Medical markup

Diagnostic labs make big bucks, too, with our largest making $7.4 billion in 2012. In-house labs at hospitals and large group medical practices funnel their profit back to the owners. In some cases more tests are ordered for patients than absolutely necessary. This is one reason why you see more physicians consolidating and being in business with other doctors rather than in private practice, and why you are seeing more medical groups owned and run by hospitals. Physicians also can receive grants, stock options and Caribbean trips for drug companies and medical device suppliers as incentive to use their products.

Medical care is a big and very profitable business. Nonprofit hospitals are often the biggest employers in a town, and they pay their administrators big bucks. Steven Brill, who authored the Time report, pointed out that eight of the largest 18 largest private employers in New York are hospitals. To appear non-profit, hospitals channel their bucks by growing, expanding, hiring more people, buying more equipment, and raising salaries for the administrators of these now-larger facilities.

None of this price-gouging would be an issue if we all had insurance that paid for all medical costs. But most of us don’t. Even people in the middle and upper classes, with good insurance, often find that it has payout limits, such as $2,000 a day for a hospital stay or $500,000 annually. That sum can be quickly surpassed, leaving big fat bills that no honest person can pay. Obamacare prohibited new policies from stating lifetime limits and by next year will phase out annual limits as well. It is expected that premiums will climb sharply.

Medicare’s payment rates — for procedures, lab tests and all the other components of a medical bill — are supervised by Congress and much closer to reality than chargemaster rates. Private insurers negotiate lower-than-chargemaster rates as well, though they are much higher than what Medicare pays. Hospitals and doctors like to accept patients who have Medicare because they know they will pay, and will pay quickly. Also, the older population served by Medicare tends to seek and need medical care more than the younger set, which leads to more billable services.

Ninety percent of people old enough for Medicare also have a supplemental insurance policy that pays most of what Medicare won’t cover. Suggestions to help ease the high cost of medical care have been to privatize Medicare so that people eligible would get a voucher from the government to buy insurance from private companies. Or to extend Medicare to everyone and charge premiums to those under 65, with a sliding scale based on income. Brill suggests that letting people join up before age 65 would be cost-effective. It works well in other countries because younger, healthier people cost less to insure. He does admit that reducing the income of doctors so drastically would not be all good. Nor would giving the federal government that much power over our health care.

And of course, such a thing would severely cut into a lot of profits.

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