The Bitter Pill Response

The critical response will be a tool through which you can apply reflective strategies to the synthesis and communication of knowledge in this course. Throughout the semester you will respond to each reading assigned by writing a 1-2 page thoughtful response (not summary) addressing key issues raised in the reading using specific examples.
923130 Administration of Human Resource Programs (except Education, Public Health, and Veterans’ Affairs Programs)

The article discusses the costs associated with the provision of health care services in the U.S. as of March 4, 2013, includ
ing information on the prices
assessed by hospitals, medical facil
ities, and physicians for items and procedures such as chemotherapy, x

rays, and sterile gauze pads. Ohio resident
Sean Recchi and the medical bills for the treatment of his non

Hodgkin’s lymphoma are addressed. Several studies conducted by the McKinsey &
consulting firm are examined, including a comparative study of the medical care costs in nations such as Italy, China, and Sp
ain. The U.S. Medicaid
insurance program is mentioned, along with medical technology costs.
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Special Report
How outrageous pricing and egregious profits are destroying our heath care
Photograph by Nick Veasey for TIME
1 Routine Care, Unforgettable Bills


OLD FROM LANCASTER, Ohio, was told
last March that he had non

Hodgkin’s lymphoma, his wife Stephanie knew she
had to get him to MD Anderson Cancer Center in
Houston. Stephanie’s father
had been treated there 10 years earlier, and she and her family credited the
doctors and nurses at MD Anderson with extending his life by at least eight
Because Stephanie and her husband had recently started their own sma
technology business, they were unable to buy comprehensive health insurance.
For $469 a month, or about 20% of their income, they had been able to get only a
policy that covered just $2,000 per day of any hospital costs. “We don’t take that
kind of disc
ount insurance,” said the woman at MD Anderson when Stephanie
called to make an appointment for Sean.
Stephanie was then told by a billing clerk that the estimated cost of Sean’s visit

just to be examined for six days so a treatment plan could be devise

would be
$48,900, due in advance. Stephanie got her mother to write her a check. “You do
anything you can in a situation like that,” she says. The Recchis flew to Houston,
leaving Stephanie’s mother to care for their two teenage children.
About a week
later, Stephanie had to ask her mother for $35,000 more so Sean
could begin the treatment the doctors had decided was urgent. His condition had
worsened rapidly since he had arrived in Houston. He was “sweating and
shaking with chills and pains,” Stephani
e recalls. “He had a large mass in his
chest that was
growing. He was panicked.”
Nonetheless, Sean was held for about 90 minutes in a reception area, she says,
because the hospital could not confirm that the check had cleared. Sean was
allowed to see the
doctor only after he advanced MD Anderson $7,500 from his
credit card. The hospital says there was nothing unusual about how Sean was
kept waiting. According to MD Anderson communications manager Julie Penne,
“Asking for advance payment for services is a c
ommon, if unfortunate, situation
that confronts hospitals all over the United States.”
The total cost, in advance, for Sean to get his treatment plan and initial doses of
chemotherapy was $83,900.
The first of the 344 lines printed out across eight pa
ges of his hospital bill

with indecipherable numerical codes and acronyms

seemed innocuous. But it
set the tone for all that followed. It read, “I ACETAMINOPHE TABS 325 MG.” The
charge was only $1.50, but it was for a generic version of a Tyle
nol pill. You can
buy 100 of them on Amazon for $1.49 even without a hospital’s purchasing
Dozens of midpriced items were embedded with similarly aggressive markups,
like $283.00 for a “CHEST, PA AND LAT 71020.” That’s a simple chest X

ray, for
h MD Anderson is routinely paid $20.44 when it treats a patient on Medicare,
the government health care program for the elderly.
Every time a nurse drew blood, a “ROUTINE VENIPUNCTURE” charge of $36.00
appeared, accompanied by charges of $23 to $78 for eac
h of a dozen or more
lab analyses performed on the blood sample. In all, the charges for blood and
other lab tests done on Recchi amounted to more than $15,000. Had Recchi
been old enough for Medicare, MD Anderson would have been paid a few
hundred dollars
for all those tests. By law, Medicare’s payments approximate a
hospital’s cost of providing a service, including overhead, equipment and
On the second page of the bill, the markups got bolder. Recchi was charged
$13,702 for “I RITUXIMAB INJ 660
MG.” That’s an injection of 660 mg of a
cancer wonder drug called Rituxan. The average price paid by all hospitals for
this dose is about $4,000, but MD Anderson probably gets a volume discount that
would make its cost $3,000 to $3,500. That means the nonp
rofit cancer center’s


