Dean CoddingtonSteven Brill’s unprecedented essay, "Bitter Pill," which took most of the content of Time’s March 4 issue, caught my attention, as I’m sure it did yours. The managing editor noted that, “For the first time in our history, we are devoting the entire feature section of the magazine to a single story by one writer: a powerful examination of America’s health care costs.” Really?

Much of the story deals with hospital billing practices and the “Chargemaster.” A friend, and former CEO of several large health systems, commented, “I would never be an apologist for the crazy quilt of charging by hospitals.” He went on, “The Chargemaster becomes the’ crazy aunt in the basement.’”

While the article is sprinkled with interesting anecdotes and is well written, I thought it was incomplete in explaining why U. S. healthcare costs are high and growing rapidly. For example, the author never makes the point that only a small percentage of patients (mostly uninsured) are billed at Chargemaster rates, and we have seen estimates showing that the collection rate is around 10 percent. 

Brill quotes the various McKinsey Global Institute studies that compare healthcare costs in the United States with those of several other developed countries. However, he ignores one of McKinsey’s major findings: About three-quarters of the reason that U. S. costs are higher relates to outpatient services, mainly physician-owned ambulatory and imaging centers and specialty hospitals. In other words, hospitals are not the main culprit. 

My CEO friend also said, “I am familiar with a hospital that ran absolutely full during the month of December and lost $6 million dollars. Why? It was filled with flu patients on the medical services side and lost money on each one.” These sorts of cases were never mentioned in the Time essay. 

While the Time article is likely to cause pain and embarrassment for hospitals, the emphasis for bending the cost curve should be on value-based payment, focusing on patients with chronic disease (keeping them out of the hospital), avoiding readmissions, tackling inappropriate and unnecessary care, and reducing administrative complexity of the fragmented U. S. healthcare system. Although not defending the Chargemaster, these initiatives would, in my view, have a much greater payoff. 

For more detail on our views on factors driving healthcare costs, and what can done to reduce the rate of increase, please see our article in the March issue of hfm

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Dean C. Coddington is a senior consultant, McManis Consulting, Denver, and a member of HFMA’s Colorado Chapter.

Publication Date: Wednesday, March 06, 2013