The Hospital Business – A Consumer’s Perspective

Emergency room visits are an incredibly inelastic good, where elasticity is the degree to which the desire for something changes as its price rises. It has an elasticity of -0.04, where an elasticity of 0 means that the demand does not change with an increase in price and an elasticity of -0.04 means that demand decreases by about .04 units per one unit of price increase. Let’s say that a hospital suddenly doubles all of its emergency room bills to keep from closing. The price increased by 100%, but the demand only decreased by 4%, so they just made a lot more money. Hospitals in the United States are either private businesses, or they are non-profits which operate like private businesses. Either way, their goal is to make money, and money is revenue minus cost.

Recently the government required hospitals to publish their chargemasters, which are fake wildly inflated prices that are used as a starting point for price negotiations. In my local hospital’s chargemaster, I saw a price per Wellbutrin tablet that is just under the standard price per Wellbutrin tablet, but multiplied by 100. There are over 33,000 line items in that chargemaster (not including over 10,000 CPT codes and many HCPCS codes which are not listed), and nobody has time to negotiate over every single line item, so my guess is that with the chargemaster, my hospital takes the unit cost, multiplies it by 100, throw that x100 price at the health insurance companies as a “high ball” number, and then the health insurance companies throw back a “low ball” multiplier (maybe times two), and then they go back and forth until they agree to a multiplier that is somewhere in between the high multiplier and the low multiplier (maybe times 5). This all happens behind closed doors of course, but my guess is that they have some sort of “cost multiplier” and rather than arguing over each item, they basically argue over the multiplier (like I will pay 5-10% of your charge master prices). Bigger health insurance companies have more bargaining power than small ones, so they can negotiate smaller “multipliers”. In practice the prices on my local hospital’s end aren’t fixed – they can increase the price for a given CPT code in their computer, run it, and I believe it will go through on the health insurance company’s end as long as it’s within a range. Anyway, the multiplier is necessary to make sure that they make enough profit to keep the place open, and it all has to happen behind closed doors so they they can profit off of the fact that people don’t know how much they’re being ripped off. Keeping the discounts secret also stops smaller buyers of healthcare (like smaller health insurance companies and people without insurance) from asking hospitals to match the rates that they charge bigger buyers of healthcare (like larger health insurance companies and Medicare). Medicare is an outlier because Medicare forces hospitals to take their patients at a financial loss, resulting in hospitals increasing their rates on non-Medicare patients to compensate for that loss.

Every business in the healthcare industry rips off the end consumer because the end consumer is the one with the least bargaining power. What, are you going to bargain during a heart attack? Of course not – you aren’t going to do any bargaining in advance – you have no leverage. The only bargaining that you can do is after the fact, and that’s only because hospitals lose a lot of money handing bills over to debt collectors and dealing with things like the administrative overhead of long term low interest loans and taking people who don’t pay their medical bills to court, so you the consumer are able to bargain because you have these prospective monetary losses as your leverage. Most consumers don’t of course, and they don’t get to negotiate prices in advance, so as the party with no information, no leverage, and little bargaining power, they get the worst deal financially.

Simply put, the hospital prices don’t mean anything, other than maybe some sort of individual cost unit estimate multiplied by some sort of secret multiplicative factor. Frankly, I don’t believe that they should even be allowed to do this – I believe that they should be allowed to set a multiplicative factor that is high enough for them to remain open with maybe a little profit and that the rate for each item multiplied by this multiplicative factor should be the price. Not a negotiable rate or a price for a particular health insurance plan, but the price from which no negotiations may be made. For example, let’s say that the price per Wellbutrin tablet is $1 and the hospital’s price multiplier is times five. When the patient gets the bill, it will say “1 Wellbutrin tablet – $1*5 = $5”. If they have an unmet deductible greater than $5, then all of that $5 will go towards their deductible. Great, now the price for that tablet is $5, so the hospital gets $4 toward overhead expenses. If the hospital is in financial straights and needs to stay open, they can raise the multiplier. If they intentionally charge more money for things without changing the multiplier so that they can collect more money to go towards their overhead, that should be illegal, and if they add on unnecessary things to raise the bill, that’s a felony. Everyone gets to know the per unit price and everyone gets to know the current multiplier. All health insurance companies are forced to take every hospital at their rate – no negotiations. The purpose of insurance is to insure, not to wheel and deal. The doctors must be able to look up all the rates and multipliers just like everybody else because when they know the cost, they tend to leave out extra unnecessary costs like unnecessary tests. No switch to “value-based care” or “bundling” needs to happen if the doctors know how much money they’re charging their patients and take measures to avoid incurring unnecessary charges.

