It seems that the “Wall Street and K Street†MBAs have moved into the lucrative healthcare industry.  My old professor was convinced that inculcating a sense of compassion into those who were professionally trained for making profits was an uphill battle and that they were convinced that “to do good you first had to do well.†While the consequences of Wall Street tend to place the risk at the financial level, those posed by this group place risk on actual lives; as demonstrated in the avoidable 300+ deaths in Post Katrina Healthcare Facilities in New Orleans.

We commend Steven Brill on this article and applaud Time for having the courage to print this in-depth report. One comment we would make is that in this world of short attention spans, we rarely see in depth reporting and coverage that is as comprehensive as this, and unfortunately as a result most will probably not get through the entire article. However, the lack of apparent feedback on other media outlets and even on Social Networks like LinkedIn only demonstrate that even those involved will simply wait for it to blow over, without raising objections that might focus attention on the matter.

In order to summarize a bit, we have pulled out some quotes that underscore the problem of the high cost of healthcare in this country, along with some key examples.

Hospitals game the system by claiming non-profit status and avoiding income tax. Hospital billing is not connected to the cost of care as it is in other industries because of something called the “ChargeMasterâ€, a price list that is the basis for all billing from these hospitals. The rationale of the pricing is not supported and only certain of the largest clients, like Medicare and large insurance companies negotiate off these rates, insured patients rely on the payers to cover the bills and so do not tend to worry about the actual cost of the treatment. The only true example of tying billing to actual expenses comes with Medicare, where the pricing is dictated by the government. As an example, in the report the patient mentioned above had an insurance policy that covered $2,000 per day for inpatient care. MD Anderson, the Houston-based conglomerate, would not accept that “kind of insurance†and forced the patient to write a check to cover the diagnosis and initial chemotherapy treatments, which totaled $48,900. A week later, he was told to write another check in advance for $35,000 to cover the next round of treatment. Then they kept him waiting in reception for 90 minutes to make sure the second check cleared before beginning treatment.

This outrageous pricing underscores the hubris with which these institutions operate; examples of arbitrarily charging ridiculous prices are rampant in the report, for example:

“Dozens of mid-priced items were embedded with similarly aggressive markups, like $283.00 for a “CHEST, PA AND LAT 71020.†That’s a simple chest X-ray, for which MD Anderson is routinely paid $20.44 when it treats a patient on Medicare, the government health care program for the elderly.â€

The benefits for this pricing become more clear with a top-down look at the situation:

“The hospital’s hard-nosed approach pays off. Although it is officially a nonprofit unit of the University of Texas, MD Anderson has revenue that exceeds the cost of the world-class care it provides by so much that its operating profit for the fiscal year 2010, the most recent annual report it filed with the U.S. Department of Health and Human Services, was $531 million. That’s a profit margin of 26% on revenue of $2.05 billion, an astounding result for such a service-intensive enterprise.â€

This is just the tip of the iceberg, however, there are several other examples of how hospitals use this “ChargeMaster†to inflate the value of services (often by 10x or more of the Medicare list, which is based on actual costs) using the markups to claim as expenses for non-paying patients. In fact it is this “giving†that is used to justify the high prices, but a deeper look shows the math does not add up. And it also forces 60% of the personal bankruptcies in the country, precisely among those who can afford it least; another stake in the coffin of America’s Middle Class. Meanwhile, these hard-nosed bill collectors offer huge salaries to Hospital Administrators and buy influence to keep prices higher than they should be, while maintaining Charitable Organization status, while driving 99% of revenue from patient bills. For example:

“In December, when the New York Times ran a story about how a deficit deal might threaten hospital payments, Steven Safyer, chief executive of Montefiore Medical Center, a large nonprofit hospital system in the Bronx, complained, “There is no such thing as a cut to a provider that isn’t a cut to a beneficiary … This is not crying wolf.â€

“Actually, Safyer seems to be crying wolf to the tune of about $196.8 million, according to the hospital’s latest publicly available tax return. That was his hospital’s operating profit, according to its 2010 return. With $2.586 billion in revenue — of which 99.4% came from patient bills and 0.6% from fundraising events and other charitable contributions — Safyer’s business is more than six times as large as that of the Bronx’s most famous enterprise, the New York Yankees. Surely, without cutting services to beneficiaries, Safyer could cut what have to be some of the Bronx’s better non-Yankee salaries: his own, which was $4,065,000, or those of his chief financial officer ($3,243,000), his executive vice president ($2,220,000) or the head of his dental department ($1,798,000).

The fact that Congress is deep in bed with these companies does not help either.

“We spend two or three times that much on durable medical devices like canes and wheelchairs, in part because a heavily lobbied Congress forces Medicare to pay 25% to 75% more for this equipment than it would cost at Walmart.â€

“The drag on our overall economy that comes with taxpayers, employers and consumers spending so much more than is spent in any other country for the same product is unsustainable. Health care is eating away at our economy and our treasury.â€

As long as there is a de-facto reward for miscreant behavior within Healthcare industry segments, i.e., fines significantly less than profits derived from explicit fraud, and the ability to remain a preferred supplier, by disclaiming guilt but being willing to pay enormous sums for alleged transgressions, we will continue down this spiral path. Wall Street has no corner on the market of being able to remarkably escape civil, criminal and ethical accountability for its’ actions.