We looked at Part I this question last month ; here is Part II:

Medical Costs Part 2 Infographic
Via: Medical Billing and Coding

via Business Pundit

Category: Digital Media

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

67 Responses to “Why is Healthcare Absurdly Expensive in USA (Part 2)”

  1. bm says:

    Here is an indirect way as to why healthcare is so expensive in the USA. Video is long but worth viewing.


  2. quidite1 says:

    This is incredibly flawed.

    First, malpractice doesn’t just cost doctors more in insurance and settling suits, it changes how doctors practice medicine and pushes them to do more unnecessary procedures to cover their butts.

    Second, the providers charge more “truth” suggests that more government intervention would lower prices. Has that ever been true in any market — without a loss in quality? More government intervention means rationing by government bureaucrats. That’s not what we need. We need to put patients in charge of their own care — some sort of voucher system that allows people to decide what care is covered and what’s not — what sort of care they’re willing to pay for and what they’re not. And competition like this will lower prices.

    Third, doctors are overpaid because the AMA is a cartel that effectively uses government to limit the number of doctors (through limiting spots in Med school and foreign doctors).

    Fourth, administrative costs could be lowered if we went to an HSA-style plan so that insurance only got involved for big, nasty medical events. Otherwise, interactions between patients and doctors wouldn’t be referred to third parties like insurers.

    I could go on and on but can’t we just agree that it’s stupid to try to sum up the dysfunctionality of 1/7th of the economy in an infographic and let that substitute for serious thought?

  3. wally says:

    ” Has that ever been true in any market — without a loss in quality?”

    Yes, it is true in the administration of Medicare by the US government… and that is why I really hope a Medicare buy-in option would be made available to all who want it.

  4. dan10400 says:


    we could equally make the point it is stupid to argue about an infographic with quick comments.

    you state the infographic is “incredibly flawed”, but you first point only points to the issues of trying to summarize a complex subject in a relatively short format, your second point confuses price with quality (and more importantly value), your third and fourth points effectively agree with the infographic.

    how is this “incredibly flawed”?

  5. RC says:

    I have been really anxiously waiting for this part II.
    It is very illuminating. Great job by the folks who created it and Thanks BR for posting it.

    A quick example. A simple blood test is billed by Doctor’s office at $255.00 (in Dallas region). The insurance company approves $64.00 and the Doctor’s office accepts it.
    WTF !!!
    I think that the insurance companies are in fact PROTECTING the consumers from getting fleeced by the providers.

  6. sickmint79 says:

    some of these seem silly. us government is not involved in price regulation of plenty of things that work fine when consumers act normally. CONSUMERS are less involved in price regulation/price discovery, largely because of the tie of health insurance to employement, which is a result of tax favorability.

    doctors are overpaid? because here they make 5x more than the average patient? this seems like an awfully silly way to judge whether someone is overpaid. and then to circle it with TRUTH! and give it a halo? give me a break.

  7. sickmint79 says:

    RC the question should be why is the insurance company involved in setting the price of a simple blood test?

    is your car insurance involved in your oil change?

  8. droubal says:

    Mayo Clinic and Cleveland Clinic are models that offer better efficiency.
    The other factor is that there are many people that have insurance that covers everything. Everyone needs to pay some percentage of their bill. Then they may start to ask: Why is this so expensive?

  9. RC says:

    Because it is not an open market. The employer paid health insurance model has screwed up people’s common sense about costs and thats why we dont shop for a good deal and feel entitled to receive infinite amount of services.

    You mention auto insurance. Well, everyone is REQUIRED to buy auto insurance. So when the new Affordable Care Act is proposing everyone to buy insurance, republicans are up in arms and disrupting town hall meetings in their medicare paid Rascal scooters.

    Everyone should be made to buy their health insurance and there SHOULD NOT be any group discount given. Is there a group discount in auto insurance??

    Let free market, with clear regulations, make the true cost of health care apparent to consumers. Allow price discovery and let competition result into efficient pricing.

  10. sickmint79 says:

    droubal, if people don’t see prices, is it any wonder things become so expensive?

  11. ZackAttack says:

    Why can’t I get a price list ahead of time, so I can comparison shop?

    Why is it legal for doctors to charge different prices depending on the reimbursement source?

    Why can’t the Medicare Prescription Drug Program use a bid system for the medications it covers?

  12. ARockyW says:

    “Providers charge more because they can.” This is laughable. All businesses will charge as much as they can. A steakhouse will charge as much for a steak as they can but steak prices aren’t going through the roof (actually, I don’t follow steak prices so maybe they are but you get the point). The gov’t isn’t involved in “price regulation” of steaks so according to your post steakhouses should be able to charge as much as they want for steaks and we should thank them for not gouging us.

    The question is why can medical care poviders charge higher and higher prices without someone undercutting them? Obviously, becasue there is no free market in medical care. There are numerous barriers to entry and therefore little competition. That’s why they can charge higher and higher prices.

    I’m sure most peolpe simply think others are too stupid to make good choices. But the answer is to get gov’t out of healthcare by limiting the power of the FDA (I think eliminate it all together) and relax the ridiculous licensing and regulations of the industry.

    How about end the mandate of extremely high priced insurance for some doctors. If I sprain and ankle and just want an X-ray to make sure it’s not broke, I have to pay one of these high priced doctors. I should be able to go to a simple X-ray tech or something who provides the X-ray and lets me know if it’s broke. If I’m having brain surgery, clearly I’d see a licensed and insured doctor.

  13. freitagfan says:

    The purpose of insurance is to shift the potential cost liability to the insurer in exchange for a flat monthly rate. Inherent in that agreement is that I don’t care what the costs are per procedure because I did my bargaining when I negotiated my insurance rates. This is why insurance companies set rates. The government does a very good job of cutting costs, look how cheaply and efficiently they handle social security. My dad sold to the government and every year they cut the bidding price because they were aggressive buyers. (fraud not withstanding)

    And I agree, there are set barriers to competition in the medical industry so it’s not a free market. I’m able to go to a pharmacy and get a nurse practitioner to take care of me. That should be our front line medical professional.

