pay for it, I'm not allowed to let you pay."

Talk about a death panel!  Medicare wouldn't pay so it was illegal for any doctor to save his life even though he had the money to pay for the procedure in cash upfront.  Few people realize that if you collect Social Security, the courts have ruled that you are required to sign up for Medicare, like it or not.  Once you do that, you aren't allowed to pay for treatment they don't approve even if you can afford it.

This is clearly a cost-saving measure.  By denying you the right to buy your own medical care, they system will save Social Security costs by making you die earlier than necessary.  The only thing wrong with Sarah Palin's statement is that Mr. Obama's death panels are already here, and in fact predate his rise to power by quite some years.

Is it any surprise that our lawmakers exempted themselves from Obamacare?