The High Cost of Collusion: Why Health Care is So Expensive in the US



hello my name is David Belk and as I was

introduced I do have a small solo

practice in Northern California really

it's just one receptionist and my wife

does my billing but this talk today is

about the research that I've done in

healthcare costs and I use a different

approach to healthcare costs than most

of what I've seen mostly my approach is

about the cost of the individual

products and the billing and

reimbursement process I've written down

much of what I have found in a website

called the true cost of health care and

I'll take you through some of it today

mostly I'll be focusing on the fact that

the cost of health care products for the

most part the real costs are hidden and

deceptive to most people

medical bills by and large are grossly

inflated and never meant to be taken

seriously and that the reimbursement

process is a very secretive and very

disingenuous process and I'll start with

a simple example so any time a new

patient comes to my office one of the

first questions I'll ask them is are you

taking any medications and he might say

for example well yeah I have high

cholesterol so I take simba statin so

Alaska how much you pay for that

simvastatin and he'll say well I have

insurance so doesn't coffee very much I

only pay ten dollars a month for it all

right so to make a demonstration I'll

call up the local Walgreens right in

front of him and I'll ask maybe even the

Walgreens where he bought it and I'll

ask if somebody buys one of your club

cards which only cost twenty dollars a

year and doesn't have any insurance how

much can they get three months of

simvastatin for and Walgreens will tell

me it's twenty dollars so then to drive

the point even further I'll call up

Costco and I'll ask if somebody buys a

full year supply of simvastatin twenty

milligrams and doesn't have any

insurance how much will it cost them and

they'll say twenty seven dollars and

sixteen cents twenty seven dollars and

sixteen cents for three hundred

sixty-five pills and by the way just to

prove you I'm not making this up

Costco never lies to me here's a receipt

somebody brought me dated January 20th

of this year

7:16 you can see 365 pills there

simvastatin 20 milligrams so what's

going on here is costco trying to

undercut the competition by selling at a

loss is Walgreens just taking pity on

the uninsured well no the truth is Simba

statin 20 milligram pills actually cost

pharmacies in the u.s. an average of

about 2.8 cents a pill okay that's the

average you can assume nobody gets it

for free so probably nobody pays five

cents a pill for it alright so in

reality that 30 pills that my patient

got for 10 dollars cost the pharmacy

only 84 cents the 90 pills only cost the

pharmacy about 2.50 cents and even the

365 pills at Costco sold for $27 only

cost them about $10 so in all cases

there was a profit to be made it's just

the highest profit margin in terms of

percent was made by the guy from the guy

who used his insurance how do I know

this well about three years ago CMS the

guys who run Medicare started surveying

retail pharmacies and asking them how

much they pay for the medications they

buy basically how it works as they

survey several hundred retail pharmacies

each and every month and they ask how

much do you pay for all of the

medications you buy and they don't just

take their word for it they actually

demand the copies of the invoices and

they publish a list each and every month

called the national average drug

acquisition cost or Natick and going

over these lists I've learned something

that I've suspected for many years most

commonly prescribed generic medications

cost only pennies a pill there are

hundreds of medications that pharmacies

buy every single month for less than 10

cents a pill and many more for less than

30 cents a pill and so it's really easy

for them to sell these medications for

far less than most insurance co-pays

would be and I know this because for

years I've been sending my patients to

Costco just as I showed with that first

patient to buy their medications not

just if they don't have insurance but to

save money on what would there be their

insurance copay

an example he got five receipts here

that someone brought me you got one for

diabetes three for blood pressure one

for cholesterol a year's supply in all

cases and this patient only paid 150

dollars for if he'd had a $5 monthly

copay uses insurance it would have cost

him $300 right it's not that hard

walmart has been doing this for you know

four years they've advertised their $4 a

month or $10 for three months for

generic drugs and this isn't because

Walmart and Costco are so huge they can

undercut the competition

the reality is CVS and Walgreens are the

titans in retail pharmacy CVS and

Walgreens sell more than forty billion

dollars a year in retail and

prescription drugs

whereas Walmart's actually rather small

compared by comparison they're only 17

billion and Costco is not even on that

list because their sales are only around

two billion dollars a year so if Costco

and Walmart

I mean if Costco and Walmart can do this

pretty much any pharmacy can including

even local pharmacies now that's for

generic medications obviously if we're

talking brand name medications it's a

different story all right here we see

again we're back to simvastatin I'm

comparing the price of generic

simvastatin what pharmacies pay for it

to zocor which is the brand-name version

of simvastatin and as you can see