    Simple and easy insurance regulations would easily handle the administrative expenses. A website clearinghouse like we have with securities clearing to allow easy and instant insurance verification with online (simple) bill submission. Every time I have to go to the doctor, the office has to call my insurance provider and make sure I’m currently insured. That could be done so quickly online by swiping my card. Then they submit my bill and I verify the procedure was handled. If the insurance company wants further documentation they have an easy online service to require it.

  14. DeDude says:

    “malpractice doesn’t just cost doctors more in insurance and settling suits, it changes how doctors practice medicine and pushes them to do more unnecessary procedures to cover their butts”

    That is BS. In states where there has been malpractice reform all those unnecessary procedures continue – because they are profitable. But malpractice is a great excuse.

  15. drewburn says:

    To repeat for emphasis A RockyW’s point: There is NO free market in healthcare! Never will be. Guilds (the AMA and med colleges) control supply. Insurers obscure pricing. We need single payer healthcare.

  16. ZackAttack says:

    Look, the numbers I’ve seen (out of Kaiser foundation, can’t put my finger on the link) say that malpractice isn’t a big cost driver. But, if it would engender compromise with the Red Teamers, I’m glad to make it a little riskier for the tort lawyers by making malpractice lawsuits a loser-pays affair.

    That same Kaiser study indicated that salaries were right around 30% of the cost increases we’ve seen. So, why not do what we’ve done to every other profession? Relax the residency rules and allocate all those 186,000 H1Bs to the healthcare profession.

    I met a Russian doctor, educated in Moscow. He told me he made $30 per month in 1999. I’m sure he’d be more than qualified to diagnose a flu, set a bone, and he’d be a value at 100 times that salary.

  17. cognos says:

    This breakdown is spot-on.

    quidite1 – You points are probably incorrect. If you look closely at the data, doctors seem to be doing things to 1) make money (over medicating, over testing) and 2) personal convenience (cesarian section rates skyrocket around 4pm on fridays!).

    sickmint79 — You cannot act like a “consumer” in terms of your healthcare. You get sick. You need to get well, or maybe you are even in acute pain. So… now you start shopping around for information? There is zero info on service rates at hospitals (doctors and hospital avoid the collection and dissemination of this info).

    I am 100% for nationalization of most of basic healthcare. It could really be done at roughly 1/3 the cost. And premium healthcare could still exist for those who want to pay cash. However, 1 big key to this is lowering the treatment levels for everyone on govt healthcare including the elderly. The elderly are AMAZINGLY overmedicated in the country BECAUSE of the current medicare policies.

  18. cognos says:

    We all should remember 80% of medical spending is spent on people OLDER than 60.

    Probabaly 80% of that is already “nationalized” healthcare through medicare and medicaid.

    So… the US healthcare spending problem is not really about “private insurance”. Its about fixing the fleecing of america by doctors, hospitals and reducing paperwork, overmedication and even fraud ($100B+ per year).

  19. ARockyW says:

    drewburn said:

    “To repeat for emphasis A RockyW’s point: There is NO free market in healthcare!…We need single payer healthcare.”

    Just to be clear, this was NOT my point. It was the complete opposite as my point. I think most people will realize I surely do not believe in a single payer system. There is nothing inherent in healthcare that prevents a free market or prevents a free market from “working.” Gov’t has chosen to intervene and it is the direct cause of such high healthcare costs.

  20. roxy says:

    Most hospitals have beuracracy that would make government agencies look like amateurs. There is no way to comparison shop when all the different departments are billing indiviually, cost of “supplies”, room and board, etc etc. Then there is the notion of only the rich getting the best care and the rest of us go to the doctors we can “afford”. No thanks.

    I agree that many elderly are overmedicated and doing things they don’t need to be doing. My dad turned 80 last year. I asked him why he was using margarine when he really wanted butter. This made sense when he was in his 60′s, but increased cholesterol takes years to kill you. If I live to be 80 I’m having bacon whenever I feel like it. You have to die of something. And I’m not taking any medications that “might” prevent something but have real, known side effects. When did our goal become longevity over all else? I’m not talking about going hog wild but quality of life matters too.

    I had a doctor once who wanted to put me on cholesterol lowering medication because my total choleterol was over 200, like it has been since I was 18. He did not even read far enough down the test to see that it was because my hdl is so high, meaning that my heart attack risk is much less than someone with “normal” cholesterol.

    I have lunch at a place where many FDA people eat. It is crowded so the tables are close together. I love it when they get going on what medications are a “crock of shit”. I don’t mean to pick on cholesterol drugs, I’m sure they are useful for some people. There are many medications that are overused, not just these.

  21. BuffaloBob says:

    Our quasi governmental, completely corrupt medical “care” system is a joke. Canada, the UK, Germany all provide their citizens better outcomes (longer, healthier life expectancy) for roughly half of what we pay as a percentage of GDP.
    Anyone who believes more “free market capitalism” is part of the solution ought to check out the Kool Aid they are drinking.

  22. TLH says:

    I wonder how physician pay compares to bankers and Goldman’s employees in NYC. The average physician is far more educated than the average banker. Drug prices need to be negotiated. Advertising of drugs needs to be stopped. The drug companies spend more on advertising than R&D. Cut the physicians overhead. The average physician could save 20% of office overhead with a single payer system with immediate payment (not the present 45 days the insurance companies have in Texas). The doctors would complain about the pay, but that’s life. Stop the surgical mills that advertise. Discipline the doctors who have malpractice problems. I promise this is not done. Thank the lawyers for this. Hospitals make too much money. Just look at the ER charges. Look at all the scans. It is easier to order a scan than examine the patient. Look at all the hospitals being built. Common sense needs to come to end of life care. Why should a pearson go through extensive procedures and pain to die anyway? There is no free market in medicine. Control is by insurance companies, drug companies, and hospital companies. Everyone needs to ask if they want a nurse or a physician to handle their care. I plan to exercise today and everyday. It is far safer than entering our medical system.

  23. dss says:

    Too many doctors own the labs, xray centers, and surgicenters where they send their patients. I went for an eye exam today and have a small problem that might need surgery and I need new glasses.

    My doctor pointed me to his in house over priced eye glass center, very glamorous, and if I decided to have the procedure, I would have to sign a disclaimer that I acknowledge that the doctor owns his own surgicenter, right in the next suite of rooms.