advance markup on Recchi’s lifesaving shot would be about 400%.
When I asked MD Anderson to comment on the charges on Recchi’s bill, the
cancer center released a written statement that said in part, “The issues related
to heal
th care finance are complex for patients, health care providers, payers and
government entities alike
MD Anderson’s clinical billing and collection practices
are similar to those of other major hospitals and academic medical centers.”
The hospital’s hard

nosed approach pays off. Although it is officially a nonprofit
unit of the University of Texas, MD Anderson has revenue that exceeds the cost
of the world

class care it provides by so much that its operating profit for the
fiscal year 2oro, the most recent
annual report it filed with the U.S. Department of
Health and Human Services, was $531 million. That’s a profit margin of 26% on
revenue of $2.05 billion, an astounding result for such a service

prosperous business. Ronald DePinho’s total compensation last year was
$1,845,000. That does not count outside earnings derived from a much
publicized waiver he received from the university that,
according to the Houston
Chronicle, allows him to maintain unspecified “financial ties with his three
principal pharmaceutical companies.”
DePinho’s salary is nearly triple the $674,350 paid to William Powers Jr., the
president of the entire University of
Texas system, of which MD Anderson is a
part. This pay structure is emblematic of American medical economics and is
reflected on campuses across the U.S., where the president of a hospital or
hospital system associated with a university

whether it’s Tex
as, Stanford, Duke
or Yale

is invariably paid much more than the person in charge of the
I got the idea for this article when I was visiting Rice University last year. As I was
leaving the campus, which is just outside the central business d
istrict of Houston,
I noticed a group of glass skyscrapers about a mile away lighting up the evening
sky. The scene looked like Dubai. I was looking at the Texas Medical Center, a
nearly 1,300

acre, 280

building complex of hospitals and related medical
ilities, of which MD Anderson is the lead brand name. Medicine had obviously
become a huge business. In fact, of Houston’s top 10 employers, five are
hospitals, including MD Anderson with 19,000 employees; three, led by
ExxonMobil with 14,000 employees, ar
e energy companies. How did that
happen, I wondered. Where’s all that money coming from? And where is it going?
I have spent the past seven months trying to find out by analyzing a variety of
bills from hospitals like MD Anderson, doctors, drug companies a
nd every other
player in the American health care ecosystem.
patients receive, you see nothing rational

no rhyme or reason

about the
costs they faced in a marketplace they enter through no cho
ice of their own. The
only constant is the sticker shock for the patients who are asked to pay.
Yet those who work in the health care industry and those who argue over health
care policy seem inured to the shock. When we debate health care policy, we
to jump right to the issue of who should pay the bills, blowing past what
should be the first question: Why exactly are the bills so high?
What are the reasons, good or bad, that cancer means a half


or million

dollar tab? Why should a trip to the
emergency room for chest pains that turn out
to be indigestion bring a bill that can exceed the cost of a semester of college?
What makes a single dose of even the most wonderful wonder drug cost
thousands of dollars? Why does simple lab work done during a
few days in a
hospital cost more than a car? And what is so different about the medical
ecosystem that causes technology advances to drive bills up instead of down?
Recchi’s bill and six others examined line by line for this article offer a closeup
into what happens when powerless buyers

whether they are people
like Recchi or big health

insurance companies

meet sellers in what is the
ultimate seller’s market.
The result is a uniquely American gold rush for those who provide everything
from won
der drugs to canes to high

tech implants to CT scans to hospital bill

coding and collection services. In hundreds of small and midsize cities across the

from Stamford, Conn., to Marlton, N.J., to Oklahoma City

American health care market
has transformed tax

exempt “nonprofit” hospitals
into the towns’ most profitable businesses and largest employers, often presided
over by the regions’ most richly compensated executives. And in our largest
cities, the system offers lavish paychecks even to
midlevel hospital managers,
like the 14 administrators at New York City’s Memorial Sloan

Kettering Cancer
Center who are paid over $500,000 a year, including six who make over $1
Taken as a whole, these powerful institutions and the bills they ch
urn out
dominate the nation’s economy and put demands on taxpayers to a degree
unequaled anywhere else on earth. In the U.S., people spend almost 20% of the
gross domestic product on health care, compared with about half that in most
developed countries. Y
et in every measurable way, the results our health care
system produces are no better and often worse than the outcomes in those
According to one of a series of exhaustive studies done by the McKinsey & Co.
consulting firm, we spend more on heal
th care than the next 10 biggest spenders
combined: Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain
and Australia. We may be shocked at the $60 billion price tag for cleaning up
after Hurricane Sandy. We spent almost that much last we
ek on health care. We
spend more every year on artificial knees and hips than what Hollywood collects
at the box office. We spend two or three times that much on durable medical
devices like canes and wheelchairs, in part because a heavily lobbied Congress
forces Medicare to pay 25% to 75% more for this equipment than it would cost at
The Bureau of Labor Statistics projects that 10 of the 20 occupations that will
grow the fastest in the U.S. by 2020 are related to health care. America’s largest
y may be commonly thought of as the world’s financial

