by Steven Brill
“Even by then, the bill was over eighty thousand dollars,” she recalled. “I couldn’t believe it.”
The woman in the business office matter-of-factly gave Rebecca some additional bad news: Her insurance policy, from a company called Assurant Health, had an annual payout limit of $100,000. Because of some prior claims Assurant had processed, Rebecca and Scott were already well on their way to exceeding the limit.
It was another of those insurance products that the new law would eliminate, beginning in 2014.
Just the room and board charge at Southwestern was $2,293 a day. And that was before all the real charges were added.
When Scott checked out, his 161-page bill was $474,064. Scott and Rebecca were told they owed $402,955 after the payment from their insurance policy was deducted.
The top billing categories were:
• $73,376 for Scott’s room.
• $94,799 for “resp services.” That mostly meant supplying Scott with oxygen and testing his breathing, and included multiple charges per day of $134 for supervising oxygen inhalation, for which Medicare would have paid $17.94.
• $108,663 for “special drugs,” which included mostly not-so-special drugs such as “sodium chloride .9%.” That is a standard saline, or salt water, solution, probably used intravenously in this case to maintain Scott’s water and salt levels. (It is also used to moisten contact lenses.) You can buy a liter of the hospital version (bagged for intravenous use) online for $5.16. Scott was charged $84 to $134 for dozens of these saline solutions.
Then there was the $132,303 charge for “laboratory,” which included hundreds of blood and urine tests ranging from $30 to $333 each, for which Medicare either pays nothing because it is part of the room fee or pays $7 to $30.
Through a friend of a friend, Rebecca would soon find Pat Palmer, another of those billing advocates.
The best Palmer would be able to do for Scott and Rebecca was get Texas Southwestern Medical to provide a credit that still left them owing $313,000. By early 2013, the nonprofit hospital would offer to cut the bill to $200,000 if it was paid immediately, or it would allow the full $313,000 to be paid in twenty-four monthly payments. “How am I supposed to write a check right now for two hundred thousand dollars?” Rebecca told me. “I have boxes full of notices from bill collectors.… We can’t apply for charity, because we’re kind of well off in terms of assets,” she added. “We thought we were set, but now we’re pretty much on the edge.”
By January 1, 2014, Scott and Rebecca—who had not been able to find any new insurance following Scott’s hospitalization in 2012 because he had a preexisting condition—would be protected through an insurance plan that they were able to buy thanks to Obamacare. Scott’s preexisting condition could no longer be used to deny him coverage.
Because Scott and Rebecca’s income was too high to qualify them for subsidies, they didn’t have to buy insurance on the Texas version of the federal exchange. (Subsidies can only come via the exchanges.) They bought it directly from Blue Cross Blue Shield of Texas. However, under the new law, all policies—not just those on the exchanges—had to comply with the new rules, such as not discriminating based on Scott’s preexisting condition. The insurance was expensive—$700 a month. However, they were now protected from bills like the ones they got in 2012, even as the hospital persisted in trying to collect on that old bill.
By the time Rebecca focused on their new insurance, she had become a sophisticated consumer, having learned about those policies with annual limits the hard way. As a result, she had a major complaint about Obamacare. She thought the Obama administration had been too lenient in dealing with inadequate insurance policies. After Lambrew issued her rules allowing policies like Scott’s Assurant policy to be continued, or “grandfathered,” until January 1, 2014, Rebecca complained to me that the insurers had obviously “gotten” to someone in the administration. They should never have allowed those policies to continue being sold even that long, she said.
A $132,000 SINKHOLE
Other than putting Scott and Rebecca in a situation where their new insurance company would no doubt get a discount off the chargemaster bills they received, there is nothing in Obamacare that addresses the costs, and cost structure, that Scott’s near-fatal illness triggered.
The best example in their case was what may seem the most surprising medical care sinkhole, because everything about it is an afterthought for most patients: seemingly routine blood, urine, and other laboratory tests. Scott was charged $132,000 for them, or more than $4,000 a day.
About $65 billion would be spent on these tests in the United States in 2012, the year Scott was rushed to the hospital.
Cutting the over-ordering and overpricing of these tests might have easily taken $20 billion a year out of that bill. But that was one giveback the hospitals were not asked for in their negotiations over whether they would support reform. True, the pilot projects in the law meant to encourage a bundled price for services—rather than the fee-for-service orgy spread across Scott’s 161 pages of bills—might help cut this overage some. But the lab test sinkhole was never attacked frontally.
Much of that over-ordering involves patients like Scott, who require prolonged hospital stays. Their tests become a routine, daily cash generator.
“When you’re getting trained as a doctor,” said a physician who was involved in advising on healthcare policy early in the Obama administration, “you’re taught to order what’s called ‘morning labs.’ Every day you have a variety of blood tests and other tests done, not because it’s necessary but because it gives you something to talk about with the others when you go on rounds. It’s like your version of a news hook.… I bet sixty percent of the labs are not necessary.”