    I will go to Costco to have my new glasses made and to another doctor for a second opinion!

    Plus they demand payment upfront of $45.00 for the pupil dilation.

  24. imemod says:

    Frequent reader and first time poster. This topic is near and dear to me as a physician. I agree with many of the comments noted here and would add my 2 cents.

    1) Physician pay is highly variable and based on specialty, geographic location and type of practice – private, group, salaried position.
    2) Physicians in the USA pay for their own education. I doubt that one will find people willing to into 6 figure debt for significantly less income. My point is that education is a facet of the system that cannot be ignored.
    3) I find the origin of the post most interesting. How much of your health care dollar goes to medical coding? The concept of paying providers based on “codes” has led to a cottage industry of coders, Electronic Medical Records (to ensure “accurate coding” but not necessarily better care, regardless of the hype) and auditors to demand repayment if the coding is not “correct.”

    I consider one of 2 options – single payer and get rid of the pay-for-coding concept or remove office visits from health insurance. I am not sure you could do the same for hospitalization given how prolonged intensive those visits can be. Removing physician office work from the coding-billing insanity would reduce our overhead significantly.

    Just my 2 cents

  25. MikeDonnelly says:

    Health data is unbelievably hard to get. The US does not have 1 health care system, I’d love to see the following comparison.

    $ per person – health outcomes – longevity etc..
    US military active duty
    US Veterans system
    average Medicaid patient
    average Medicare patient
    average person with no health insurance (around 20% of population) who primarily get no care or emergency room care only
    average self employed person

    HMO coverage
    PPO coverage

    The first two systems are identical to European single payer systems, but I can’t find any data on these systems, and rarely do we hear how we feel about having the military in a socialist health care system. In fact when I talk about health care in the US, nearly 100% are only talking about the employer provided PPO style coverage that only covers a minority of the population.

  26. ami_in_deutschland says:

    All of those arguing that a free-market approach is the key to lowering health-care costs ignore the fact that countries with universal insurance coverage (whether single-payer or otherwise) pay significantly less for health services while achieving as good or better service delivery.

    In Germany, for example, the standardized administrative procedures (all basic patient information read from patient smart cards, standardized and computer-printed prescription forms, automated reimbursement systems through the approx. 200 non-profit and freely chosen insurance pools) mean doctors require relatively little administrative overhead. My son’s pediatrician operates a single-man practice in a spacious, well-equipped office with a staff of just two or three — where in the US is such a thing possible?

  27. Winston Munn says:

    I don’t argue single payer as the best system but as the best choice. It is imperative to halt the escalating costs of healtcare in the U.S. and the pricing regulatory function of a single payer system would do just that.

  28. bobmitchell says:

    It’s the Doctor’s union, The AMA.

    No one ever wants to talk about that….

  29. jwagner says:

    Ami says:
    “My son’s pediatrician operates a single-man practice in a spacious, well-equipped office with a staff of just two or three — where in the US is such a thing possible?”

    My doctor runs a one man office with his longtime nurse. He’s a bright guy that loves a puzzle – great diagnostician – and has time to talk about your family and health, politics, the 1969 Mets, whatever. I asked him “How can you make money doing this?” and his reply was “I don’t, I lose money doing this. I make my money other ways.” I suppose that a doctor in his mid-fifties can relax a bit after a successful career and I count myself lucky to have the exception to the rule and probably the best medical care available anywhere.

  30. dss says:

    As long as there is for profit health insurance, our insurance costs will be high. Take the profit incentive out of health care combined with excessive and redundant administrative costs and you will be on your way to a much less expensive system.

    The problem is that as a quasi-capitalistic society, we have allowed health care to be a profit center at all levels. No one has the incentive to make costs less as everyone is milking the system.

    And I would be very much in favor of government subsidizing physician education, as long as they agreed to work for a set amount, you know, being a doctor because you want to help people rather than for profit.

  31. Petey Wheatstraw says:

    There’s a nasty cold/flu going around the DC area right now. Two people I know have come down with pneumonia as a result, another is at the end of her second course of antibiotics, and I have a secondary and chronic sinus infection (after having “the” cold), and am finishing up on a 10 day course of antibiotic treatment (a very powerful antibiotic, and it’s not working too well, IMO). My treatment involved a GP visit and the drugs. I estimate that it will end up costing $300, or so. That’s freekin’ ridiculous (although, under the circumstances, I wouldn’t have complained if the cost had been double that — anything to stop the pain).

    This weekend, I attended the graduation ceremony of a relative graduating from nursing school. Several of the graduates were awarded Bachelor’s Degrees in Medical Billing and Coding. That the billing and coding is complex enough to require a Bachelor’s Degree to sort it all out, underscores that administrative costs and bureaucracy-building are out of control and responsible for much of the waste in the system.

  32. ZegWoo says:

    Crazy isnt it? so sad. We spend endless billions in places we have no business, yet we cant afford health coverage. Sad world we live in, or at least a sad country we live in.

  33. rip says:

    @cognos: One of those rare times I could not agree more. Spot on.

    Here’s my 2 cents.

    Doctors charge what they can where they can.

    I’ve had doctors tell me that Medicare owes them $2M. Maybe deserved maybe not. The fraud and over treating and overdosing is absurd. Especially with Medicare. The DR rationale for over prescribing is that if they don’t write scrips they don’t get free samples for the needy. Well that’s BS because sooner later they are going to need a full cost refill.

    But what’s really, really upside down, that single payer system MIGHT fix, is borne out by a recent experience of mine.

    I had a very close friend with an ear infection that was in serious need of help. But no insurance.

    Being in a very large group plan that negotiated rates, I called to schedule an appointment with my doctor for my friend. I was asked if they had insurance. I said no but that I would pay the cost. Then they said they had no openings and they don’t accept patients without insurance.

    Ten minutes later I called back complaining of an ear infection and was given an appointment within hours. Doctors looked and wrote a script. Problem solved. Real doctors don’t mess with ear infections. Or at least it used to be that way.

    The worst part. The doctor pretends to charge $150 for an office visit, and will charge that if they can. But my group plan had negotiated a fixed rate charge of $37, and most of that was covered my my mandatory copay. If you can get an appointment without a group plan they will indeed charge you$150.