there's quite a difference the zocor

cost pharmacies six dollars and 89 cents

a pill even though there's been a

generic version for years that's less

than three cents a pill the difference

really is for most generic medications

between the generic and brand name

medications one hundred to two hundred

to one and you know here's cost goes

priceless to compare about the same

thing this time is zocor 40 milligrams

766 dollars for a hundred pills whereas

the simvastatin the generic version only

cost $14 and you can see there's an

advantage to buying in bulk

- it's only four dollars more than 100

bills only four dollars more than 50

pills all right but most pharmacies

would rather not do it the way Costco or

Walmart do it because

there's a lot of money's and co-pays

most retail pharmacies prefer to get the

copay because it's more money in fact

CBS's own financial statement they admit

this their 2011 years a quote from the

2011 financial statement during 2011

2010 2009 our pharmacy gross profit rate

continued to benefit from an increase in

generic drug revenues which normally

yield a higher gross profit rate than

equivalent brand-name drug revenues in

other words there's a lot of money in

co-pays and you can see just from the

growth of CVS and Walgreens they've

tripled their revenue since 2001 double

the number of stores retail pharmacies

so there's a CVS or Walgreens next to

every Starbucks now and again from their

own financial statements

you know CVS in 2013 seventy percent of

the retail pharmacy revenue was from

prescription drug sales ninety eight

percent of the time they involved a

third party insurance even though over

80 percent of the prescription

medication sold were generic that's up

from less than 50 percent back in 2000

okay now uh because they like brand-name

I have no idea yes they're identical in

every way chemically every the only

difference is the price and if you

prefer the designer drug and you got the

money you know but no other than that I

wouldn't I would I would never encourage

someone to take a brand-name drug now

there are medications for which there is

no generic and you're stuck with the

brand name then you're in a trouble if

you don't have insurance as you can see

from those prices however you know how

is it possible for the pharmacies to I

guess you could say convince everyone to

use their insurance well the list price

most pharmacies use is so inflated the

insurance really does seem like a deal

this is the list price CVS will give you

if you ask them how much they charge for

simvastatin 20 milligrams they'll tell

you Oh 30 pills is almost $40 even

though the cost of the pharmacy is 84

cents and 90 pills is almost 110 dollars


the cost of the pharmacy is only two

dollars and fifty cents so that's why

when you handed me your insurance card

and you get your pills they hand you a

receipt that says you save $29.99 on 84

cents worth of pills so obviously you

have a case here where right you

obviously you have a case here where the

insurance company has gone to the

pharmacy and said look involve us in

every single purchase for prescription

drugs and we'll make sure that you get

co-pays that are higher than what you

would normally get for selling these for

cash so basically we have this deal here

where the pharmacy and the insurance

company are both making this look like

you need help to buy these medications

when in reality you don't okay second

case back pain patient goes to my office

she strained her back so I prescriber a

commonly prescribed medication for a

back strain i prescribed her a muscle

relaxant called cyclobenzaprine

cyclobenzaprine has been around for a

long time it's generic it's cheap which

is why I was a little surprised when I

got this message on my fax machine from

the local Walgreens about an hour later

see there you can see cyclobenzaprine

ten milligram tablets i prescribed her

60 this was in March of 2013 and the

message underneath doctor the plan

covers baclofen and the copay will only

be 12 dollars for a month supply but we

don't the the plan doesn't cover this

medication so they're telling me they

don't cover cyclobenzaprine all right

that very day I look at Costco's website

and I see that's Costco's price for

cyclobenzaprine for a hundred pills 7.8

e-1 cents so Walgreens won't sell my

patient 60 pills for $12 but Costco will

sell cyclobenzaprine a hundred pills for

seven dollars and 81 cents and not only

that baclofen is actually more expensive

according to Costco and according to the

Natick here you see baclofen costs

pharmacies an average of four cents a

pill the cyclobenzaprine only cost two

point four cents a pill so

they're not willing to sell my patient a

dollar-fifty worth of pills for $12

because her insurance said no and that's

not the only case here we have a refusal

from Blue Shield for a patient who i

prescribed hydroxyzine

again been generic forever 10 milligram

pills were less than 10 cents a pill I

think I wrote on their 24:07 that was

Costco's price they quoted me for about

a year's supply but blue shield won't

approve of it right I've had denials

here's one just recently indomethacin 14

cents a capsule this month that's the

month I prescribed it plan does not

cover this medication I've had refusal

from metoprolol to cents a pill pen

toppers all 11 cents a pill but here's

the king of all refusals the least

expensive medication pharmacies buy or

one of the least expensive is furosemide

all doses of furosemide are about a

