Healthcare Costs in America: Hospitals, Doctors, Medications and More
Summary
TLDRThis video series delves into the soaring costs of healthcare in the U.S., highlighting that they rise at over three times the inflation rate, doubling every decade. It explains the '80-20 rule' where 20% of members drive 80% of costs, often due to conditions like musculoskeletal issues, cardiovascular diseases, and cancer. The series also uncovers how hospitals increase revenue through mergers and acquisitions, and how private equity firms and pharmaceutical companies contribute to escalating costs through patent extensions and high prescription prices. Medical devices are another cost driver, with manufacturers, hospitals, and insurers marking up prices significantly.
Takeaways
- 📈 Health care costs in the U.S. are rising at about 7% per year, which is more than three times the overall inflation rate.
- ⏱️ According to the 'Rule of 70', healthcare costs are doubling every 10 years, indicating an unsustainable growth trajectory.
- 💰 The average healthcare cost for employers in America is about $10,000 per employee, which is projected to double in a decade.
- 👥 For every one subscriber on a health plan, there are typically two members, often including family members of the employee.
- 🔑 The '80-20 rule' shows that 80% of healthcare costs for a plan are generated by 20% of its members, highlighting cost concentration among a small group.
- 💊 Three main diagnostic categories drive the majority of healthcare costs: musculoskeletal issues, cardiovascular diseases, and cancer.
- 🏥 Hospitals are the largest driver of healthcare spending, accounting for 50% of all healthcare costs, more than professional fees and prescriptions.
- 💼 Hospitals often use commercial insurance revenue to cross-subsidize lower payments received from Medicare, Medicaid, and self-pay patients.
- 🔄 The fee-for-service model incentivizes hospitals to perform more services to increase revenue, which can lead to unnecessary care.
- 🤝 Hospitals use horizontal and vertical integration strategies to decrease competition and increase patient volume, respectively, to boost revenue.
- 💡 The script suggests that understanding these drivers of healthcare costs is crucial for addressing the issue of increasing costs in America.
Q & A
Why are healthcare costs considered unsustainable in the United States?
-Healthcare costs are considered unsustainable because they rise at a rate significantly higher than the overall inflation rate, approximately seven percent per year compared to the typical two percent inflation, leading to a doubling of costs every 10 years.
What is the average healthcare cost for employers in America per employee?
-The average healthcare cost for employers in America is about ten thousand dollars per employee on the plan per year.
What does the '80-20 rule' in healthcare costs signify?
-The '80-20 rule' signifies that 80 percent of the overall healthcare costs for a plan are generated by 20 percent of the employees or plan members, indicating a concentration of costs among a smaller group of individuals with higher healthcare needs.
How does stratification in healthcare costs work?
-Stratification in healthcare costs refers to the concentration of costs among a smaller group of people, where 20% drive 80% of the costs, and further stratification shows that 50% of the costs are driven by the top 5% of people.
What are the three diagnostic categories that drive the majority of healthcare costs for high-cost claimants?
-The three diagnostic categories that drive the majority of healthcare costs are musculoskeletal issues (like orthopedic and spine problems), cardiovascular issues (like heart attacks or strokes), and cancer treatments.
What is the role of hospitals in driving healthcare costs?
-Hospitals play a significant role in driving healthcare costs as they are the largest segment of healthcare spending, often using commercial insurance revenue to cross-subsidize lower payments received from Medicare, Medicaid, and self-pay patients.
How do hospitals typically increase their revenue?
-Hospitals typically increase their revenue through strategies like horizontal integration (merging with other hospital systems to decrease competition) and vertical integration (buying physician practices to increase patient volume).
What is the financial mechanism behind hospitals making money?
-The financial mechanism behind hospitals making money is 'fee-for-service', where hospitals perform services and bill insurance companies, incentivizing them to perform as many services as possible to collect more fees.
What is the impact of private equity firms on physician practices and healthcare costs?
-Private equity firms have been buying physician practices, particularly in areas like ER, radiology, anesthesiology, and pathology, and taking them out of network to increase their revenue and prices significantly, contributing to the rise in overall healthcare costs.
How do pharmaceutical companies contribute to increasing healthcare costs?