    Sense of balance? Sense of morality or honesty? Hey, most of them made it through school without loans. Many of them found a way to have them forgiven or paid by others.

    Sympathy for doctors? I had lots of friends that were premed. And to the person, there was only one motivator: MONEY.

  34. rip says:

    BTW: I almost forgot. An increasing number of physicians are refusing Medicare patients.

  35. [...] two very long charts looking at health care from a global perspective (From Barry Ritholtz via Ezra [...]

  36. crankitto11 says:

    BuffaloBob hit the nail on the head. All of you Ayn Rand groupies who believe less government is the answer to every problem will have to explain why the United States is the only country among the dozen or so top economies that DOESN’T have universal health care (at least until ObamaCare kicks in), but pays almost twice as large a percentage of its GDP on healthcare as those other countries, but with birth mortality and average lifespan figures in about the top 30′s, in the same neighborhood as several former Soviet bloc countries. Why is this so, when all the other advanced countries have a LOT more government involvement in and regulation of healthcare? And as the chart makes clear, the answer ISN’T such canards as tort law and drinking/smoking rates.

  37. adamsdc says:

    While i find this site to have some interesting opinions, i don’t think i’ve seen anything as bad as this published here. Has anyone gone to the website that provided this “information?” It is one of the major offenders as to why administrative costs in the USA are so out of control. A creature of governement programs such as Medicare and Medicaid as well as private insurance companies who have had to create massive bureaucracies to deal with government red tape.
    for example, an excerpt from the medicalbillingandcoding.org site

    “Inadequate documentation results in “undercoding” a patient’s condition and underpayment to your hospital (see Table 1, right). Undercoding also can result in inadequate representation of the severity of a patient’s illness, complexity, and cost of care. If a patient gets worse in the hospital, then that initial lower severity of illness might show up in poor performance scores on outcome measures. If a patient’s severity of illness is miscoded, Medicare might question the medical necessity for inpatient admission and deny payment.” etc. etc.

    There are many factors in why medical care is so expensive in the USA, including the ability of big pharma to buy off the Obama Administration to prevent purchase of discounted drugs that are available in every other country when they promised to support Obamacare with millions in fraudulent ad campaigns but at a cost of trillions to the taxpayer, paying for healthcare for 15,000,000 illegal aliens at zero cost to them, etc.
    But having lived in the UK and been subject to National Health where thousands die from lack of medical care in their hospital beds, I can say that I’d rather be over charged than dead like several of my friends are only due to the nature of “single payer” health care. Much needs to be changed, but silly posts like this series does nothing to advance the debate or fix the many problems associate with health care in the USA.

  38. [...] of the Hat to Barry Ritholtz of The Big Picture, who always builds or finds the coolest graphs. [...]

  39. carpediem0496 says:

    I am with quidite1 here that health care should be built around consumer directed principles.

    Please note that the federal government has exempted much of the health care industry from the Robinson Patman Act, which requires the same product to sold at the same price to everyone. This has caused many distortions in the pricing of health care and much of the cost shifting.

    Now the government and those who believe in a government run system claim that health care cannot be delivered in a competitive, free market manner. Government intervention in health care, which began seriously in 1965, has caused many (but not all) of the current problems. Now government wants to fix the problem it helped create. No thank you.

    We all have our views and posts like these simply let us articulate what our key assumptions are.

  40. adetoa says:

    as a third year medical student (24 years old) I would love to know from rip how to pay my $47,922 tuition plus cost of living without loans.
    “Sense of balance? Sense of morality or honesty? Hey, most of them made it through school without loans. Many of them found a way to have them forgiven or paid by others.” May 9th, 2011 at 8:14 pm
    As a resident, that’s after 4 years of post-college education and over $200K in debt, I will make around $48-50K for 4-5 years. It’s obvious rip isn’t a doctor. The simple math of having that much debt makes it necessary to make more than the average person/patient just to break even by the time I am 40. god forbid after 13 years of higher education I want to make more than a nurse/dentist who only needed 3-4/7. With celebrities, athletes, and bankers pulling in millions a year, why is it so bad for a doctor, someone who really helps people, to want to make mid six-figures?
    doctor salaries are really the last thing that should be villainized (it’s interesting from above that obesity contributes “ONLY $25 billion in extra” spending, while the $64 billion for ALL health care workers, not just doctors, is somehow bringing the whole system down). While there are good points in this presentation like administration costs and lack of transparency, I will have more respect for Part III when Ezra Klein, a blogger and columnist, is not credited as a source twice.

  41. DrungoHazewood says:

    Buffalo Bob,

    I don’t know about health care in Europe, but the Europeans exercise a lot more than we do. I went to a NATO conference and all of the European attendees did a lot of hiking and bike riding. My brother in law is Dutch, and half that country rides bikes. They are healthier than we are and they put mayonnaise on their fries. Blech!

  42. DrungoHazewood says:

    I forgot to mention that the Dutch have tea and cakes 3 or 4 times a day.

  43. red eye repub says:

    “Truth: Our Doctors are Overpaid”

    Hahahahahahaha! I don’t even know what that means. Who is supposed to determine how much a doctor’s services are worth? Some government bureaucrat?

    Lol. I’ve come to expect that sort of ignorant comment about athletes being overpaid, but doctors? The people who save our lives?

    Here’s the real truth: every one of us has the right to earn as much wealth as we can obtain through voluntary trade. We have a name for that and it’s called liberty.

  44. jus7tme says:

    Can someone please deconstruct or explain the item about “high outpatient cost”?

    I don’t see how outpatient surgery is going to be more expensive than inpatient, UNLESS there is the (unspoken above) assumption that there are a lot of unnecessary procedures being performed. Is that what they are trying to say?

  45. drewburn says:


    There is everything that prevents a free market in healthcare. Providers are part of a well controlled guild: The AMA and med schools. Insurers completely obscure price from the customer. There are monopolies all over the place: drugs, provider cartels, etc. How do you break down this to create a genuinely free market (and check your Econ. 101 for what defines a free market.)

