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Dr. Campbell: Hospital costs inflated by middle men

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RALEIGH, N.C. -

The cost of medical care in the United States is clearly well beyond what it has to be today.  The U.S. leads all industrialized nations in the expenditures per capita for healthcare.  

It has been common practice for many years for hospitals to charge a 200-300 percent  markup for inexpensive medicines such as aspirin and Tylenol when given to hospitalized patients.  The hospital administrators will tell you (if they actually agree to talk to you beyond "no comment") that these charges are a way of making up deficits and compensating for costly uninsured patients who are not able to pay their bills.  

Private insurers and more affluent individuals are often stuck with paying excessive prices for medicines and medical devices when hospitalized in order to help improve the hospital system's profit margin and bolster its funds for routine operating expenses.  

In addition, there is no standard – costs for identical products and services vary widely in the U.S. from city to city and from institution to institution.  Much of these costs are determined by complex third-party contract negotiations and are incredibly difficult to track down and decifer.  Moreover, interpreting a patient bill for a hospitalization (or even an Emergency Room visit) sometimes requires a degree in forensics.

In The New York Times Aug. 25, Nina Bernstein explores the inflated cost of a simple bag of intravenous saline – one of the most common therapies used in hospitals and Emergency Rooms – and how it varies from patient to patient and hospital to hospital.  As Bernstein points out, the cost to manufacture, ship and deliver a bag of saline for medical use is approximately $1.  However, many patients are charged more than 1,000 times that amount for the administration of a bag of salt water.  How does this happen?  More importantly why?

In the U.S. today, the medical industry and those that supply medicines, devices and other healthcare products are first and foremost in existence for one reason – to make a profit.  The Affordable Care Act is designed to save the U.S. healthcare system money through prevention.  

However, for-profit companies who supply medical devices and supplies are naturally still going to work hard to generate revenue.  As hospital systems merge and providers integrate into mega-groups, they have now begun to negotiate through several "middlemen" to procure medical supplies and devices.  These large (and powerful) purchasing and distributing organizations that negotiate pricing and contracts now are able to set pricing points in large accounts.  As competition in the marketplace begins to dwindle due to these complex and often difficult to interpret contracts, prices will ultimately go up (as dictated by the larger mega group contracts).  

At each stage in the supply chain, middlemen will be "taking their cut" through further markups and ultimately further inflating costs.  Now that hospitals may be paid less for inpatient care and in turn may be paying less for expensive devices such as implantable defibrillators, companies (and hospitals) will now shift costs by inflating the price of a bag of salt water.

We must begin to place a true "value" on quality care as well as on medical supplies, devices and equipment.  Standards of cost for common items must be created and limits imposed – it should no longer be a market in which the hospital or hospital supplier dictates a 300 percent increase in cost of salt water in order to continue to generate profit for shareholders under the new ACA.  In addition, hospital charges and billing practices must be made more transparent to patients, government agencies and the individual consumer.  The services provided and medicines and supplies utilized should be clearly delineated and the charges easy to understand.

The Affordable Care Act was intended to protect the consumer and provide quality care.  Unfortunately, it appears that thus far, the ACA rollout has resulted in numerous delays and missed milestones – many of which were designed to protect the consumer from excess cost.  It is a certainty that the ACA will need to be modified in order to become functional – as modifications are made, we must ensure that we are able to control cost and keep the cost of salt water to less than a good bottle of Bordeaux.

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