penny a pill have been for years and yet

there you got it

furosemide 40 milligrams this time 270

pills was prescribed so it was almost

$3.00 worth of pills plan does not cover

this medication what's to cover like I

said the insurance company doesn't pay

anything they don't want you to know

they don't pay anything they want you to

think this stuff is expensive remember

the more you use a service the more you

use any service the more that chart

service can charge you do you really

think they want you to know that all of

these medications are so cheap now there

are some very expensive generic

medications there are Medicaid generic

medications that have shot up in price

recently wrote a whole section of my

website called generic medication prices

but make no mistake these are not among

those medications these medications are

cheap they were cheap when I prescribed

them they're cheap now and the insurance

company is saying no not because it

would cost them a penny but because they

want you to think it would cost them

money they want you to think this is

very expensive even we can't afford

these but let's go to the third case CT

scan so a patient comes to my office and

he's sick I'm worried about him he's got

a headache he

got a fever I don't think he has acute

meningitis but he's got some risk

factors so I'm a little worried about

him and I order a CT scan of his head I

have to call up his insurance to get

approval right they don't I'm the

ordering frivolous tests so I call up

his insurance company I explained that

he needs a cat scan I tell them why they

say okay we'll let him at the cat scan

all right next morning he goes for his

cat scan then he calls my office and he

says I can't afford this

you know can't get the scan today sorry

I can't afford it they wanted $500 up

front and then they said they were going

to Bill him the hospital said they were

going to bill him another $700 for a

total of $1,200 he had insurance the

insurance approved of it so I tell my

receptionist why don't you call a local

imaging center and ask them what the

cash price is for a CT scan so she calls

up NorCal imaging which is a local

imaging center in town and asks how much

can you get a CT scan of the head for

someone who doesn't have any insurance

and they say well I'll pay his cash

upfront so we don't have to bill him

$414 with insurance it's $1,200

now this wasn't just me this was

actually written up in the Los Angeles

Times this was May of 2012 all right so

a Long Beach hospital charges Joanne

schneider $6,700 for a CT scan but

because she's got blue cross her

out-of-pocket payment was only twenty

three hundred thirty-six dollars sounds

like a deal well actually her husband

suspected something and you know I spoke

with her husband he calls up the

hospital after he sees the bill and

innocently asked how much can you get

the same cat CT scan for if you for you

know if you don't have any you know

insurance they just ask for the cash

price this hospital would charge for

that same CT scan and there you see on

the bottom one thousand fifty four

dollars again was this Long Beach

Hospital taking pity on the uninsured

well I told you all the pharmacy records

are online and you know all the hospital

financial records are also online if you

go to the office of statewide health

health planning and development OSHPD

you can get very detailed very

meticulous financial records for every

hospital in the state of California

going all the way back to 2000

so let's look at one of them let's look

at one from a long beach hospital in

2012 and you can see for CT scans this

Long Beach hospital it's a Community

Hospital Long Beach charged for an

average of four thousand nine hundred

dollars for each of their CT scans but

got paid an average of eight hundred and

fifty seven dollars so the price they

quoted her husband was actually 25

percent above what they usually got and

if you look at all the Long Beach

hospitals that that offered CT scans in

2012 there were four of them the average

they got was 817 dollars they built 34

nearly 3,400 dollars but they got an

average of eight hundred and seventeen

dollars now you got a wonder these

records I'm telling you about their

online everyone has access to them so I

assume someone and BlueShield had a

computer and knew how to use it so why

was Blue Shield offering three times the

price the average they get for a cat

scan for this woman's cat scan well I'll

give you a hint it's fun to spend other

people's money here's another case blood

test patient comes to my outpatient so

how much of that would have been covered

by copay it was all copay was 100% her

money percent copay she was a high

deductible thing she was a high

deductible so it was basically 100%

deductible okay so right 100% but see it

was all her money hundred percent

detectable and it was an expense that

would have been applied to her total

deductible right

so she has like a five thousand dollar

deductible nothing back and she just got


because she had insurance right okay so

the next one is a blood test patient I

haven't seen in a while I order some

routine you know blood tests on or a

metabolic panel of blood count thyroid

no cholesterol test right and here is

best choice labs they offer they've been

offering discount labs for many many

years $95 package for all those labs I

ordered on her plus a year in analysis

95 bucks cash okay

back and then you know you didn't even

need a doctor to ask for it now you do

but she could have gotten it for that

but innocently enough she goes to a