Of course, hospitals are money oriented businesses that seek to maximize revenue and minimize cost, so it is absolutely not in their interest to do this. Instead, they wheel and deal with everyone and in every way that they can in order to maximize their revenue minus their cost. This results in MASSIVE administrative burdens which alone make up 25% of the cost. In theory that burden could be mostly removed via automation if things were simple and unencumbered, and doctor’s pay could be cut by almost 50% before it would be in doctor’s financial interest to move to say Canada for financial reasons. That being said, as private businesses, there are all sorts of shady things that hospitals could do to manipulate costs and prices to bring in more revenue. They could come up with some horse shit which obfuscates prices even further (ex. “bundling”). They could leave out or add line items or codes. They could manipulate prices – the health insurance companies won’t stop them as long as they don’t do something big and obvious – little mistakes pass right through. Consumers don’t catch these things – most medical bills contain some sort of error and consumers don’t understand their bill because obtaining understanding requires looking up and asking people about each item, which involves a lot of time, effort, and frustration.

And what about the third parties like third party radiology and anesthesiology? Frankly I don’t even understand how they work – their pricing calculations are complicated and it’s harder for me to get prices out of them than it is to get prices out of my hospital and my health insurance company – in fact it’s impossible. What if they and the hospital that they work with start rejecting health insurance plans, “narrowing” coverage so that they are more likely to be billed out of network? Holy fuck. The prices for services like radiology and anesthesiology should be subject to the same price transparency requirements as hospitals, including making them reveal all their codes (CPT, HCPCS) and work units, the price per code/unit, and the math used to calculate their bills. If there’s a multiplier on them (let’s say the anesthesiologist bills $100 and that fee goes on to the end consumer as $120), then all that information should be public as well. Holy hell this is all very complicated and messy. The system is deeply fucked, but I believe that the more transparent and the less complicated the system, the better.

As for profits, here’s what I think. A hospital should be thankful to be open, and a doctor/surgeon should like what they do even if their salary isn’t a ridiculously high $471,100 (which is the median salary of a heart surgeon). If you only became a doctor for the money, you should never have pursued that vocation in the first place.

Why I Fight For Healthcare

Let me tell you why I fight for Healthcare. The entire American medical system is, from end to end, fucked up.

I worked in the technology industry at Amazon. If the customer says “I want it delivered”, Amazon asks “how fast do you want it?” Jeff Bezos LOVES his customers. Even though he is a billionaire, he silently listened in on customer calls so that he is attuned with the wants of his customers. Customer obsession is a corporate value at Amazon, not just for Jeff, but for the employees there as a group.

The medical industrial complex does not give a shit about its customers. What it really gives a shit about is their money, not the people themselves. If it were legal to do so, as a patient, I would kick the crap out of some of these people. There are people in the medical industry who, in my opinion, do not belong in this industry. I want whole systemwide reform for the benefit of medical patients. Please back Democrats like Bernie Sanders and Elizabeth Warren so that we can create a system that values human lives over special interests and giving more money to greedy people who are already rich.

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– John

p.s. I have to be 35 for President or Vice President, and I am 25 now, which is why I am backing Democrats like Elizabeth Warren, Bernie Sanders, and even Pete Buttigieg, the first openly homosexual running for the highest office in America. He is married, he served in Afghanistan, he went to Harvard and Oxford, and I think he is a good role model for gay people in America.

The John Reed Healthcare Plan

In this article, I will describe my healthcare plan for America. The plan will revolve around reducing cost and increasing care for all Americans. Its effectiveness will be measured via benchmarking the health of Americans and measuring costs, and the plan will be adjusted as needed to maximize effectiveness.

