Tanstaafl??

Maybe I should explain the name of this blog.  I first heard of tanstaafl way back in my mis-spent youth when I read TONS of science fiction.  Robert Heinlein was the best, of course.  For those of you who have never read his books, GO GET THEM!  Tanstaafl came from The Moon is a Harsh Mistress, and it stands for there ain't no such thing as a free lunch.  If more people knew and believed that, the world would be a more rational place.  In healthcare, most of our problems are the result of people trying to find the free lunch.  Ain't there, folks.

Why Does My Band-Aid Cost $50 in the Emergency Room?

Why Does My Band-Aid Cost $50 in the Emergency Room?

 

     Everyone who has the misfortune of needing the emergency room eventually gets a bill.  Many of them wonder why simple supplies and treatments cost so much when they are delivered in the emergency setting.  The specter of gouging by greedy hospitals is frequently raised.  There are actually reasons that are obvious for the huge markup when analyzed with financial data.   I propose to clarify this situation by explaining the income and expenses portion of an emergency room’s financial statements.  While many hospitals are non-profits, I believe that the analysis is the same, whether the goal is profit or continued operation of the hospital. 

     Income, or revenue, comes almost exclusively from payments made to the emergency room for services rendered.  In looking at these revenues, it helps to think of the different payers, Medicaid, Medicare and the private insurances, as different lines of products.  In the same way that a department store may sell several different lines of jeans, most of which have similar costs, at far different price points, an emergency room providing a certain service has several different price points.  Medicaid and Medicare reimbursement rates are set up the government, and not open to change.  Private insurance payments are negotiated on an annual basis.  Like any business, when a product is sold for a higher price, if the cost of the product remains similar, profit goes up.  Medicaid and Medicare are frequently priced below the hospital’s breakeven point for providing services.  This results in most of the profit coming from the private insurance payments, which requires more markup.  Medicaid and Medicare act as loss leaders, providing the hospital with marketing and volume, but their price points require augmentation from the private insurances.  Currently, in Pennsylvania, Medicare is paying between 70-85% of private payers.  Medicaid pays on average 66% of that.  Clearly, if the payment is coming from private insurance, prices will be higher than if the payers were all equivalent. 

     Fixed expenses in an emergency room are quite high.  Usually, there is a great deal of square footage that is needed to operate.  Staff expenses are fixed in a set range of the number of patient visits.  Physicians, nurses, aides, physician extenders, registration clerks, housekeeping, financial services counselors, respiratory technicians, radiology technicians, social workers are a few of the myriad positions that need to be staffed around the clock, regardless of the patient volume.  As most businesses know, payroll is frequently a large portion of expenses, as it involves benefits, and tax consequences.   Also, malpractice insurance is necessary for all involved in the emergency room, including the hospital itself.   Another large fixed expense is the equipment necessary for modern medical care, x-ray machines, CT scanners, ultrasounds, MRIs, ambulances, sometimes even helicopters.  Each of these expensive machines requires staff to ensure that they continue to operate at all times.  These purchases can be depreciated on a financial statement, but frequently become obsolete quickly.  The useful lifespan of each generation of machine can be quite short.  Each certification that is required, JCAHO (Joint Commission on Accreditation of Healthcare Organizations), trauma certification, emergency nursing certification, board certification for physicians, is another fixed expense, requiring licensing fees, and personnel time to maintain paperwork.  Mandated electronic medical records require computers, programs, backups, and information technology personnel, also around the clock. 

     Variable expenses could be thought of as supplies, medications and utilities.  However, in the emergency room, many of these variable expenses are less variable than is commonly thought.  Medications that are used for specific purposes frequently need to be replaced because of expiration dates.  For example, a “code cart”, the cart holding medications for reviving a patient who has stopped breathing, has to be constantly up to date, even though it is hopefully not used often.  Once a month, the cart will be cycled and all the medications thrown out.  Even utilities, thought to be variable, are really not in the emergency setting, since all the equipment needs to be kept powered on and ready to go at a moment’s notice.