  46. jb.mcmunn says:

    Some people have taken BR’s advice literally and have demoinstrated their ignorance. First, the AMA has NO market control. AMA membership is about 17% of doctors. IOW, the vast majority of doctors aren’t even members and do not consider the AMA as anything even remotely similar ro a trade association or guild. Most doctors hate the AMA.

    There is no secret conspiracy to limit the number of doctors. There are about 7oo,000 doctors and that is a lot of people to keep a secret.

    Doctors can’t really raise prices. The Medicare fee schedule is “take it or leave it”. The major insurers, through exemption from antitrust and prohibition of offering policies across state lines, have a monopoly on markets. Like Medicare, they offer doctors a Hobson’s Choice – take this contract and this fee schedule or lose access to the thousands of patients insured by us. There is no negotiating. Even large practices with 40 doctors have no bargaining power.

    OTOH, if doctors try to get together to raise fees, the FTC steps in and clobbers them for antitrust. Doctors are not allowed to discuss fees amongst themselves. They have no idea what the other guy is getting for the same servcies. Meanwhile, the insurers have a database of the fees doctors agree to under their various contracts.

    Your doctor can charge $1,000,000 per visit but Medicare will pay what it pays. Same for the insurers. The rest is “contractual write-off”.

    The real money is made these days by hospitals, labs, drug companies and suppliers. That’s why your doctor might own a lab or an outpatient facility. Those parts of the medical economy are businesses and they have strong lobbying and they cooperate. Doctors, OTOH, are like herding cats. They have been unable to organize themselves and have been sliced and diced as a result.

    Some valid observations I have seen here: The most important is that insurance disconnects the consumer from the cost. When a $500 supply of medication costs a co-pay of $205 the patient really doesn’t care what it costs. When the insurance company raises the co-pay up to $50 they will start bitching about it and ask for a different drug in a lower co-pay tier. The co-pay for a service or a drug should be a percentage of the total. Then you’ll see some cost comparisons done!

    Medical supply costs are hideously inflated. A metal cart with some drawers sold by a medical supply company might cost $800, whereas the equivalent Sears Craftsman cart might be $150. A single meedle might be several dollars. A plastic catheter can run over $50. We all know that drugs are cheaper in other countries than the U.S.

    If you look at physician fee schedules you will see that in general they have not kept up with inflation at all. Adjusted for inflation, fees have been dropping for decades.

  47. jb.mcmunn says:

    Dangit. Typo: “When a $500 supply of medication costs a co-pay of $205 “. Make that $20.

  48. Jim67545 says:

    Auto accident: hurt hand. ER visit, 4 Xrays of hand and 10 minutes with ER physician (to learn nothing was broken) = $1,675 paid by other driver’s insurance. Knee problem. 3 Xrays of knee at an outpatient clinic, read by my GP = $29 paid by Medicare. WTF?
    There are so many moving parts here that either we push the parts aside and go to a global solution such as Obamacare or else we argue back and forth (every opposite side making their own “reasonable” arguement), getting nowhere lost in the weeds.

  49. cognos says:

    Rip -

    Your story is SPOT-ON.

    One way to try and deal with this problem… and it is actually pretty “pro-capitalism” or it could be:

    ALL healthcare services should be 1-price, best-price, public price.

    That simple rule might change alot. Why does every company have to negotiate rates with insurance companies? Why cant a single, self-employed person just go to an insurance company and get the same rate that GE gets for its employees (hired and fired in 6 months) or Starbucks?

    Then this same point follows through to services and providers. All prices should be listed or registered and everyone must be charged the same. Your prices are above what medicare or private insurance will bear… fine, you can never accept those patients. Uniform pricing.

    Its stupid. Its WASTEFUL. It has nothing to do with health, costs, etc.

  50. cognos says:

    Obama really wiffed on that type of simple, straightforward “regulation” and transparency in his health reform.

    Why dont we see on our paychecks what is paid in our name for healthcare?

  51. low-tech cyclist says:

    50 years ago, didn’t most hospitals belong to local governments or religious organizations? And now they’re for-profit entities. How did this change happen, and what role has it played in what we pay for health care? Seems like there’s a story there, but I’ve never heard anyone try to tell it.

  52. ARockyW says:


    Nothing is preventing a free market in healthcare. You’re right that providers are part of a well controlled guild but why? They are a very strong lobby that that supports the gov’t who in return provide too many barriers to possible competitors.

    The AMA works especially close with gov’t and does everything in its power to keep competition away. Drug makers are very good at using the FDA and patent law to prevent competition. Just because it’s a privat company doesn’t mean they work on a free market. They’re using gov’t to prevent a free market so they can hold on to their monopoly.

    Full disclosure: I’m an extreme Anarcho-Capitalist so just call me crazy and we’ll end this discussion which cannot be hashed out on a blog comment section. But thanks for listening.

  53. [...] biz), and wondering how best to introduce a chart or two to TBP. BR’s recent post on healthcare gave me the perfect [...]

  54. jb.mcmunn says:

    ARockyW, let me connect the dots for you (and for BR who posted this info):

    The AMA’s main source of income is its monopoly on the CPT and ICD coding system for billing. ICD tells you the diagnosis, and CPT tells you the service provided. AMA income from membership fees is chump change by comparison. The ICD/CPT system royalties are where the real money lies. Take a peek at AMA HQ some time. It’s filled with non-physician executives with 6-figure salaries. The luxurious decor would make Lloyd Blankfein jealous. The suits run the AMA. The medical stuff is a facade. the doctors come and go, but the suits stay. Kind of like the eunuchs in Mandarin China.

    The government grants this coding monopoly to the AMA. It can take it away. If the AMA doesn’t dance to the government’s music, then they lose their real money-maker – the billing codes monopoly. That is the stick that government holds over the AMA.

    Now to connect the final dot, who provided this (dis)information? A billing company. The CPT/ICD crap is so complicated there is a whole industry built around it.

    Billing companies love the AMA. Doctors hate it.

  55. farmera1 says:

    If the devil himself were to design a “health care system” he couldn’t do a better job than the mess we have in the US free market system.

    The end result is that we spend some 60% more of our GDP on health care than any other industrialized nation with worse (lower longevity and higher infant mortality) outcomes.