services capital, but of
New York’s 18 largest private employers, eight are hospitals and four are banks.
Employing all those people in the cause of curing the sick is, of course, not
anything to be ash
amed of. But the drag on our overall economy that comes with
taxpayers, employers and consumers spending so much more than is spent in
any other country for the same product is unsustainable. Health care is eating
away at our economy and our treasury.
health care industry seems to have the will and the means to keep it that
way. According to the Center for Responsive Politics, the pharmaceutical and


product industries, combined with organizations representing
doctors, hospitals, nursing home
s, health services and HMOs, have spent $5.36
billion since 1998 on lobbying in Washington. That dwarfs the $1.53 billion spent
by the defense and aerospace industries and the $1.3 billion spent by oil and gas
interests over the same period. That’s right:
the health


industrial complex
spends more than three times what the military

industrial complex spends in
researchers, the big picture looks like this: We’re likely to spend $2.8 trillion
year on health care. That $2.8 trillion is likely to be $750 billion, or 27%, more
than we would spend if we spent the same per capita as other developed
countries, even after adjusting for the relatively high per capita income in the U.S.
vs. those
other countries. Of the total $2.8 trillion that will be spent on health
care, about $800 billion will be paid by the federal government through the
Medicare insurance program for the disabled and those 65 and older and the
Medicaid program, which provides
care for the poor. That $800 billion, which
keeps rising far faster than inflation and the gross domestic product, is what’s
driving the federal deficit. The other $2 trillion will be paid mostly by private

insurance companies and individuals who h
ave no insurance or who will
pay some portion of the bills covered by their insurance. This is what’s
increasingly burdening businesses that pay for their employees’ health insurance
and forcing individuals to pay so much in out


pocket expenses.
g these trillions down into real bills going to real patients cuts through the
ideological debate over health care policy. By dissecting the bills that people like
Sean Recchi face, we can see exactly how and why we are overspending, where
the money is goi
ng and how to get it back. We just have to follow the money.
The $21,000 Heartburn Bill


old former sales clerk whom I’ll call Janice S. felt chest pains. She was
taken four miles by ambulanc
e to the emergency room at Stamford Hospital,
officially a nonprofit institution. After about three hours of tests and some brief
encounters with a doctor, she was told she had indigestion and sent home. That
was the good news.
The bad news was the bill: $
995 for the ambulance ride, $3,000 for the doctors
and $17,000 for the hospital

in sum, $21,000 for a false alarm. .
Out of work for a year, Janice S. had no insurance. Among the hospital’s charges
were three “TROPONIN I” tests for $199.50 each. Accordi
ng to a National
Institutes of Health website, a troponin test “measures the levels of certain
proteins in the blood” whose release from the heart is a strong indicator of a
heart attack. Some labs like to have the test done at intervals, so the fact that
Janice S. got three of them is not necessarily an issue. The price is the problem.
Stamford Hospital spokesman Scott Orstad told me that the $199.50 figure for
the troponin test was taken from what he called the hospital’s chargemaster. The
chargemaster, I
learned, is every hospital’s internal price list. Decades ago it was
a document the size of a phone book; now it’s a massive computer file,
thousands of items long, maintained by every hospital.
Stamford Hospital’s chargemaster assigns prices to everythin
g, including Janice
S.’s blood tests. It would seem to be an important document. However, I quickly
found that although every hospital has a chargemaster, officials treat it as if it
were an eccentric uncle living in the attic. Whenever I asked, they defle
cted all
conversation away from it. They even argued that it is irrelevant. I soon found
that they have good reason to hope that outsiders pay no attention to the charge

master or the process that produces it. For there seems to be no process, no
, behind the core document that is the basis for hundreds of billions of
dollars in health care bills.
Because she was 64, not 65, Janice S. was not on Medicare. But seeing what
Medicare would have paid Stamford Hospital for the troponin test if she had be
a year older shines a bright light on the role the chargemaster plays in our
national medical crisis

and helps us understand the illegitimacy of that $199.50
charge. That’s because Medicare collects troves of data on what every type of
treatment, tes
t and other service costs hospitals to deliver. Medicare takes
seriously the notion that nonprofit hospitals should be paid for all their costs but
actually be nonprofit after their calculation. Thus, under the law, Medicare is
supposed to reimburse hospit
als for any given service, factoring in not only direct
costs but also allocated expenses such as overhead, capital expenses, executive
salaries, insurance, differences in regional costs of living and even the education
of medical students.
It turns out th
at Medicare would have paid Stamford $13.94 for each troponin test

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