With my 97-year-old father in a nursing home, I find myself getting a lot of valuable, firsthand experience with the nation's health care delivery system -- especially the costs.
The other day, I received a bill for ambulance service incurred back in January when we had Dad brought to my house for a visit. At the time, he had just been flown to California from Florida so we were overly cautious about driving him around town ourselves. The bill I just received 11 months later for 29 miles of driving -- two trips to the house to drop him off and pick him up later -- was for $1,229. Rural/Metro of Northern California is a division of a national company with 8,000 employees and ambulance operations in 400 cities around the country. It's owned by Warburg Pincus, a private equity firm that paid about $800 million for the company in 2011.
What I know about that $1,229 is that it would have included the cost of layers and layers of management overhead, probably an inflated purchase price triggered by excessively high profits, and interest on almost a billion dollars worth of debt. Doing the math in my head and assuming $100,000 per year salaries for the two paramedics, the dispatcher, the ambulance itself and a fudge factor to boot, it's hard to come up with much beyond $600 for three hours of time.
The reason it took so long to generate the bill was because Medicare needed to determine whether or not the trip was medically necessary before they would pay for it. It wasn't. Dad was just visiting us, which was good for his mental health, but nothing about the short trip qualified for reimbursement.
The point here is whether or not $1,229 for two 7-mile trips across town is reasonable for anyone to pay. Medicare apparently coughs up that amount of money routinely and doesn't question if it's a reasonable price.
Like everything else in health care, however, I suspect that it represents yet another perversion of the supposedly free-market system that has the potential to run amok in the cost-plus system that forms the underpinnings of health care.
I'm reminded of an earlier Medicare rip-off when my Dad was in a rehabilitation facility owned by HealthSouth (ticker: HLS) in Florida. In that instance, I showed up on a Saturday to visit him for the first time and asked if I could hang around for what I assumed would be his second daily therapy session to get him walking again. I was told that there wasn't any therapy on Saturday or Sunday. So, in a facility billing Medicare for some unconscionable amount of money per patient per day, they were providing services just five out of seven days. Their stock price, in five years, has risen from $5 to $37 thanks to those cost-saving measures.
Dr. Donald Berwick had been appointed by President Barack Obama to be the head of Medicare after having successfully founded the Institute for Healthcare Improvement as a culmination of a successful medical career. In his short stint as appointee, he was quick to point out that about one-third of Medicare costs were fraudulent -- roughly $800 billion worth of fraud per year.
Unfortunately for all of us, Berwick had once said some favorable things about the British health system, so that effectively spelled his doom before any hope of confirmation. By the time Marilyn Tavenner was finally appointed and confirmed, we had gone for six years without anyone at the head of a government agency that spends over $2.5 trillion of our tax dollars per year.
What we need at this point are death panels that focus on killing fraud in the delivery of health care. It shouldn't be that hard to detect. The New York Times in a story by Nina Bernstein pointed out the difference in cost of knee replacement operations in the New York area that ranged from a median of $1,376 in one hospital to a median of $51,897 in another. Medicare undoubtedly pays the latter in too many cases. It's like "whatever." Meanwhile, hospital trade groups are desperate to prevent the release of data, citing the fact that "it's confusing and doesn't show the full picture." It reminds me all too well of the mutual fund industry that fought the new law requiring disclosure of hidden fees in 401(k) plans because "they would just confuse people."
In the famous "phases of the moon" price-fixing scandal involving GE and Westinghouse, the two companies determined who would submit the lowest bid for power company generators based on -- you guessed it -- the moon. In the health industry, we're not victimized by price-fixing per se. Instead, it's just a tacit understanding that everyone will make plenty of money by adopting a "go-along and get-along" approach to pricing. Economists call this condition an "oligopoly." Hopefully, it will be reined in as the Affordable Care Act limits industry administrative expenses and shines more light on the subject of abusive costs.
As for my father, we have now figured out how to avoid ambulances by figuring out how to safely pile him into my car. I took him for a spin around the Bay Area, crossing both bridges, and he had a great time. It's just one example of how a do-it-yourself approach to cutting health care costs whenever possible can yield a better end result.