     If the goal is to deliver quality medical care at a lower price point, there are several things that can be changed in this system.  On the revenue side, equalizing price points between the payers will bring down the costs for private insurers, but may increase the overall spending by increasing Medicare and Medicaid costs.  To decrease medical system costs, ideally, only problems that require all the expensive resources of a fully functioning emergency room would enter.  A system could be put in place to direct less urgent problems to centers with less fixed costs.  Currently, federal law prohibits this.  Hospitals can increase the number of patient encounters to move further from the breakeven point.  There is a practical limit to this, as none of us wishes to be rushed through our emergencies without adequate time and attention.  On the expense side, we must realize that every mandate and requirement added to the system increases fixed expenses that need to be covered.  Malpractice reform resulting in lower malpractice insurance premiums for all parties would decrease expenses.  Under the current system, however, a $50 Band-Aid pays only a small portion of all the technology needed to run a modern emergency room. 

The government wishes to mandate electronic medical records. The price of a mandate comes from my pocket directly. If the government requires a computerized medical record, it is my money that goes to buying it. I have to sign a loan, and pay it back with interest. It is not a cost-free "improvement". If it translated into more income, no one would have to mandate it, we would be lining up to get one. Therefore, if the government is requiring it, it must lose money. Does it improve care? The studies don't back that up. No cost-savings, no improved care. So why the push to computerize records? Who would that benefit?

Hybrids

This has nothing to do with medicine. Just a stray thought.
My Harley gets 60 mpg. A Prius gets 50 mpg. Why is a Prius so eco-friendly, and my Harley is not?

New York Times misses the point

http://www.nytimes.com/2010/04/07/business/economy/07leonhardt.html?hp
Do you think they miss the point on purpose? The second sentence of that article tells the entire story. The federal government wants to set up "institutions" that decide what care is worth it. We already have the medical societies and the university medical centers doing studies to determine the best outcome treatments. This takes a while to establish, but is being done all the time. What people don't trust is the government coming in to decide what is reasonable on a one size fits all plan. The article contradicts itself when it describes patients deciding that more is not necessarily better when given the tradeoffs of treatment, but also describes the public (which is the same as patients, isn't it?) wants everything. What the patient needs is a primary care doctor who stays current on the information available, giving the best advice he can on treatment options and side-effects. Then the patient has the option of deciding what is appropriate for his own case. What the patient doesn't want is a government agency deciding what if appropriate. Who knows what criteria they used to decide your medical care?

I've been insulted. Grievously. And, yes I take it personally.
Dr. Obama has stated that doctors will take out kids' tonsils just because they get paid better. I've been in medicine for 20 years, and grew up in a medical household. The number of physicians I have met who would do procedures harmful to their patients, just for money, could be counted on one hand. Yes, they exist (unfortunately) but we despise them. They are the marginal in our profession, and are treated as such. Certainly the percentage of greedy physicians is much lower than the percentage of greedy, unscrupulous politicians, by far.
Let me explain how the system should work. Children who are sick with a sore throat, as judged by their parents, come in to see the pediatrician. The pediatrician treats them with antibiotics, or allergy medicine or nothing, as he sees fit. If the child keeps coming in with sore throats, he starts looking for other problems. If he decides the child needs a tonsillectomy, he sends the child to an ENT surgeon. The ENT surgeon then decides whether he agrees that the child needs a tonsillectomy or not and if so, does the surgery. Now, the pediatrician DOES NOT get paid for the surgery. He does not get a percentage; he does not get a kickback. The surgeon gets paid for the surgery, but if he does surgeries that the pediatrician did not think was necessary too often, he gets no more patients from that practice. If the parents disagree with the pediatrician or the surgeon, they are free to find another one. If that happens too often, the pediatrician has no practice. Automatic checks and balances.
Do you see the problem with that system? When anyone other than the parent and the pediatrician have control over the interaction, it fails. So when the government wants to control costs, where's the check and balance on their control?

I had a conversation with a doctor in training the other day. She didn't really pay much attention to health care policy, because she is too busy learning what she needs to know to care for children when she graduates. Lovely person, she'll be a terrific doctor when she's done. We talked about health care reform, and the problems of a nationalized health care system. I said something about the government deciding what procedures would be done for which kids, and her response was, "Well, the first time that happens, Dr. (someone she really admires as a good physician) will quit!" Of course he will. And who will be left to care for our children?