The country’s largest lab tester is Quest Diagnostics, which would report revenues in 2012 of $7.4 billion, and operating profit of $1.2 billion, or about 16 percent of sales. Like the hospitals, labs like Quest have a chargemaster. If your doctor sends your blood to Quest for testing and the company is not in your insurer’s network, you must pay the entire bill or face a bill collector and an endangered credit rating. But if Quest is in your network, $400 in charges becomes $20 or $30.
However, companies like Quest, which mostly pick up specimens from doctors and clinics and deliver test results back to them, are not where the big profits are. The real money is in healthcare settings that cut out the middleman—the in-house venues, like the hospital testing lab run by Southwestern Medical that billed Scott $132,000. Hospital-affiliated in-house labs accounted for about 60 percent of all testing revenue in 2012. Which means that for hospitals, they were vital profit centers.
In fact, by the time Obamacare became law, labs were also increasingly being maintained by doctors who, as they formed group practices with other doctors in their field, financed their own testing and diagnostic clinics. These in-house labs have no selling costs, and as pricing surveys repeatedly find, they can charge more because they have a captive consumer base in the hospitals or group practices.
They also have an incentive to order more tests because they’re the ones profiting from the tests, the ultimate extension of Orszag’s fee-for-service problem. The Wall Street Journal would report in April 2012 that a study in the medical journal Health Affairs had found that doctors’ urology groups with their own labs “bill the federal Medicare program for analyzing 72% more prostate tissue samples per biopsy while detecting fewer cases of cancer than counterparts who send specimens to outside labs.” It was a way for some doctors to do something other than sit on the sidelines while every other player in the healthcare economy cashed in.
“THEREFORE, YOU CAN MAKE PEOPLE BUY BROCCOLI”
The Supreme Court’s hearing on the constitutionality of Obamacare began while Scott was still in the hospital and his wife was worrying about how to deal with the bills that were piling up. Beginning on March 27, 2012, the hearing stretched over three days, not the conventional single day, and each hearing was two
hours a day, instead of the usual one.
What was more unusual was the unmasked hostility from what seemed to be a majority of the justices. Five of the nine seemed ready to reject the idea that the Constitution’s Commerce Clause could be used by Congress to force people to buy something from a private company.
Justice Antonin Scalia, the sharp-tongued conservative, ridiculed the notion that because everyone ends up using healthcare, everyone could be made to buy insurance: “Everybody has to buy food sooner or later, so you define the market as food.… Therefore, everybody is in the market. Therefore, you can make people buy broccoli.”
The usually more moderate chief justice John Roberts offered the similar spin that approving the individual mandate requiring everyone to buy health insurance would be like allowing a requirement that people had to buy cell phones so that they could reach first responders quickly in the event of any emergency.
Justice Anthony Kennedy—a Ronald Reagan appointee thought likely be the swing vote in tight cases because he was seen as sitting in the middle between the Court’s Republican-appointee conservatives and Democratic-appointee liberals—complained to the government’s lawyer, Solicitor General Donald Verrilli, that “you are changing the relationship of the individual to the government.”
What was additionally discouraging to Obamacare supporters—including Liz Fowler, who was in the chamber on the second day—was that Solicitor General Verrilli let the hostility knock him off-balance. His arguments were not nearly as tightly drawn and effective as those of his opponent, Paul Clement, a former solicitor general in the George W. Bush administration, who was carving out a specialty as the conservatives’ star appellate lawyer.
Clement fared so well and Verrilli struggled so mightily that by the last day of the three-day high-court drama, many respected legal pundits were predicting doom for Obamacare.
By the Obama administration’s own account in its brief, doom is what now would come if the Court struck down the mandate that everyone had to have insurance. Gone were the qualms Obama and his staff had had during the campaign, the transition, and through the winter of 2009 about the mandate. Forgotten was how Obama had used Hillary Clinton’s support for a mandate as his point of attack against her. Gone was the political team’s reliance on some of the economists and behavioral scientists who had said that a mandate wasn’t necessary—that a “death spiral” of higher premiums would not necessarily come if people could wait until they were sick to buy insurance but insurers could still not exclude them for preexisting conditions. Now, the coming death spiral was all over their brief.
Meanwhile, Mitt Romney, the father of the mandate, was running in the opposite direction.
Through the Republican primary contests of 2012, the former Massachusetts governor had been put on the defensive by opponents who charged that the reviled Obamacare was the offspring of Romneycare. Tim Pawlenty, the Minnesota governor who had ordered every agency in his state to have nothing to do with the new law, had taken to calling Obamacare O’Romneycare. Rick Santorum, the former Pennsylvania senator who would finish second to Romney in the primary race, said Romney’s history on healthcare disqualified him for the nomination because he could never confront Obama on what should be the main issue of the general election campaign. How could Romney attack Obamacare, he argued.
Romney certainly tried. On the 2012 campaign trail he promised to repeal Obamacare on the first day of his presidency. What he had done in one state, he asserted, did not justify Obama’s “one-size-fits-all” for all states, and he attacked a federally imposed mandate as an assault on liberty that would not work.