local Community Hospital small local

Community Hospital and uses her

insurance to pay for them okay

this was the bill she got six weeks

later the hospital bills the insurance

company seven hundred and eighty two

dollars her insurance United Health

Group largest insurance company in the

United States gets her a three hundred

sixty seven dollar discount so her

out-of-pocket expense for these labs

that she could have got for ninety five

dollars cash for hundred fourteen sixty

nine cents heck of a deal United

Healthcare okay so as we can see

insurance companies really do appear to

enjoy spending other people's money so

let's see what they do with their own

money let's look at some hospital bills

now this is a classic I've shown many

times it was for patient was

hospitalized for two days back in 2010

and it's pretty noisy and a little

blurry but you can see a lot of numbers

there on the left side but what you

really need to focus on in any hospital

bill is what's called the account

summary in the bottom right hand corner

okay here it is blown up for you billed

charges to date so the hospital bills

the insurance twenty one thousand two

hundred and seventy five dollars and

forty nine cents the insurance payment

received is the next line how much the

insurance company returns with the

payment two thousand fifty-two dollars

less than ten percent you think the

patient was on the hook for the other

nineteen thousand dollars nope next line

is the insurance adjustment applied

nineteen thousand one hundred seventy

two dollars is completely disregarded by

the insurance company nobody pays it

nobody asks for it in the end the

patient pays fifty dollars so twenty one

thousand dollars build two thousand

dollars received patient knows an extra

fifty the rest vanishes in a simple

adjustment let's look at the next bill

just even more fun now this is a guy

totally private insurance gets it from

work right and he had retinal surgery

you know surgery on his eye now let's

look at the bill here one hundred and

twenty six thousand seven hundred and

fourteen dollars next column over is

patient savings what wasn't really

patients savings

percent coverage a hundred and seven

thousand dollars so how much did the

insurance company actually pay on this

one hundred twenty six thousand dollar

bill nineteen thousand five hundred and

twenty seven dollars so the inch the

hospital bills the insurance company the

price of an Audi convertible the

insurance company returns with the price

of a Honda Civic and the hospital says

no problem here next bills really great

somebody just gave me this bill a few

days ago right this is a patient who is

really sick hospitalized for like three

weeks at Stanford right and he was in

the ICU I mean he was sick

he's got Medicare total charges check

that out nearly three quarters of a

million dollars seven hundred and eleven

thousand six hundred ninety five dollars

is the billed amount for this patient

but look at the insurance payment just

under seventy five thousand dollars the

adjustment six hundred and thirty five

thousand four hundred and seventy you

could get a good house for that and the

patient now I should make a point here

the amount due one thousand two hundred

sixty dollars is this patient had

Medicare that's the Medicare Part A

deductible for any patient who is

hospitalized up to sixty days as you can

see even if your bill is three-quarters

of a million dollars or for that matter

three quarters of a billion dollars all

you will ever hold a hospital if you

have Medicare Part A is one thousand two

hundred and sixty dollars not 20% of the

billed charge or even twenty percent of

the reimbursement you always single

deductible for up to 60 days of

hospitalization if you have Medicare and

this bill definitely proves that last

bill I want to show you was in the

papers this story really went viral

somebody posts on reddit a bill for

$55,000 appendectomy this is a twenty

year old person who basically gets some

belly pain goes to a hospital at Sutter

General in Sacramento and they diagnosed

him with an appendicitis take out his

appendix he's home the next day and his

bill is fifty five thousand dollars of

course he had insurance anyone think

isn't charity that fifty five thousand

dollars was actually what was paid for


course not but let's look at the bill so

55,000 dollars $29 31 cents that's the

total charges now they're getting clever

they combined payments and adjustments

on the same line the very next line

forty-three thousand nine hundred nine

dollars to make it look like they paid

almost forty four thousand dollars and

look what he owes eleven thousand one

hundred nineteen dollars so he owes

eleven thousand one hundred dollars how

much do you think his insurance paid

well Aetna PPO payment can you'll see it

six thousand four hundred sixty one

dollars so he pays eleven thousand

dollars his insurance Aetna pays less

than sixty five hundred dollars he

thinks his insurance covers 80 percent

of the bill when in reality that $55,000

active appendectomy was only a $17,600

appendectomy his insurance covered just

over a third of it and he pays for

almost two thirds the cost of his own

appendectomy and for the record

seventeen thousand dollars for one day

in the hospital yeah the insurance

company was being very generous with his

money not so generous with their own

money so what are we seeing here

hospital bills are basically works of

fiction there's no other way to put it

an insurance reimbursement is based on a

