Health Care in The USA...Regulated by our FDA

     Continued From Last Post

Health Care in The USA...Regulated by our FDA

Hospitals Profit Despite Receiving Only a Small Portion of Billings
    Most hospitals end up receiving just 35 percent of what they bill, yet
they still manage to make tens of millions of dollars in operating profits
each year. Some hospitals, including Sloan-Kettering and MD Anderson, who are
tougher in their negotiations with insurance companies, end up getting around
50 percent of their total billings, which quite literally amounts to a
fortune. Stamford Hospital reported $63 million in operating profits in 2011,
even though about half of their patient base is highly discounted Medicare
and Medicaid patients. The actual revenue received, which included all the
discounts off the chargemaster, was $495 million.

        “That’s a 12.7% operating profit margin, which would be the envy of
shareholders of high-service businesses across other sectors of the economy,”
Brill writes. “Its nearly half-billion dollars in revenue also makes Stamford
Hospital by far the city’s largest business serving only local residents. In
fact, the hospital’s revenue exceeded all money paid to the city of Stamford
in taxes and fees. The hospital is a bigger business than its host city.”

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Medicare is Part of the Problem

    Medicare was signed into law in 1965. At the time, the House Ways and
Means Committee predicted the program would cost $12 billion in 1990. By the
time 1990 rolled around, the actual cost was $110 billion. This year,
Medicare costs are estimated to hit nearly $600 billion. As if stuck in an
infinity loop, Medicare and Big Pharma (which has successfully manipulated
the political system to their unbridled advantage) drive health care costs
ever skyward.

    As opposed to other countries, American laws actually prevent the
government from restraining drug prices. Federal law even prevents the single
largest drug buyer – Medicare – from negotiating drug prices. This is a
perfect example of how Big Pharma has successfully manipulated laws in such a
way that they can operate completely unrestrained in the US, under the flimsy
argument that high prices and profits are required in order to fund costly
research to develop potentially groundbreaking drugs to treat our ever-
proliferating ills.

    The only thing Medicare is allowed to do is to add six percent on top of
the average sales price drugmakers sell the drug for to hospitals and clinics.

    However, Congress does not control what drugmakers charge for their
drugs. Pharmaceutical companies are allowed to set their own prices, and when
it comes to one-of-a-kind drugs like some cancer drugs, the safeguards built
into a free market system disappear, making price setting anything but fair.

    Pharmaceutical companies also give rebates to hospitals to create
incentive to dispense the drug, as the hospital can then make a greater
profit. But since hospitals around the country not only get the same drug at
varying rates, and the “average sales price” Medicare bases its payments on
doesn’t necessarily reflect these rebates, the base price Medicare uses is
oftentimes not very average at all... In some cases, this can result in a
hospital still making upwards of 50 percent profit on what Medicare pays for
the drug!

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    In the example Brill includes in his report, a cancer serum called
Flebogamma costs the manufacturer an estimated $200-300 to collect, process,
test and ship. According to the drugmaker, the average sales price for the
drug is $2,003. Sloan-Kettering bills $4,615 for the drug, which Medicare
then cuts down to $2,123 ($2,003 plus 6 percent).

        “In practice, the average sales price does not appear to be a real
average. Two other hospitals I asked reported that after taking into account
rebates given by the drug company, they paid an average of $1,650 for the
same dose of Flebogamma, and neither hospital had nearly the leverage in the
cancer-care marketplace that Sloan-Kettering does. One doctor at Sloan-
Kettering guessed that it pays $1,400. ...So even Medicare contributes
mightily to hospital profit – and drug-company profit – when it buys drugs,”
Brill notes.

    Further adding to the problem of unrestrained costs is the fact that
Medicare is not allowed to pay attention to comparative-effectiveness
research. What this means is that if two drugs are found to be of equal
effectiveness but one costs far less, Medicare is not allowed to make the
decision to reimburse for the lower priced drug only.

            Continued

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