This is my idea. Right now, eligibility of healthcare services for the poor is dependent on the poverty level (ex. 133% of poverty level), and the US poverty level in 2018 is $12,140 for one individual according to this site:

We will gradually increase how poor you have to be to be eligible for services such as Medicaid and we will improve existing services. We will reduce costs by providing free preventive care and screenings that will prevent costly emergency room visits. Medically necessary things will be heavily subsidized by the government through the taxpayers. In addition, we will provide a safety net to protect people in case of economic crashes or catastrophes.

Right now, the poorest of the poor are lone, single people who are too poor to afford a place to live. These people beg on the streets and sleep on benches, under bridges, on grassy elevated hills, in sleeping bags, and even in tents. One (rather convoluted) way for these people to receive benefits is to get a PO Box from the United States Post Office (USPS), get their proof of identity or citizenship (ex. ID, Driver’s License, Birth Certificate, Certificate of Birth Abroad, or Passport), get their proof of past income, and apply for Social Security disability benefits and opt to have their disability check mailed to their PO box, then re-use that same PO box for Medicaid and SNAP (Food Stamps). That way they can get their benefits without having a home address.

This is incredibly convoluted and results in people not getting their benefits. Having a PO box is helpful for all people because it can hide one’s home address (for example in the case of stalking) and it separates the address where one receives their benefits from the address that they live in. By having a PO box that is separate from a home address and receiving benefits at the PO box, it is possible for people to keep receiving their benefits even after they lose their house. This is helpful in cases of an economic crashes or catastrophes. As part of the safety net program, I want all people below the poverty line to be eligible for a free small sized PO box and be able to receive their benefits at this PO box so that their benefits would not be tied to having a home address. In addition, I would like to gradually raise how poor one has to be in order to be eligible for benefits. Finally, I have a plan for illegal immigrants.

I feel that some Republicans have this notion that an illegal immigrant can just walk up to the government and say “Hi. I am an illegal alien and I have no proof of identity or citizenship. Can you give me free benefits?” and expect the government to give them benefits. This is not the case. In fact, in some states, under the law, they can even get deported. The problem with this is that because they don’t get things like Medicaid, they have to go to the Emergency Room of a public hospital instead of getting preventive care. This actually increases healthcare related costs because the ER is very expensive. Under my plan, I will reduce healthcare costs by giving everyone cost saving preventive care and I will benchmark and create metrics to measure healthcare outcomes and costs to produce the best, most efficient possible healthcare system. Right now, America has the world’s most expensive, least financially efficient healthcare system and my plan is to change that. We will no longer have the highest medical bills of any country in the world, and I have a plan to control bills as well.

In most US industries, it is illegal to charge one customer a certain price for a good and then charge another customer a different price for another instance of that same good. Imagine that you walked into a grocery store and the person in front of you was charged a quarter for a piece of fruit and then your were charged ten dollars for that same piece of fruit. That would be an outrage! Well that’s how medical billing in America works. The same item, procedure, or service costs different amounts of money depending on who is paying for it. In addition, it is impossible to compare prices because there is no way for people to look up how much a given medical item, procedure, or service costs ahead of time. Basically, it is easy for providers of these medical items, services, or procedures to totally rip people off and get away with it. Just ask Florida governor Rick Scott, who oversaw the largest Medicare fraud in US history. Under my plan, there will be measurements, benchmarks, and metrics to control cost and prevent people from getting away with medical scams or fraud. We will substantially cut medical bills, provide everyone with a safety net to protect them in case of emergencies or catastrophes, and improve the overall health of all Americans.

And of course, don’t forget the power that you as an individual have in improving your own health. By taking care of your health, you can reduce your risk of various illnesses and conditions. By not consuming unhealthy amounts of unhealthy foods or substances, you can improve your own health. Despite having the highest medical bills in the world, the average lifespan in America is several years less than that in other developed countries such as Japan, Switzerland, Australia, Spain, Italy, Sweden, France, and Canada. To give you an idea of how bad the health of Americans is compared to other countries, our average life expectancy is between that of Costa Rica and Cuba according to Wikipedia. Just look at these statistics:

Life expectancy by country

US life expectancy

America’s healthcare system is so bad that we have the highest medical bills in the world and in terms of life expectancy we are losing to Costa Rica. At the very least, I think we should beat Costa Rica.