Ouch! How `Money-Driven Medicine,' Abuse Cost Us $1.8 Trillion

By Joan Oleck
Bloomberg
May. 22, 2006

May 22 (Bloomberg) -- Anyone who has wrangled with a health-care provider will find nothing shocking about the title of Maggie Mahar's new book, ``Money-Driven Medicine: The Real Reason Health Care Costs So Much'' (Collins, 480 pages, $27.95).

Health-care costs ballooned to $1.8 trillion in 2005, or 16 percent of the U.S. gross domestic product last year, from about 7 percent in 1970. Soaring costs are a big reason why 48 million Americans have no health insurance and U.S. companies that subsidize their employees' health care have yet another disadvantage compared with overseas competitors.

``Over the past 25 years, power in our health-care system has shifted from the physician to the corporation,'' Mahar writes. ``A professional, the physician pledged to put his patients' interests ahead of his own. The corporation, by contrast, is legally bound to put its shareholders' interests first.''

Mahar, a veteran business writer and former Bloomberg News columnist, illuminates the profit motive behind medicine with plenty of horror stories in this savvy, detail-rich book. In one of her more disturbing riffs on U.S.-style medicine, she describes the for-profit hospital chain previously known as National Medical Enterprises Inc. and now called Tenet Healthcare Corp.

In the 1990s, National Medical saw a potentially lucrative market in providing care for people suffering from mental illness and substance abuse. By 1991, the company owned 86 such facilities. It kept beds full by imposing lofty financial targets for facility executives, plus length-of-stay requirements, Mahar writes. She says one facility charged 1,092 percent over what the hospital's services cost.

Systemic Waste

The abuses led to a number of lawsuits. Dallas-based Tenet settled one suit in California just last week. While denying wrongdoing, the company agreed to pay a $21 million and to sell or close its Alvarado Hospital Medical Center in San Diego County to end federal kickback charges.

Though Tenet may have been extreme, it isn't unique. The problem, Mahar explains, is systemic waste. There's what she calls the ``medical arms race'' among hospitals. ``Today all hospitals operate in a Darwinian arena where revenues depend upon volume and size equals power,'' she writes.

Hospitals duplicate their neighbors' services in order to flaunt the latest technology; they offer ``hotel-like amenities'' and whatever will bring in customers. They advertise to build brand image. Ad spending by Milwaukee hospitals in 2003 outstripped that of fast-food outlets.

New Profit Driver

``Competitors do not create value, they divide it,'' a Harvard Business School professor told Mahar. So, contrary to economic theory, hospitals in the most competitive markets have higher per-day costs than cities with fewer hospitals.

Managed-care plans, such as health-maintenance organizations, have surrendered the clout to negotiate discounts. Besieged by lawsuits over denial of costly procedures, plans have approved more and more, and the price of family coverage jumped 73 percent from 2000 to 2005.

The problems pile up. Physician-owned surgical centers skim the most lucrative procedures from community hospitals. Hospitals reward physicians for high-volume work. A lack of consistent electronic records, which other countries have, boosts inefficiency and costs. Drugmakers pay doctors to back devices and drugs despite dubious efficacy.

Bad Medicine

And then there's the newest profit driver: the Medicare prescription-drug plan for seniors, predicted to boost 2006 revenue at seven large insurers by $4.45 billion and lift earnings by 2 percent to 4 percent.

``When all is said and done, the United States has a `private' health-care system that is bankrolled by the public,'' Mahar writes.

Yet it's ``private'' only in that it is privately controlled by insurance companies and the makers of drugs and devices. Insurers see physicians as vendors, drugmakers as customers, hospitals as rivals or rainmakers.

This makes for bad medicine: Physicians must be free to practice patient-centered, evidence-based medicine, Mahar writes. Medical treatment should be viewed as uncertain terrain difficult for the doctor and the patient and vexing for the bill-paying public -- but never as a commodity.

(Joan Oleck is a critic for Bloomberg News. The opinions expressed are her own.)