America's Bitter Pill

by Steven Brill

  By now, I was supposed to be able to understand medical bills and insurance notices, I thought. And I was so bored hanging around my house that I was even looking forward to diving in and translating them.

  But several of the “explanations” were incomprehensible. One said the amount billed for one prescription was zero, but that I owed $152.84.

  “I have no idea what that means; I would have no idea how to decode that,” said Stephen Hemsley, the president and CEO of United-Health Group, when I handed that document to him across a conference table in his Minnetonka, Minnesota, office a few weeks later. “It should never be sent that way, but state regulations dictate how we have to communicate.”

  Hemsley promised to have his staff, one of whom was sitting next to him taking notes, send me the regulations that dictated that the explanation I got had to be worded that way. What I got instead were citations to general New York state and federal regulations that required that the explanations be sent but in no way required the incomprehensible wording I had received. In fact, one provision in the regulations seemed to require the opposite: “The notification shall set forth, in a manner calculated to be understood by the claimant …”*27

  What did it say about the competence and purpose of an industry, I thought, when the chief executive of its largest, most successful company can’t explain the most basic communication he sends to his customers?

  The most voluminous Explanation of Benefits had to do with the hospital bill, which was actually in two documents because the anesthesiology, $5,071, was separate from the rest of the bill: $149,872.50 for my surgery and eight-day stay. (My surgeon’s $19,400 was also separate, as was a $23,000 bill for a cardiac catheterization.)

  The $150,000 bill was a chargemaster aficionado’s dream, all twenty-two single-spaced pages of it. Blood and urine tests and intravenous supplies of various fluids—which Medicare would pay $10 to $15 dollars for—were billed at $19.84 to $308.97 each. There were 124 of these charges on the first six pages of the bill.

  In all, according to an estimate provided to me by New York–Presbyterian’s finance office, which I checked against the Medicare bill coding database, Medicare would have paid a total of $60,000 to $70,000 to cover this $150,000 bill.

  Every aspirin I got was $0.13, which is lower than the charge on other hospital chargemasters I had seen, yet still a markup of 400 to 500 percent for an item you can buy in a drugstore for two or three cents a pill.

  “Patient education”—whatever that was, which apparently had happened on the day of my surgery, according to the bill—was $82.69.

  Every time a cheerful guy had wheeled in the portable x-ray machine to check my battered chest, which was once or twice a day, that was $451.59.

  Three days after the surgery, someone spent what I remembered was fifteen or twenty minutes explaining that I should begin trying to walk the halls, which I had already started to do on my own. On the bill that had become “Physical Therapy Initial Eval,” for $351.79. Under that was “PT Therapeutic Exercises,” presumably for when he walked me down the hall, for $186.54.

  One item was missing from the New York–Presbyterian chargemaster that I had often seen on other hospital bills listed as a “cough suppressant” for $50 or $100: the heart-shaped, firm red pillow with the logo of the hospital’s cardiac service that a nurse had given me to clutch to my chest whenever I felt a cough coming. Yet pretty much everything else in the chargemaster playbook was there.

  All of those hundreds of miscellaneous items were on top of room and board, which was $63,000, plus a $3,750 charge because I chose a private room once I got out of the cardiac intensive care unit.

  But the biggest surprise was at the bottom of the bill.

  UnitedHealthcare’s discount for the total of all of these crazy charges was just 12 percent!

  New York–Presbyterian was keeping 88 percent of that $351.79 chargemaster charge for a few minutes of “Physical Therapy Initial Eval,” not to mention the $63,000 for eight days of room and board and the inflated prices for lab tests and fluids.

  How could that be? The hospitals that had churned out the chargemaster bills I had examined for the Time article typically discounted 30 to 60 percent off these fantasy prices when billing insurers, even as they stuck hapless patients without insurance with the full charge. Why would a heavyweight like UnitedHealthcare, the country’s largest health insurer, tolerate only a 12 percent reduction? United had even knocked down the separate bill from my surgeon—who was considered a master of aortic aneurysms—by 65 percent, from $19,400 to $6,697. (The surgeon was an employee of the doctors’ practice unit of the hospital’s affiliated Weill Cornell Medical College, from whom I got that bill.)

  I asked insurance industry contacts if there was something bizarre about my bill and the 12 percent discount. There wasn’t. “If you want to sell insurance in New York, you have to have New York–Presbyterian in your network—and they know it,” one told me.

  “That’s right,” Hemsley, the CEO of United, agreed when I showed him the bill. “Some hospitals can drive a hard bargain because people want to be treated there and employers want to provide that to them, even if we can supply data that says there may be places to get the same or better treatment for less money.”

  Part of the reason for the hospital’s leverage was size. New York–Presbyterian was the product of the 1998 merger between what were probably the city’s two most prestigious hospitals and medical teaching institutions: Columbia Presbyterian, which included the Columbia University College of Physicians and Surgeons; and New York Hospital, which included the Cornell University Medical College (now called Weill Cornell Medical College). The combined hospital system now had nearly 22,000 employees and 2,500 hospital beds, more than 125,000 annual patients, and nearly 2 million outpatient visits.