    -The government subsidizes pharma companies since the government by law can not negotiate prices for medicare paid prescriptions. THis was part of the law passed by Bush II et al.
    -Doctors get paid by procedure (piece work) except at the Cleveland Clinic and Mayo.
    -INsurance companies insert themselves between the patient and the doctor, and the insurance companies make huge profits and pay their CEOs very well.

    A single payer system could eliminate much of this waste, but to even have an intelligent conversation about this is drowned out by Fox and Friends.

  56. jz says:

    Thanks jb.mcmunn!! Your posts were an oasis in a desert of ignorance.

    The malpractice number is not $25 billion. The cost of defensive medicine was estimated at 9% of Medicare’s total budget by the program’s director, which would put defensive medicine cost at $240 billion. I think that amount is more than the GDP of all but like five countries in the world.

    It’s not like that number should be zero, but if you put in caps on pain and suffering like Texas does and have a review board that weighs the merits of cases like they have in Indiana, malpractice costs would be contained. One of the dumbest things I have seen is the American people does not have a right to healthcare, but a right to sue.

    Standardization of billing and paperwork and malpractice reform were low hanging fruit that Obama didn’t bother to even pick. I think one part that people missed on the health care law was Obama at first was willing to prevent doctors from being sued if they followed well established clinical guidelines. I think most Americans would be shocked at this one. Doctors are being sued when they follow guidelines? Uh, yeah, it happens all the time.

    As for the chart about Americans being over 65, that one too was misleading. We are right at the boomers turning 65. I think if 60 not 65 were the cut off, things would have been much different.

    What is going to end this joke of a system we have right now is foreign competition. A plastic surgeon was operating in San Diego and Tijuana, and he got so sick of the red tape in San Diego, he went to Tijuana exclusively. I go to Mexico for my dental care and have found it to be cheaper and better. A number of my assistants from South of the border say the same about Mexican drugs and health care.

    Right now, the incentives are not in place to provide quality but to kiss the government’s and malpractice attorney’s asses. Because fees are standardized, the incentives are to do as little as possible without getting sued or in trouble with the government.

    I talked to a nurse who was recovering a heart bypass patient in an outpatient facility three days after the patient’s surgery. She confessed to me that she had no clue what she was doing. Throwing someone this quickly out of the hospital is all done to save a buck.

    If you compare that to the treatment American patients get when going to India, our nursing care is a bad joke. We have a lot of doctors here born in India, and some of the doctors practicing in India have U.S. training. From what I have seen, bypass surgery is 1/3 the cost of the U.S., and the patients rave about their treatment. One reason is the superior nursing attention in India.

    FWIW, the leading stem cell centers are now in China. LOL.If you want state of the art neurological care, don’t even bother with the U.S. It has gotten embroiled in the abortion debate.

    The funny part to me is how few Americans have taken advantage of the massive incentives to go abroad and get care. The sheeple really believe if not for malpractice attorneys and the government, quality health care would go to hell in a hand basket. In reality, they are the problem not the solution.

  57. [...] Medical Coding and Billing, via Barry Ritholtz and Tim [...]

  58. BillG says:

    @quidite “Third, doctors are overpaid because the AMA is a cartel that effectively uses government to limit the number of doctors (through limiting spots in Med school and foreign doctors).”

    Of all your points that’s the only one that has much truth to it and I just want to emphasize it since it is probably the single biggest reason for our overpriced system. There is no open profession in this country where the average professional makes anything close to what doctors do. And by no means do doctors hold any monopoly on the smartest people in our country. The average physician makes almost 4x what the average engineer makes. Recognizing there’s a few additional years of schooling and medical school costs more per year than a bachelors program or masters program there should be some difference but a factor of 4? An engineer doesn’t make 4x what a highschool grad makes and they’re several times smarter than them. A doctor is not several times smarter than an engineer, on average.

    Let anyone who meets the basic qualifications and has the desire to throw $160K down on medical school become a doctor. If we graduate too many then that means they can actually spend time with their patients rather than bill them $100 for a 5 minute consultation. Lets open the medical profession and have a free labor market like almost all other professions have in this country.

    @TLH, don’t compare the extremes of one profession to the mean of another. Goldman bankers are some of the best paid finance majors and MBAs in the country. Compare them to elite plastic surgeons if you want, but the average finance major comes nowhere close to the average doctor. But aside from that, though a gig at Goldman isn’t the easiest thing in the world to get, finance is an open profession. There’s probably a thousand colleges in this country offering degrees in finance and virtually anyone who wants to (and is capable) can study it.

    @adetoa, you need a reality check. So what if you don’t break even until you’re 40 (though that does seem a little late considering how much you’ll gross your first year after getting certified)? How much are you going to be making when you’re through with your residency? Do you know the median American household is only worth like $110K? You’ll net far more than that in a single year. If the median doctor breaks even at 40 then the median 41 year old doctor is richer than the median 41 year old. Seems like a pretty gravy arrangement to me. No wonder so many people apply to medical school despite the long odds.

  59. derekce says:

    1500 for stitches? That must be last year’s prices. My friend’s son just got 4 stitches in his lip for $2000. Inflation I guess.

  60. jz says:

    “Let anyone who meets the basic qualifications and has the desire to throw $160K down on medical school become a doctor. If we graduate too many then that means they can actually spend time with their patients rather than bill them $100 for a 5 minute consultation. Lets open the medical profession and have a free labor market like almost all other professions have in this country. ”

    That is your solution? LOL. Where do you think medical costs are higher: where there are tons of doctors like in NYC and LA or in rural places with fewer doctors like the central U.S.? You just don’t get it. Where there are more doctors, prices go higher not lower. When government sets the price, the laws of supply and demand don’t apply.

    Congratulations, you have bought the line that doctors not the government is the problem.

  61. platon20 says:

    Let me enlighten you idiots who know nothing about medicine.

    1. Doctors do NOT make “4 times” as much as engineers. Check the US Labor Dept/Census data. Average physician income before taxes = 173k. Average engineer income before taxes = 75k. Thats about twice as much, not 4 times as much. Get your fucking numbers right. That number is averaged across all specialties, so please spare us the BS retorts about how you know a Beverly Hills plastic surgeon who makes 5 million per year. He’s an extreme outlier. The US Labor Dept data includes tax returns from over 100k doctors, it is by FAR the most accurate sampling of income data for any profession. Don believe me? Here’s your link = http://www.bls.gov/oes/current/oes_nat.htm#29-0000.