pre-arranged deals that have very little

to do with the amount billed okay now to

quantify this problem how bad it really

is my brother and I actually embarked on

a pretty big project we went over the

financial records of nearly every

hospital in California we went over the

financial records of 364 California

hospitals from 2003 through 2011 alright

and the first question we asked was how

much do all these hospitals bill for

everything they do inpatient outpatient

the labs of radiology everything okay

and it was a lot of money and can see

from this graph in 2003 they billed 146

billion dollars billion dollars for all

the services they provided and by 2011

that amount had doubled to nearly 3 up

to 289 billion dollars that is a lot of

money as you might have guessed they

didn't collected although so that's how

much they billed and the green bar

is how much they collected on those

billed charges all right and you can see

the green bar is pretty much dwarfed by

the total amount billed now what I like

to call this is the perception of

healthcare costs the amount billed

versus the reality the amount received

there's a huge gap between perception

and reality in this country when we're

talking about medical costs okay now if

you ask the hospitals

why do you build so much the hospitals

always return with some sort of answer

about uncompensated care they give all

this free care and that's why they have

to build so much so they say these

records are filled out by the hospitals

and they're rather extensive they

itemize among other things the free care

they give so we'll start with charity

care how much charity did the hospital's

provide and keep in mind you know

charity means the whole bill is forgiven

because the poor patient you know you

know he doesn't he didn't deserve his

heart attack right so how much did all

the hospital's forgive in charity cases

charity is the green bar look twice okay

it's the green bar about one to two

percent of what hospitals billed they

forgave in charity and charity is

deducted and billed charges we're going

to get to that in a minute but as you

can see there were some exceptions some

hospitals that had far more than that

but vast majority of hospitals forgave

it very little in charity anytime during

the study but what you really hear about

is the bad debt right we all know about

those deadbeats they go to the ER they

don't have any insurance they get all

this medical care and then they bolt

without paying a thing right is that

really a problem plaguing the hospitals

well bad debt again is the green bar

roughly one to two percent of the billed

charges were lost to bad debt any given

year of the study which means they

collected on roughly 96 percent of the

bills they issued and just to drive this

point home looking at the records you

can see here growth patient revenue is

the total amount billed both bad debt

and charity are deducted directly from

billed charges and billed charges this

is from this next one is from hospital

Corporation of America largest

for-profit hospital in the United States

and you can see on the top line a circle

there they say well we you know gave

away three and a half billion dollars in

charity and then here they're calling

uncompensated care uninsured discounts

even though in reality they give the

uninsured less of a discount them to

give the insurance companies go figure

and then provision for doubtful accounts

what they call bad debt right there so

they say total uncompensated care fifty

and a half billion dollars but then the

next you know next part down they say

but in reality it's in billed charges

since our costs are only about sixteen

percent of what we bill it really only

cost us two and a half billion dollars

and remember half that money was

uninsured discounts which come on so as

you can see all claims of uncompensated

care made by hospitals are manufactured

out of whole cloth they're in billed

charges and billed charges our work

works a fiction okay that's actually

paid okay so speaking of the insurance

discounts how much was adjusted from all

of these bills that the insurance

companies actually paid well the average

was seventy two to seventy five percent

meaning upwards of three fourths of the

billed charges were disregarded by the

insurance company the insurance company

says you're only getting this much and

the hospital says okay causing again

that gargantuan gap between the

perception of health care in this

country and the reality okay now four to

one is the average for all the hospitals

you know here's the case of a hospital

doctor's hospital Manteca build an

average of eight to nine times what they

expected in reimbursement so you might

wonder if they're getting so little on

what they bill how can they afford their

stay open well actually they're having

no real problem these are the profits

the hospitals are making the aggregate

profits of all 364 hospitals were three

point three billion dollars in two

thousand three they took a little hit in

2008 from the recession I suppose but by

2011 they are making five point eight

billion dollars in actual profit money

left over after all the bills are paid

now to be fair I'll tell you that the

vast majority of the profit about 90% of

it was made by about 25% of the hospital

there's a big gap between rich and poor

hospitals in this country just like with

everything else but this does this does

illustrate the fact that they make more

than enough on those reimbursements okay