  The hospital owned or was allied with more than a dozen other hospitals and clinics around New York. The latest financial report it had filed with the IRS, covering the 2012 calendar year, reported that New York–Presbyterian had revenue that year of $3.9 billion and operating profit of $504 million, a robust 12.8 percent of its revenue.*28

  With that kind of footprint and resources it seemed obvious that an employer would have to gulp hard before signing on with an insurance company that didn’t have these merged providers in its network, even an employer like mine that was self-insured and cared about costs.

  However, New York–Presbyterian’s leverage was about more than size. Like many New Yorkers, even before my surgery I regarded New York Hospital and Columbia Presbyterian—and now its merged colossus—as the city’s leading medical centers. My children had been born at New York Hospital and received great care there. A large portion of what seemed to be the best doctors had practicing privileges there and taught at one of its two medical schools. New York–Presbyterian was always in the news, it seemed, as the hospital of choice for people who could go anywhere—such as former president Bill Clinton, who had had heart surgery there. There were also, I admit it, the ubiquitous ads promising that “Amazing Things Are Happening Here.”

  But that vaguely good vibe had now been replaced by something more tangible: eight days in which they had stopped my heart, fixed it, and brought it back. Would I ever let some insurance company steer me to another hospital after all of that?

  As I thought about the powerlessness (not to mention cluelessness) of the UnitedHealthcare CEO when it came to my bills and Explanations of Benefits, juxtaposed against the strong hand that New York–Presbyterian seemed to be playing, my idea began to take shape.

  MY $40,000 BED

  When I was able to move around, I went back to the hospital to ask its top executives about that paltry 12 percent discount on its chargemaster prices.

  But before arriving in their suite on the first floor, I want upstairs to look around the cardiac recovery unit where, in hospital CEO Steven Corwin’s words, I had been “naked in every way.” Dressed now in a suit and feeling fine, I had a more
clear-eyed view than I had had the last time I was there of the work Corwin and his people did. It was no less impressive.

  Walking past the elegant, sunny atrium (funded by, and named for, corporate mogul Ronald Perelman) where my wife and children had waited for news from my surgeon, I was retroactively scared for them, and glad they had been able to wait in a place that was trying so hard not to be scary.

  Near the swinging doors through which they had wheeled me into the hall outside the operating room, a man covered from head to toe in hospital patient garb was waiting on a gurney. He was holding the hand of a woman whom I guessed was his wife. One attendant spread the doors open so another could push him through.

  He probably didn’t know that when he got through the doors into the hall outside the operating room the super-solicitous attendants were going to ask him if he wanted to stand up and walk in and get on the table himself. I had accepted the invitation, thinking—only half-facetiously—that I might as well take a few last steps.

  On a wall down the hall I noticed a banner I had not seen before, celebrating one of the floor’s units for its safety record. Another poster called out a non-doctor for some other achievement.

  I saw someone being wheeled carefully into a room, presumably having graduated to this side of the floor from the intensive care unit where patients like me started to come back from the dead. Had I looked that helpless?

  I walked past my friend—a Jamaican, I think, with two kids in college and some investment property in North Carolina—who had wheeled a movable scale into my room every day, always eager to strike up a conversation while also checking to make sure someone had cleaned my bathroom. He smiled, but he was focused not on the guy in the suit, but on the patient in the room at the left waiting for him. “Looking good,” he told him.

  I saw the small, quiet woman who had taken my blood twice a day—taken it so skillfully that I swear I never felt even a pinprick. I had told her she was the best phlebotomist in the world once she had told me how to pronounce her profession. She, too, wasn’t focused on the guy wearing a suit.

  Then I reached for my notebook to write something down. It wasn’t there. I had taken it out in the lobby, and must have dropped it. When I got down to the lobby, the security guard was waiting for me. “You left this,” he said, cheerfully. Which reminded me of how courteous my wife and kids had said the guards had been when they had come to visit at all hours of the day and night.

  “I GO AROUND ALL the time to meet new employees during orientation,” New York–Presbyterian chief executive Steven Corwin told me when we sat down in his conference room with Robert Kelly, an anesthesiologist, who is the hospital’s president. “And I ask them, ‘Okay, how many of you are going to be taking care of patients?’ About half the hands go up. So, I tell them, ‘That’s wrong. Guess what? All of us take care of patients. That’s what we do.’ That includes the security guard you just told me about,” Corwin added.

  When our discussion shifted from culture and patient care to finances, Corwin and Kelly talked about the investments New York–Presbyterian had made that, they said, put their high prices in context. They were constantly trying to recruit the best doctors from around the world to teach and lead practice areas, or sometimes to establish new practice areas they had targeted. They had spent $30 million to automate lab testing and speed up test results when they were needed immediately. They were running a multimillion-dollar program directed at poor families in upper Manhattan, aimed at monitoring their health and coordinating their care before they got seriously ill.

  When they mentioned the cost of stocking their hospital with the high-end equipment used to treat patients like me, I asked for details and later got this tally:

  The night before my surgery I underwent what is called a biplane catheterization to provide the doctors with a video image of what was going on in my heart. The equipment in the combination lab and operating room where that was done cost $2.7 million. (I got separate bills for this procedure totaling $23,000.)

