The High Cost of Cure

How a hospital bill grows 17 feet long

THE single most important problem facing modern hospitals is cost. This cost can be analyzed in a variety of ways, most of them confusing and unhelpful. But the following points are clear:

First, the cost of hospitalization has skyrocketed. The average MGH patient today pays per hour what the average patient paid per day in 1905. Even as recently as 1940, a private patient could have his room for $10.25 per day; by 1964, it cost $50.10 per day; by 1969, $72.00 to $110.00 per day. This staggering increase is continuing at the rate of 6 percent to 8 percent per year. Each year for the past three, the MGH has had to raise its charges. Nor is the teaching hospital unique in its financial squeeze. All American hospitals are raising their charges at this same rate.

Second, hospitalization cost has increased much more rapidly than other goods and services in the economy. Medical care is the fastest-rising item in the consumer price index in recent years, and per day hospital cost accounts for the largest proportion of this increase. Physicians' fees have also been rising faster than other items in the consumer price Index. However, hospital costs have nearly doubled in the past decade, while physicians' fees have increased 30 percent.

Third, the individual contemplating hospitalization no longer worries much, in a direct way, about cost. Third-party payment has led to public apathy about hospital costs, and this is unwise, if for no other reason than the fact that most people have only one fourth to one third of their costs paid by insurance, a fact they discover late in the game.

Fourth, the often overlapping coverage of health insurance permits some patients to make money from their hospitalization, while welfare reimbursements are always less than the true costs of care. In this situation, the hospital makes ends meet by overcharging private patients and their insurance companies to cover the welfare deficit-in the case of the MGH, roughly $10 a day overcharge.

Fifth, no single hospital stands alone in its financing problems, but rather is influenced by the activity or decline of other hospitals in the area. The decay of the Boston City Hospital, and its reduction in size to nearly half its earlier patient capacity, have created great pressure on other Boston hospitals to take up the slack, by accepting precisely those patients on whom the hospital loses money, namely, patients covered by welfare. The decline of Boston's municipal, tax-supported hospital is similar to the decline of other such institutions in other American cities. In each case, the reasons behind the decline are political and financial, but the consequences are always the same -- to pass on costs to insured patients and make them augment insufficient tax funding for welfare. In the long run, of course, it all works out to the same thing: one can pay the money either in taxes or in higher health insurance premiums. But in such a situation, it is probably more efficient to choose one or the other -- and the trend is toward universal health insurance in this country, unmistakably. Dr. John Knowles, director of the MGH, notes that Americans are required by law to arrange insurance for their cars; why should they not also be required to arrange health insurance for themselves?

Sixth, lest private health insurance seem a financial panacea, one should note that private companies are often irrational in their payment procedures. For example, for many years one could not collect for certain treatments, such as the setting of fractures, unless one were admitted to the hospital, at least overnight. Thus a person who might easily receive therapy in the emergency ward and be sent home had to be admitted in order to receive insurance coverage. This unnecessary admission raised the total cost of health care, and ultimately such increases are passed on to the consumer in the form of higher premiums. Some of these peculiar payment procedures have been changed, but not all.

Seventh, the American medical system in its full spectrum, from the private specialist's office to the municipal hospital wards, has never been able to structure the kind of competitive situation which encourages and rewards economies. Nor has American medicine tried. The American physician has been grossly irresponsible in nearly all matters relating to the cost of medical care. One can trace this irresponsibility quite directly to the American Medical Association.

FOR the past forty years, the American Medical Association has worked to the detriment of the patient in nearly every way imaginable; it is a peculiarity of this organization that it has also worked to the detriment of physicians as well.

Dr. James Howard Means has said: "Its ideology is very like that of the big labor unions . . . it has now set up a continuing political action committee quite like those of the fighting labor unions. Every attempt that has been made by liberally minded groups to improve medical care and make it more accessible . . . the AMA has attacked with ever increasing truculence.... They forget perhaps that medicine is for the people, not for the doctors. They need some enlightenment on this point."

Their truculence has been expensive. In terms of the modern-day cost of medical care, we may cite the following points. Beginning in 1930, the AMA opposed voluntary health insurance, such as Blue Cross. In 1932, it opposed prepaid group-practice clinics. In 1933, it began a successful campaign to block the construction of new medical schools, and limit enrollment in those already in existence. We now have a shortage of doctors. More recently, the AMA spent millions -- probably no one knows exactly how many millions -- to fight Medicare, a program which resulted in health benefits to 10 percent of the population and vastly increased income to physicians. (Indeed, a good gauge of the AMA's shortsightedness can be gained by imagining the outcry from private doctors should anyone now try to repeal Medicare.) Further, the AMA has failed to take any strong stand on prescription pharmaceutical prices in this country, which nearly every objective observer regards as grossly inflated. And more insidiously, the AMA has permitted what may politely be called blind spots in health care. The Journal of the American Medical Association refused to print a government study of combination-antibiotic drugs which concluded that many of these expensive medications are either worthless or dangerous; the AMA has still failed to condemn cigarette smoking despite overwhelming evidence that this habit, though profitable to certain industrial groups, is directly responsible for much disease, suffering, and medical expense in this country.

One can only conclude that the American Medical Association has not considered the interests of patients. On the basis of its record, it is opposed to both better and cheaper medical care. Its only commitment is to the doctor's bank account, and even then, it makes astonishing errors in judgment.

In 1967, in his inaugural address, Milford O. Rouse, the incoming president of the AMA, deplored the growing sentiment in this country that medical care was a right, not a privilege. His opinion was not well received by an angry public, and later presidents have been more circumspect in voicing their views. Nonetheless, it is customary for AMA presidents to travel about, speaking to groups of doctors, applauding what they call "the phenomenal growth of the health industry."

That growth cannot be questioned. Personal consumption expenditures for medical care rose from $7.5 billion in 1948 to more than $27 billion in 1965, and more than $50 billion in 1968. By 1975, it is expected to reach at least $100 billion. This is the sort of news to make a Wall Street broker squeal with delight. But medicine is a service, not an industry, and one really ought to look at it as a service.

In fact, the United States spends more of its gross national product (6.2 percent) on medical care than any other country in the world; it spends a larger absolute sum than any other country in the world. Yet on most objective standards of health -- infant mortality, life expectancy, and so on -- it is far from the leader.

Other countries are doing better, and most of them have some form of socialized medicine. The United States is extraordinarily backward in this respect. However, many American observers have looked at European socialized systems and have come away shaking their heads; and there is a widespread doubt whether any European system can be adapted to this country. Very likely, America will have to work out its own system. The combination of group insurance with a group-practice system seems a feasible, economical, and practical, method, acceptable both to doctors and patients.

Without question, the notion of the doctor as legitimate fee-for-service entrepreneur, making his fortune from the misfortunes of his patients, is old fashioned, distasteful, and doomed. It is only question of time.

ULTIMATELY, however, it is not useful to lay blame, whether on physicians, health insurance administrators, politicians, or an apathetic public. For they all seem to share a common blindness, a total failure to understand why hospital costs are rising.

In 1967, the average cost of a hospital room in America increased 15 percent. The per-day room charge is the largest single item in the hospital bill. In 1969, the cost of a semiprivate room at the MGH was $70. Breaking this down, we find:

Utilities, housekeeping, maintenance, plus business offices ("hotel expense") $6.96
Food and special diets $5.82
Nursing $18.42
Labs, records, house staff, X ray, and pharmacy $28.80
overcharge (to cover welfare debts) $10.00
Total $70.00
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