and the real good news for the hospital

is they don't know they don't want any

taxes on this profit either why vast

majority of hospitals in California are

not-for-profit so it's tax free all

right so as we can see there is a very

hidden and secretive pricing system in

health care insane levels of over

billing and I don't think that's

hyperbole at all and a very disingenuous

system for reimbursement where insurance

companies have found a lot of ways to

make sure patients pay a lot more when

it's their bill then the insurance

companies do now here's the riddle of

the day

why would health insurance companies

want hospitals and other care providers

to over bill by so much that's the real

question you've been given a few hints

to it but understanding this is

absolutely fundamental to understanding

everything that I am telling you today

why would health insurance companies

want hospitals and other healthcare

providers delvar bill by so much three

major reasons first it allows a health

insurance company to act as a protection

racket okay basically only in health

care do we use our insurance for

absolutely every expense no matter how

mundane from three penny pills to $20

x-rays to 50 bucks worth of labs right

obviously it needed for a liver

transplant but you don't use your car

you don't use your car insurance to fill

your gas tank or get an oil change you

certainly don't use your homeowners

insurance to pay an electric bill only

in health care are we coerced into using

our insurance for every expense okay and

if you don't you're really risking a lot

because you can take a huge financial

hit and no one ever has to tell you

in advance how much that financial it's

going to be okay

and so a lot of people write me you know

on my website you know after I explain

all of these games the insurance

companies they think why don't I just go

without insurance

who needs insurance and I'm like good

luck with that here's a case on

September 3rd 2012 Jeff Gorton was

involved in a bicycle accident he was

taken by ambulance to Mercy San Juan

Hospital Sacramento fortunately it

wasn't seriously injured he was treated

in the ER where he got a CT scan tetanus

shot five stitches for a cut in scalp

and was sent home his ER visit lasted

just under an hour well Jeff was fine

right up until he got this bill thirty

one thousand six hundred and thirteen

dollars for less than an hour in the ER

the court times did not have insurance

after a year of haggling with Mercy San

Juan hospital they talked him down to

eighteen thousand that was for the ER

bill the ambulance and the doctors at

their build them separately right health

care in the u.s. is basically a

minefield maybe if you know exactly

where all the mines are maybe you'll be

okay but one misstep misstep you slip

you fall boom there goes the house there

goes the savings account anything you've

got they can go after you for even for a

simple cut and even if you do have

insurance don't think you're going to be

all that safe I love this story lawsuit

alleges price gouging by hospital you

think okay this was in the Springfield

News Leader

in March 2013 basically the gist of the

story is this guy gets an elective

procedure at a hospital and which means

of course he registers in advance but as

is often the case you know he got a

tumor removed from his mouth and some

dental implants as is often the case the

insurance comes back after the fact and

says no that's dental we don't cover

that and so he gets a bill for the full

cost from the insurance company

seventeen thousand three hundred and

thirty seven dollars now here's the

thing he is a doctor so he happens to

know that the reimbursement for this

procedure would only have been about

$5,200 and so he says look why don't I

give you 50 $300 and we'll call it even

to which the hospital says no the bill

is 17 thousand three hundred and

thirty-seven dollars why don't you give

us seventeen thousand three hundred and

thirty-seven dollars and then we'll call

it even

well he's not taking this lying down he

sues the hospital for gouging and the

case was dismissed and then he appeals

it and it's dismissed again and then he

goes all the way to this Missouri

Supreme Court and they say look you

signed a form saying you're financially

responsible for the charges those are

the charges

pay up well here's the punch line I told

he was a doctor he was the former

chairman of the pathology department at

the st. Louis University School of

Medicine he's a medical school professor

he got completely blindsided by the

system what chance does anyone else have

if you're going to run a protection

racket it's important that you make sure

that everyone feels as much danger as

they possibly can so you got all kinds

of stories about bankruptcies due to

healthcare bills you've got all these

giant bills in the news where they never

discuss the reimbursement amount and now

you've got a Medical School professor

getting slapped up by the system for not

following the rules closely enough right

heck of a protection racket the more

fear people feel the more you can charge

for the protection second reason

insurance companies can leverage those

bills why are your premium so high

look those bills we have to pay right

well they don't really pay them but they

don't tell you about that part and you

know Medicare supplemental insurance you

know I'm not going to talk too much

about that but I'll tell you they sell

all of these supplemental insurance

policies to seniors who don't really