Jonathan Gruber, the MIT economist who had helped Romney create Romneycare and then worked on Obamacare, had sat out the 2008 election. Now, he happily allowed himself to be interviewed at every opportunity confirming that Obamacare was modeled exactly from Romneycare and, like Romneycare, was going to work fine.
CASH FOR CANCER CARE
About a week before the Supreme Court argument, Sean Recchi, a forty-two-year-old from Lancaster, Ohio, was told that he had non-Hodgkin’s lymphoma. His wife, Stephanie, decided that she had to get him to MD Anderson Cancer Center in Houston.
Stephanie’s father had been treated at the famed cancer center ten years earlier, and she and her family credited the doctors and nurses there with extending his life by at least eight years.
Because Stephanie and her husband had recently started their own small technology business, they had been unable to buy comprehensive health insurance. For $469 a month, or about 20 percent of their income, they had been able to get a policy that covered just $2,000 a day of hospital costs.
This was another policy that would not qualify under Obamacare as adequate insurance in 2014.
At MD Anderson in 2012, it already didn’t qualify. “We don’t take that kind of discount insurance,” said the woman at the Houston cancer center when Stephanie called to make an appointment for Sean.
Stephanie was then told by the billing clerk that the estimated cost of Sean’s visit—just to be examined for six days so a treatment plan could be devised—would be $48,900, due in advance. Stephanie got her mother to write the check. “You do anything you can in a situation like that,” she later told me when I spoke with her for the Time report.
The Recchis flew to Houston, leaving Stephanie’s mother to care for their two teenage children.
On the morning of the second and most heated day of the Supreme Court Obamacare argument, 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 arrived in Houston. He was “sweating and shaking with chills and pains,” Stephanie recalled. “He had a large mass in his chest that was … growing. He was panicked.”
Nonetheless, while the justices grilled Solicitor General Verrilli, Sean was held for about ninety minutes in a reception area, because the hospital could not confirm that his mother-in-law’s check had cleared. He was allowed to see the doctor only after he advanced MD Anderson $7,500 from his credit card.
The hospital would later tell me that there was nothing unusual about how Sean was kept waiting. According to an MD Anderson spokeswoman, “Asking for advance payment for services is a common, 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 dose of chemotherapy was $83,900.
The first of the 344 lines printed out across eight pages of his hospital bill—filled with the chargemaster’s indecipherable numerical codes and acronyms—seemed innocuous. But it set the tone for all that followed. It read, “1 acetaminophen tabs 325 mg.” The charge was only $1.50, but it was for a generic version of a Tylenol pill. You can buy 100 of them on Amazon for $1.49 even without a hospital’s purchasing power.
On the second page of the bill, the markups got bolder. Recchi was charged $13,702 for “1 rituximab inj 660 mg.” That’s an injection of 660 milligrams of a cancer wonder drug called Rituxan. The average price paid by all hospitals for this dose is about $4,000. However, MD Anderson probably gets a volume discount that would make its cost $3,000 to $3,500. That means the nonprofit cancer center’s paid-in-advance markup on Recchi’s lifesaving shot would be 300 to 400 percent.
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 health 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 exceeded the cost of the world-class care it provides by so much that its operating profit for the fiscal year 2010 (the most recent annual report it had filed with the U.S.
Department of Health and Human Services when Sean Recchi arrived there) was $531 million. That was a profit margin of 26 percent on revenue of $2.05 billion, an astounding result for such a service-intensive enterprise.
Rituxan is a prime product of Biogen Idec, a company that had reported $5.5 billion in sales in the year before Sean Recchi fell ill. This was not an enterprise suffering through the Great Recession. Its CEO, George Scangos, was paid $11.3 million in 2011, a 20 percent boost over his 2010 income.
When Obamacare would go into effect, the Recchis would be able to get real health insurance coverage, rather than the $2,000 a day variety that would do little more than get Sean a few blood tests and x-rays in his first hour or two at MD Anderson. Preexisting conditions would be no problem. And they would qualify for generous subsidies, making the cost the same or less than the $469 a month they had paid for their relatively useless prior policy.
However, Sean would not be able to use any of his new coverage to go to MD Anderson. Insurance that would be offered to Recchi in Ohio would have provider networks that, depending on the price, would restrict his choice of hospitals even within the state. There was no way any of these so-called narrow networks were going to include coverage for the blue chip cancer hospital in Texas.
Nor would Obamacare do anything to curb the prices that the pharmaceutical company could charge a hospital, or that any hospital could charge to Recchi—or, actually, now to his government-subsidized insurer—for the drug he needed to stay alive.
THE “ASS” IN THE EMERGENCY ROOM
One of the toughest debates in the White House and among Democrats on Capitol Hill as they were framing the new law had to do with not only how generous the subsidies to help people pay their premiums would be, but also what portion of medical bills people could be asked to pay once they got insurance. This involved deductibles (the amount in bills the patient has to pay before insurance kicks in), co-pays or co-insurance (the amount chipped in, such as $25 per doctor’s visit, or 20 percent, once the deductible has been reached), and what is called the maximum out of pocket (the total a patient can be asked to pay in deductibles and co-insurance in a given year).*14
