Good, Bad and Ugly

This story about Terence Bryan Foley's seven-year fight against kidney cancer sums up all that is right, and all that is wrong with America's healthcare financing and delivery system. Mr. Foley had access to some of the nation's best hospitals and physicians, and was enrolled in clinical trials testing the newest treatments for his disease. He had excellent health insurance coverage, provided by his wife's employer.

That coverage provided outstanding protection against the $618,616 in charges incurred, leaving the family financially responsible for a mere $9,468. Providers, who billed $618,616, were paid only $254,176, after insurer's contractually negotiated discounts. This means, hospitals, physicians, imaging centers, laboratories and pharmacies wrote off 57 cents of every dollar they billed, because the insurance carriers that administered Mrs. Foley's health plan had negotiated very steep discounts. It also means that other insurance carriers, with smaller market shares and less negotiating clout were paying far more for the same service. And tragically, the uninsured, with no one to negotiate on their behalf, would be asked to pay the full amount charged by the hospital.


It is no wonder that Susan Phillips, a spokeswoman for the three hospital University of Pennsylvania Health System said the health system collects, on average 25 cents of each dollar billed, and prices need to be high enough to cover uncompensated care that totaled $101.4 million last year (that's 2.8 percent of this organization's $3.6 billion operating budget).

That one insurer negotiates more aggressively than another can be seen in payments for a CT examination of the chest. The Hospital of the University of Pennsylvania charged $3,323 for the x-ray procedure. United Healthcare paid $2,587 while Empire Blue Cross Blue Shield paid $776, three months later, for the same test.

Charges vary widely for the same procedure. For the same CT examination of the chest, the Foley family was billed $550 by an imaging center in 2001, $1,252 by St. Joseph Hospital in 2002, $1,750 by the Cleveland Clinic in 2003 and $3,232 by the Hospital of the University of Pennsylvania in 2006 and 2007.

Mr. Foley received four intravenous doses of Avastin, a cancer drug designed by Genentech to slow tumor growth by attacking the tumor's blood supply. The charge: $27,360 . . . per dose! The cost to the Hospital of the University of Pennsylvania: $6,600 per dose. The mark-up: 315 percent.

The paperwork for Mr. Foley's care, over the seven years he underwent treatment totaled 4,750 pages. That only hints at the enormous burden of administrative costs in the U. S. health system. The New England Journal of Medicine in a 2003 article, concluded that administration accounted for 31 percent of health care expenditures in the U. S., compared with only 16.7 percent of health care expenditures in Canada. Between 1969 and 1999, the share of the U. S. health care labor force accounted for by administrative workers grew from 18.2 percent to 27.3 percent. In Canada, it grew from 16 percent in 1971 to 19.1 percent in 1996.

Both nations' figures exclude insurance-industry personnel, and that is where enormous growth has occurred in the U. S. In 1969, the managed care industry, with its hundreds of HMOs, PPOs, pharmacy benefits management companies, utilization management companies and credentialing verification organizations didn't exist.

In part, this is why the U. S. spends $6,096 per person for health care to have the 37th ranked health system in the world, while France, spends $3,040 per person to have the world's best health system.

We have a healthcare delivery system in which costs vary widely for the same service, even in the same medical marketplace. One carrier may pay 80 percent of a provider's charge, another may pay 24 percent, and the uninsured are asked to pay full price. John E. Wennberg and his colleagues at Dartmouth, point out in Improving Quality and Curbing Health Care Spending: Opportunities for the Congress and the Obama Administration, that, "There are islands of excellence in the sea of high cost mediocrity—hospitals and physician practices that are delivering high value health care that is less costly, more efficient, and produces better health outcomes."

America can do better. It may be that Title III of the Senate's health reform bill, Improving the Quality and Efficiency of Health Care, will turn out to be one of the most important parts of the bill, because it can lead to the identification of best practices and the proliferation of these care models to other parts of the country. As Wennberg pointed out, if Los Angeles, CA hospitals had achieved the care intensity benchmark of Sacramento, CA hospitals in 2005, Medicare would have spent $468 million less for inpatient care that year. No new medical technology would have to be invented; no miracle drugs would have to be discovered. The same care delivered in Sacramento, CA during 2005, would simply have to be delivered in Los Angeles, CA, only 385 miles away.

America can do better. Passing health reform will start us on a path of higher quality, more efficiently delivered healthcare services that cost each of us less.