need them based on these gargantuan

bills that they tell them about saying

oh you're going to be responsible for

20% of this $700,000 bill none of it's


but by using those bills as props they

can scare a lot of seniors into buying

policies that they don't need and can't

really afford but the third reason

insurance companies want health care


to over build by so much is really going

to mess with your head because this goes

against everything you thought you knew

about this system health insurance

companies actually have a strong

financial incentive to overpay for

medical services really here's how it

works I don't know if you've heard of

the medical loss ratio before basically

the medical loss ratio is how the

insurance companies advertise that they

really aren't wasting your money

basically they say look we pay out

eighty to eighty-five percent of what we

take in and premiums directly the health

care cost we don't have these huge

overhead bills all right and it sounds

like a good idea I mean it caps their

overhead right it sounds like such a

good idea was actually written into the

ACA forcing them to make sure that they

have you know at eighty to eighty-five

percent of what they take in they have

to pay out and you can go to all the

insurance companies financial statements

and see the several of them have been

talking about their medical loss ratio

clear back far more than a decade it's

not a new idea it wasn't invented for

the ACA and and you know it's their way

of saying we run a tight ship we're not

wasting all this money on you know

parties in the Caribbean cruise ships or

you know private jets right now normally

the thing a concept like the medical

loss ratio would be a very good idea at

controlling costs in a normal world but

here's the thing we're not talking about

a normal world are we we're talking

about the bizarro world of health care

costs in the bizarro world of health

care costs bills have little to do with

actual costs or expected reimbursements

reimbursement negotiations are done in

secret and the reimbursement rates are

rather arbitrary and unpredictable as

you can see the medical loss ratio can

be turned on his head with healthcare

costs why well

if you look at it a different way what

it really means is the more you pay out

the more you can get for yourself next

year after all if you pay if you pay

five thousand dollars for medical

expense you can get a lot more twenty

percent of that is a lot more than two

thousand dollars look at it this way for

those of you are having trouble wrapping

your head around this

imagine you have this office party or

maybe the whole group here right and

everyone gets hungry and we decide to

send somebody out for lunch all right

but we say go wherever you want to pick

us up for lunch but and whatever you

spend on our lunch you get to keep 15%

of that for yourself well if they go to

McDonald's and get everything off the

dollar menu maybe they'll keep two three

bucks for themselves but imagine if they

go to the fanciest restaurant in town

and order off the takeout menu there

well assuming this person is no fool

what do y'all think you'll be eating for

lunch that day right now insurance

companies can't do it quite that way

they can't just start reimbursing bills

in full because obviously they take in

only so much in premiums each year and

they can't pay out all of that I mean if

they started reimbursing all hospital

bills in full they'd run out of money by

May and declare bankruptcy there's not

much profit in that what they can do

though is pay out a little more each

year than they need to they know the

hospital expects 25% on that bill give

them 26 or 27 the hospital's not going

to mind they're not going to complain

and hey they still saved you seventy

three seventy three percent on your bill

right so what they do and every extra

dollar they spend they get to go after

their policyholders for a dollar twenty

next year that's a hell of a return on

an investment right and so what they do

is they lose by a little bit more each

year they just spend a little bit more

I'll give you an example again we're

talking about Hospital Corporation of

America I was going over their records

way back to the 90s and I found that

they were keeping track of number of

admissions they had for Medicare and

from the private insurance

you know proportion of admissions for

Medicare and from private insurance

companies and the proportion of their

revenue for Medicare and the private

insurance companies okay and this was

like starting in 1998 which was the year

after they were convicted of Medicare

fraud so you assume they were behaving

themselves by then because they knew

they were being watched so you can see

there are 14 1998 39 % of their patients

were Medicare patients and 39 percent

were private insurance but 44 percent of

the revenue came from Medicare whereas

only 28 percent came from private

insurance Medicare was really their cash

cow in 1998 relatives of private

insurance by 2001 that are totally

equalized now in 2001 38 percent of

their patients are Medicare 48 percent

or private insurance but only 39 percent

of their revenue came from Medicare

whereas 48 percent so it was about 1 to

1 by 2005 that ratio totally flipped

they got far more money from the private

insurance per patient than they did from

Medicare so what I did was I created a

graph where I took the ratio of revenue

for the private insurance in Medicare

over the you know ratio of patients and

it mapped out rather interesting I