    2. Doctors account for 20% of all healthcare costs in the United States. Of that 20%, about 50% goes to overhead costs such as clinic nurses salaries, utilities, malpractice coverage, etc. That means that 10% of all healthcare spending actually goes into the doctor’s pocket. That means you could cut doctor take-home pay IN HALF and only save 5% of costs. Link = http://economix.blogs.nytimes.com/2008/11/14/do-doctors-salaries-drive-up-health-care-costs/

    3. The TOTAL AMOUNT that Medicare pays to doctors skyrockets every year because there are way too many doctors in this country and they are all billing Medicare for the same amount of work done. In 1990, the average Medicare patient had 2.3 doctors. Now, that number is 7.9. We have 8 doctors billing Medicare for the same amount of work that 2 doctors used to do. Does that sound like a doctor shortage to you? More doctors = more referrals to specialists, more cardiac caths, more treadmill tests, more head CT scans = $$$$$$.

    4. The USA takes more foreign medical doctors THAN ALL OTHER NATIONS COMBINED! Yet inspite of this, payments to doctors keep going up every year while average reimbursement per ICD code falls dramatically. Again this points to a huge doctor surplus.

    5. New York and Boston have the highest number of doctors per capita in the world. Yet they also have the highest healthcare costs per capita in the world. Why? Arent all those millions of doctors competing against each other, causing costs to fall? No of course not because healthcare is not a free market and will NEVER be a free market. You could dump 10 million more doctors into NYC and costs would go UP, NOT DOWN BECAUSE EVERY NEW DOCTOR = NEW TESTS AND NEW DIAGNOSES THAT COST MAJOR $$$$.

    6. There are 38 new/planned medical schools in the USA since 2002. The idea that the AMA is artificially suppressing med schools is a joke. Link = http://forums.studentdoctor.net/showthread.php?t=277016.

    MD – University of Hawaii-Kakaako – 2006
    DO – Touro/Las Vegas – 2005
    DO – PCOM/Atlanta – 2005
    MD – University of Miami/FAU joint program – 2004
    MD – Cleveland Clinic/Lerner – 2004
    DO – LECOM/Bradenton – 2004
    MD – Florida State University – 2002
    DO – VCOM – 2002
    DO – Rocky Vista University COM – 2008 (first class being accepted now)
    MD – Florida International Univ – 2008
    MD – Univ Central Florida – 2008
    MD – Touro/NJ – 2008
    DO – Touro (Harlem NY) – 2008
    DO – Pacific Northwest (Yakima WA) – 2007
    MD – Michigan State University (Grand Rapids MI) – 2008
    MD – University of Arizona (Phoenix AZ) – 2007
    DO – AT Still University (Mesa AZ) – 2007
    DO – Lincoln Memorial/Debusk (Harrogate TN) – 2007
    DO – William Carey Univ (Hattiesburg, MS, http://www.wmcarey.edu/asp/viewpr.asp?item=430) – 2009
    MD – Commonwealth/Scranton (Scranton, PA, http://physiciansnews.com/spotlight/1006.html)
    MD – MCG-UGA/Athens (http://www.uga.edu/news/artman/publi…Building.shtml)


    MD – University of Cal Merced (Merced CA)
    MD – University of Cal Riverside (Riverside CA)
    MD – Texas Tech – El Paso (El Paso TX)
    MD – OHSU (Eugene OR)
    DO – MSUCOM (Detroit MI)
    DO – Barry University (Miami FL)
    MD – CUNY/Hunter College (NY, NY)
    MD – Virginia Tech/Carilion (private, Roanoke VA) http://www.carilion.com/ContentStore…%20Release.pdf
    MD/DO – Central Michigan University (http://www.mlive.com/news/sanews/ind…660.xml&coll=9)
    MD – Oakland University (Michigan) http://www4.oakland.edu/view_news.aspx?sid=34&id=3803
    MD/DO – St Thomas (St Paul MN) http://www.stthomas.edu/bulletin/new…ool5_11_07.cfm
    MD – Touro New Jersey http://passaicnews.wordpress.com/200…in-2009-touro/
    MD – Hofstra Univ (http://www.hofstra.edu/home/News/Pre…medschool.html)
    MD – Mercer/Savannah (http://www2.mercer.edu/News/Articles…hMedSchool.htm)
    DO – WesternU COM/Lebanon OR (http://www.gazettetimes.com/articles…1_hospital.txt)
    MD – Univ Washington/Spokane (http://depts.washington.edu/mediarel/spokane1.html)
    DO – LECOM, Greenburg PA, Seton Hill Univ (http://www.osteopathic.org/index.cfm?PageID=acc_predoc)
    DO – MSUCOM, Clinton Township MI, Macomb College (http://www.osteopathic.org/index.cfm?PageID=acc_predoc)

    7. The AMA has no direct power over medical schools, the LCME controls med school accreditation. As long as you meet the requirments, which are clearly spelled out in writing, your school is approved. Thats why Florida just opened 3 brand new spanking medical schools in a 5 year period. Why in god’s name would that all powerful evil AMA allow such a thing to occur? Because they dont control the process you fucking geniuses.

    Class dismissed.

  62. drewburn says:

    I’m certain no one is paying attention to this thread anymore, however, let me first elaborate what a free market is and how American healthcare ISN’T anywhere near one.

    A free market is a market with open price disclosure, where there are “limitless” sellers and buyers. The transparency of pricing is key.

    Guilds: The AMA and med schools limit supply. If you look at statistics of population growth and med school acceptances, you get the picture of the guild controlling supply. While imperfect, the period from the Clinton proposal of reform over the next ten years, acceptances to med schools in the US increased about 1.5%, while the US population increased about 15%. There were plenty of qualified applicants, acceptance rates were low.

    Quasi-monopolies with no competition: drug companies do “me-too” products, but there is no price competition. Medical devices are physician specific; they learn on one product and stick to it. No real competition. Actually, you could argue the whole system is a functional “natural” monopoly.