-Pharmaceutical companies contribute to increasing healthcare costs by extending patent protections on medications to maintain high prices for longer periods, creating patent thickets, and using strategies to delay the entry of generic medications into the market.
What strategies do pharmaceutical companies use to incentivize doctors to prescribe their medications?
-Pharmaceutical companies use strategies such as providing speaking and consulting fees, offering free meals to physician practices, and organizing promotional events to indirectly incentivize doctors to prescribe their medications.
How do medical device companies contribute to the increase in healthcare costs?
-Medical device companies contribute to the increase in healthcare costs by marking up the prices of devices significantly when selling to hospitals, which then results in further markups when insurance companies reimburse for these devices.
Outlines
💰 Understanding the High Costs of Healthcare
The script introduces the topic of healthcare costs, emphasizing their high and increasing nature. It explains that healthcare costs rise at a rate of about 7% annually, which is over three times the general inflation rate. The 'Rule of 70' is introduced to illustrate how quickly these costs can double. The average healthcare cost for employers in America is highlighted, with a projection of how it will double in 10 years. The concept of 'members' versus 'subscribers' is clarified, and the '80-20 rule' is used to show that a small percentage of plan members generate the majority of healthcare costs. The importance of addressing these high-cost individuals to reduce overall healthcare expenses is discussed.
🏥 Major Drivers of Healthcare Costs
This paragraph delves into the specific diagnostic categories that are the primary drivers of high healthcare costs, focusing on musculoskeletal issues, cardiovascular emergencies, and cancer treatments. It explains how these conditions often require expensive interventions and contribute significantly to the overall healthcare expenditure. Additionally, the paragraph touches on the impact of labor and delivery on healthcare costs, especially in workplaces with younger employees. The discussion then shifts to the source of healthcare costs, with hospitals being identified as the main cost driver, followed by professional fees and prescription costs. The revenue breakdown for hospitals from different payers is also examined, highlighting the disparities in payment rates.
💼 The Economics of Hospital Revenue and Healthcare Costs
The script explains the economic concept that increased healthcare costs translate to increased revenue for hospitals. It discusses how hospitals use commercial insurance revenue to subsidize lower payments received from Medicare, Medicaid, and self-pay patients. The impact of this practice on the cost of health insurance for employers and employees in America is highlighted, showing how commercial insurance costs are driven up to cover the shortfall from other payers. The paragraph also explores the strategies hospitals use to increase revenue, such as horizontal and vertical integration, and the implications of these strategies on healthcare costs.
🤔 The Impact of Private Equity on Physician Practices
This section of the script discusses the role of private equity firms in driving up healthcare costs through the acquisition of physician practices. It explains that these firms target specific types of practices where patients have no choice in selection, such as ER doctors, radiologists, anesthesiologists, and pathologists. Private equity firms are said to increase revenues by taking these practices out of network, leading to significantly higher charges for their services. The consequences of this strategy for patients, in terms of higher out-of-pocket costs and out-of-network deductibles, are also examined.
💊 The Role of Pharmaceutical Companies in Rising Medication Costs
The script addresses the issue of increasing prescription costs as a major contributor to the rise in healthcare expenses. It contrasts the U.S. with other industrialized nations, noting that the problem lies not in the quantity of medications used but in the price per pill. The strong patent protection in the U.S. is cited as a reason for high medication prices, with pharmaceutical companies using patent extensions and 'patent thickets' to maintain exclusivity and high prices. The strategies employed by these companies to delay the entry of generic medications into the market, such as 'pay-to-delay' deals, are also discussed.
🛠️ Medical Devices and Their Markup in Healthcare Costs
This paragraph focuses on the role of medical devices in the escalation of healthcare costs. It describes the process by which the cost of devices like knee or hip implants is marked up significantly from the manufacturer to the hospital, and then again when the hospital bills the insurance company. The example given illustrates how the cost of an implant can be marked up from its manufacturing cost of $300 to a selling price of $30,000 by the time it reaches the insurance company. The lack of patient involvement in these decisions and the resulting high costs to the healthcare system are highlighted.