sorted the green bar is the private

insurance and the blue line is the

Medicare and as you can see there is

this slow increase in the amount private

insurance paid per patient relative to

Medicare I call this the slope of

generosity where the private insurance

companies were steadily getting more and

more you know generous to these

hospitals this is hospital Corporation

of America you know they run hundreds of

hospitals throughout the entire United

States so it's a pretty good sampling

here and of course if you ask the

insurance companies about this they'll

say look we're not being generous all

right these big hospitals and these big

hospital companies they are beating us

up all right we are the victims here

we're paying out all this money because

they're giving us these huge bills have

you seen those bills they're giving us

and we're trying to get away with paying

as little as we can

but the hospitals are just beating us up

well let's look at that a little bit

more closely are the hospitals really

beating up the insurance companies well

if you just compare revenue you know as

maybe a surrogate for how much power

each of the industries have if you look

at the total revenue in 2014 for five of

the largest health insurance companies

you got United Health Group WellPoint

anthem Aetna Humana and Cigna and you

compare that to the revenue for five of

the largest Hospital corporations in the

United States you have hospital

Corporation of America Community Health

Services tented you net universal health

services and a life point okay that's

hospitals same scale that's insurance

companies hospitals insurance companies

so are the hospitals really beating up

the insurance companies and if they are

isn't that a bit like getting beat up by

your kids sister here's another one I

really like if you take this is from you

know Medicare cost report data if you

take the total revenue for all

California hospitals in 2012 every

single hospital in California and this

includes total revenue revenue they made

from the Gift Shop the the pharmacy the

cafeteria parking lot everything is

about 89 billion dollars for every

single hospital in the state of

California versus United Health Group

which made that year a hundred and

eleven billion dollars in revenue so

United Health Group a single health

insurance company eclipsed the revenue

of every single hospital in the largest

state in the United States come on one

and eight people in the United States

live in California and it's overshadowed

by one health insurance company so the

hospitals are beating up the health

insurance companies I guess that's what

you get you know when you if you pay

somebody to throw fights don't expect

them to win very often and how much are

we paying the insurance company to throw

these fights to lose these fights well

this is the revenue curve for Aetna

since 2003 pretty steep ah Humana United

Health Group

signa not so much but more recently and

anthem will point and they're not doing

so bad in profits either they're keeping

their stockholders happy for getting

beat up so much by the hospitals who

knew getting beat up by hospitals could

be so lucrative Aetna Humana United

Health Group Cigna Anthem WellPoint and

of course their CEOs aren't doing too

bad all right well I don't know what you

guys but oops personally I think there

might be evidence of collusion here okay

I think the first part kind of showed

evidence that there may be there's

collusion between the pharmacies and the

health insurance companies in the second

part certainly showed evidence of

collusion between the hospitals and the

insurance companies and I think that's

the basic problem if you have the

environment for conclusion if you allow

collusion through the system collusion

is going to happen there's no better way

to make huge amounts of money then

through collusion you can fleece the

consumer as much as you want as long as

nobody knows what's going on because

it's all done in secret and basically

the root of the problem as far as I'm

concerned is as I've said before actual

health care costs are hidden for most of

us there are these insane levels of over

billing and I tie I didn't talk nearly

as enough about the conflict of interest

because well I only had an hour that

could be an entirely different and you

know the perverse incentives to overpay

for bills and if you're going to have

any kind of health care reform however

you structure it you are basically never

going to cut costs unless you address

price transparency limit the billing and

remove the cut you know limit the over

billing and remove the conflicts of

interest because any reform that does

not address those issues basically isn't

going to control cost and we're going to

continue have to have the most expensive

health care in the world

and relatively mediocre outcomes to show

for it and I'll leave you with this

choice quote by none other than Rick

Scott the governor of Florida who

actually was the CEO of

Hospital Corporation of America the year

they got convicted of Medicare fraud he

said how many businesses do you know

want to cut the revenue in half that's

why the health care system won't change

the health care system there's a lot to

that quote first he's giving you a rough

estimate of how much money he thinks is

really wasted half and second he's

giving you a hint that that money isn't

just wasted it's going into the pockets

of a lot of people who will go very far

out of their way to make sure that

things stay exactly as they are