    Community hospitals, who must carry the burden of the uninsured via their ERs face continual sniping of their profitable businesses by lower-cost physician or privately funded specialty clinics.

    Insurers obscure price. PERIOD. It is their main function; to make healthcare appear uniform, professional, and “priceless.” A free market would do away with insurance, because private insurance costs around 33% in admin fees. 33%!!! Try that for middleman fees. Profit or non-profit, that’s the take; Medicare costs about 5% for admin.

    Finally, avoiding a free market is why the AMA, FDA, etc. were formed. Controlling quacks, snake-oil salesmen, etc. was the purpose of these institutions. Do you really want to go back to the good old days of a free (for all) market in healthcare.

    Listen, plumbers are a guild, but your life doesn’t depend on a plumber. There are plenty of other examples of quasi-monopolies and institutions that obscure price. However, none of these are quite as critical as healthcare. Americans consider healthcare a right, to some it’s a right of the rich, but let’s just say it’s unique and leave it at that.

  63. Francois says:

    Tons of “opinions” supported by belief systems, yet very few facts and links to serious and credible sources.

    This time, I’ll pass.

    Note that it’ll take centuries to reform this non-system if we are to be hindered by all these beliefs of otherwise sensible people.

    Oh well!

  64. someguy14 says:

    Not to worry – the system is in the process of correction. Kaiser sent me a notice yesterday that our healthcare “insurance” premiums are going up by 25% July 1. As a business owner, I am confident that not many businesses (or individuals for that matter) will continue to buy that type of product. It is a good thing. Most people will be priced out of the classic pre-paid healthcare model and begin to make decisions based upon their own perception of value. A simple example: sugars of 130 – what to do? spend money on meds, make lifestyle changes or nothing. I think most people will approach the answer differently when they are reaching into their own pocket to pay for the decision.

    Initially, there will be a ton of dislocation in the market because of the lack of pricing information, quality, etc. and many folks will scream that it is too painful and too large of an unknown to face. These fears will definitely be marketed by those that benefit the most from the status quo. But as economic history shows, we humans are crafty people and with some elbow grease will develop an efficient market with products for all budgets. Some people will choose to pay $45 for a visit, while others will choose to pay $200.

    I know what some are saying – it is my right to have the $200 treatment. I do think many/most people get confused with the fact that getting your body worked on is a right. And you can’t blame them. Most people have never walked into a medical facility and asked what something is going to cost and actually reached into their own pocket and paid for it. Consider the conditioning of that experience. Imagine if you/your company paid a monthly fee to best buy and you could just walk in and get what you want. Over time, having the latest tv/gadget would become a right.

    The de-conditioning process will be painful and messy, but most improvements in life are intially. Try giving up sugar for a month.

    We are heading down a good road. Living well is not a right, it is a choice.

  65. DeDude says:


    I am afraid you have way to much confidence in “free” access to information and the ability of the average person to make a rational decision even if they had such access. When the doctor says your wife’s chance of survival will be “better” if she undergoes this $5K procedure, are you sure you can make a rational decision? I know doctors that could not (and they do have access and ability to process all the relevant information). The rational effectiveness of the market only works when there is reasonable parity in information between the parties. The reason the old snake-oil scams worked was that the seller had a disproportionate advantage in knowledge, and could use fear as a marketing tool. Leave medicine to the free market forces and we will be right back to that situation again (not that we aren’t already half way there).

  66. someguy14 says:

    I agree that many decisions made in life have emotion in them – if that is what you mean by irrational. In my mind it is just a decision. I don’t think the decision changes from rational to irrational or vice versa depending on who is paying the bill. If you think having access to potentially life extending surgeries is important to you, then you can do your best to save for those and/or buy a lump-sum insurance product (currently available for some illnesses – cancer for example) to help finance/save for it. Otherwise, spend on the new cars, homes, etc.

    The problem with the current so-called health insurance, is that at some point death is not an outlier event. And given your example, the private insurance industry would never be able to supp0rt a Medicare-like product, because very few people would be able to afford it. As always, the things that will not be sold/financed by private institutions is pushed onto the unknowing public (talk about snake oil).

    I am very interested in your snake oil example. So let me get this straight, you think people are more susceptible to snake oil when spending their own money than when spending someone elses? Also, who do you think are making the decisions about what is paid for by insurance? Some super brains? You probably don’t need to look much further than the recent decision by medicare to cover a prostate vaccine to the tune of $90k that may or may not “extend” life by 3-4 months.

    I think the first three words of your post sum it up: “I am afraid”. It is ok, but I don’t think rational decisions are made under such circumstances. Don’t be afraid – no one is trying to steal your life or your money b/c they can’t – in fact it isn’t even yours.

    Choose to live well my friend.

  67. xochiandme says:

    Ok, I admit to having come to this forum late. And to having only skimmed the content. But this does not stop me from making my comment:

    I have not seen *one single person* talk about the link between the chemicals in what we call “food” and the chemicals in their antidotes called “prescription drugs”. Let me explain:

    Processed food is laced with all kinds of chemicals–many either outright outlawed or very strictly regulated in other first world countries. But here in the US we not only give the processed food producers free reign, we actually give them *subsidies* to produce the stuff. Our diets are laced with so many of these cheap chemicals (think of all the corn derivatives like high fructose corn syrup, mono and di-glycerides, MSG, maltodextrin, xanthan gum, I could go on and on just on the corn based stuff), that at the *very least* are completely devoid of nutritional value. There are plenty of studies (quickly refuted by these very processed food industries with the own in house studies) that link these chemicals disguised as food with a myriad of diseases.

    But don’t worry–the pharmaceutical industry has the antidotes to these chemicals! In the form of more chemicals! Feel sick (quite possibly from all the stuff you are ingesting)? Take a pill?

    Both the mass produced processed food industry and Big Pharma are complicit in keeping the myths alive that lawyers and overhead and all kinds of things are to blame. They play a part. But nothing like their toxins that we ingest as food that make us sick and then the drugs we take to then make us better. Both of these industries are so profitable, they have no incentive to change their financially successful “formulas”.

    Wake up, people. Try eating real food. And while you’re at it see if you can grow some.