  The equipment used by my surgeon, my anesthesiologist, and their teams in the operating room cost $522,000. (My big bill had included $20,992 for use of the operating room during my six-and-a-half-hour operation.)

  The equipment used just for me in the cardiac intensive care unit and then in the “step-down” room I graduated to cost $105,000. That included $40,000 for the “critical care” bed in the ICU, and $15,000 for the step-down bed.

  Other than making me wonder whether I had missed a story in not looking at how medical economics had gone so wild that even people selling hospital beds had figured out that the sky was the limit, I got Corwin’s and Kelly’s point about how they were on the receiving as well as the giving end when it came to big bills.

  Then I handed Corwin a copy of my twenty-two-page chargemaster bill and asked him to explain it.

  Had UnitedHealthcare really only been given a 12 percent discount off all those high lab test bills and $451 portable chest x-rays?

  “That’s right,” Corwin said, without hesitation, although he noted that for some services more common than my heart surgery New York–Presbyterian’s discounts off the chargemaster were higher. More generally, Corwin offered the standard explanation that the hospital loses money not only on the Medicaid recipients, who are 30 percent of its patients, but also on the 30 percent of the beds filled with Medicare patients. Therefore, Corwin said, he has to make it up on charges for his privately insured patients.

  Medicare claims that its fees cover what should be the actual costs plus overhead for every treatment, with regional cost factors included. If a hospital’s actual costs are higher it must be operating inefficiently, Medicare officials argue.

  “We lose 20 percent on Medicare patients,” Corwin insisted. “And we operate as efficiently as possible but without affecting the high-touch care that happens at the bedside.”

  Why do hospitals take Medicare patients if they lose money on them, I asked, adding that all along the highways in Florida—which obviously has a high percentage of Medicare patients—hospitals have billboards, like the ones he has in New York, trying to attract patients. “Well, it’s better to have a bed filled at a discount rate than have it go empty,” he replied. “So incrementally, it is profitable. But not when you count the overhead.”

  “When you add back into overhead all the subsidies a place like New York–Presbyterian gets for teaching [medical students], research, and other things, I guarantee Medicare is profitable for them,” one former senior Medicare official directly involved in setting rates told me. He did concede that the hospital probably loses “something” on Medicaid patients. Yet, as we can now tell from the rosy earnings reports from publicly held hospital chains since Obamacare launched, even the expansion of Medicaid boosts hospital profits because these patients now have insurance and, therefore, do not become charity cases or debt-collection problems.

  Besides, whatever New York–Presbyterian makes or loses caring for Medicaid and Medicare patients, and even with all those “high touch” expenses (which I had certainly appreciated), the hospital is accumulating hundreds of millions of dollars in operating surpluses every year. “Yes,” Corwin acknowledged. “But that kind of financial strength preserves this institution and makes us able to do more.”

  “THE OTHER HOSPITALS DO IT, TOO”

  Even the $22.8 million (according to its 2012 IRS filing) that New York–Presbyterian spent on marketing and advertising, including a sponsorship as the “official hospital of the New York Yankees,” made sense when Corwin and Kelly put it in the context of helping recruit the best doctors and boosting employee pride and morale.

  The marketing budget included funds for a prominent “Amazing Things Are Happening Here” billboard on Manhattan’s West Side Highway and, in 2013 and 2014, for unusual cooperation with and promotion of an ABC prime time show called NY Med that allowed cameras to chronicle the challenges and triumphs of the hospital’s staff.

  Didn’t all tha
t also drive their ability to negotiate hard with UnitedHealthcare? “Of course,” Corwin acknowledged. “But,” he reiterated, “that allows us to have the resources to continue to do more research and expand care.”

  “The other hospitals do it, too,” Kelly, the president and chief operating officer, added, noting that “we just lost the billboard to NYU”—the NYU Langone Medical Center.

  NYU, along with hospitals and clinics run by Mount Sinai Hospital and the North Shore–LIJ Health System, were three fast-growing hospital conglomerates that were Corwin and Kelly’s main competitors. In each case, they gave bigger discounts to insurers, because New York–Presbyterian was perceived to be the more indispensable brand. Yet because of their own good reputations and their takeover of other hospitals and doctors’ practices, each was indispensable enough that they, too, were included in most insurers’ networks without having to extend deep discounts.

  Didn’t New York–Presbyterian’s leverage to bargain hard for high prices not only allow for better care but also for higher salaries for themselves and everyone else, I asked Corwin and Kelly. After all, even when all that research and “high touch” care was paid for, they still had hundreds of millions of dollars in profits and were able to pay themselves (according to the 2012 IRS filing) $3.58 million and $2.6 million respectively. In all, eleven New York–Presbyterian executives were paid over $1 million. The hospital had even paid Corwin’s semiretired predecessor $5.6 million in 2012 for his work as a vice chairman helping with fund-raising and lobbying on behalf of the hospital’s academic centers. I got the usual answer about how complicated the business they managed was and about how compensation consultants reviewed their salaries with the board to make sure they were on a par with industry standards.