Mindmap
Keywords
💡Health Care Costs
💡Inflation Rate
💡Rule of 70
💡Stratification
💡Musculoskeletal
💡Cardiovascular
💡Cancer
💡Labor and Delivery
💡Fee-for-Service
💡Private Equity Firms
💡Patent Thicket
💡Medical Devices
Highlights
Healthcare costs are rising at a rate of about 7% per year, which is more than three times the overall inflation rate.
The 'Rule of 70' indicates that healthcare costs double every 10 years due to the high rate of increase.
The average healthcare cost for employers in the U.S. is approximately $10,000 per employee per year.
80% of healthcare costs for a plan are generated by 20% of the employees or plan members, highlighting cost stratification.
Three diagnostic categories—musculoskeletal, cardiovascular, and cancer—account for the majority of healthcare costs.
Hospitals are the primary driver of healthcare costs, accounting for 50% of all healthcare expenditures.
Hospitals cross-subsidize lower payments from Medicare, Medicaid, and self-pay patients by overcharging commercial insurance.
Horizontal integration through hospital mergers reduces competition and allows for increased prices.
Vertical integration involves hospitals buying physician practices to increase patient volume and revenue.
The 'fee-for-service' model incentivizes hospitals to perform more services to collect more fees.
Private equity firms are buying physician practices and taking them out of network to increase revenue dramatically.
The 'surprise billing law' of 2022 was introduced to counteract the high costs of out-of-network charges.
Pharmaceutical companies use strong patent protection to maintain high prices for medications.
The practice of 'pay-to-delay' is used by brand-name pharmaceutical companies to prevent generics from entering the market.
Pharmaceutical companies incentivize doctors to prescribe their medications through various indirect methods.
Medical device companies markup the cost of implants significantly, contributing to increased healthcare costs.
Transcripts
hello and welcome to our sessions on
health care costs now this first session
this first part of this session is going
to be about an overview of health care
costs so of course the most important
thing about health care costs is that
they're super high in their rising so
we're going to get into a whole bunch of
numbers and statistics around that but
it's important for all of us to have a
general understanding
of how high health care costs really are
and what causes that so
health care costs go up by about seven
percent per year now overall inflation
is typically two percent or even less
than two percent per year so seven
percent doesn't sound like a big number
but it's essentially more than three
times the overall inflation rate now
there's also this thing called the rule
of 70 which is whatever the inflation
rate is or whatever the percentage
increase is you just take 70 and you
divide it by that and that's how many
years it's going to take for it to
double so if you take 70 and you divide
it by 7 that that's 10 so that means
that healthcare costs are essentially
doubling every 10 years well shoot
that's pretty unsustainable right so we
know that now that the average health
care cost for employers in america is
about ten thousand dollars per employee
on the plan per year so in just 10 years
it's going to be 20 000
well
it's important to understand who's on
the planet so
there are two members or sometimes it's
referred to as belly buttons or
heartbeats they're two members for every
one subscriber on the plan and the
subscriber is the actual employee who's
on the plane now i went through this
before but i'll go through it again
quickly because it's important to
understand because everybody messes this
up okay so let's say it's a company with
120 employees not all 120 employees have
to take the insurance they might take
their spouse's insurance they can just
refuse to take the insurance so let's
say a hundred employees end up taking
the insurance that means there's a
hundred subscribers but then there's two
members for every one subscriber so
again they could have a spouse some
people will be single so it's one but
they might be have a spouse and have
like three kids or it might just be
employee plus a kid or employee those
two kids by the time you average it all
out
it's on average it's about 200 members
for every 100 subscribers okay so that's
your employee population 200 members now
as far as care costs go it breaks down
into what's called the 80 20 rule where
80 percent of the overall health care
costs for the plan are generated by 20
of the employees or plan members i
should say so those folks that are
taking a lot of expensive medications or
end up being hospitalized a lot or end
up having a lot of tests or procedures
so
there's a significant number it's a good
30 of people that will like never use
their health insurance at all because
there's like nothing going on over the
course of a year because there's like
nothing going on with them like their
bodies working fine they don't go in for
anything
so that's called stratification it's
concentrated where 20 of the people are
driving for 80 of the cost and it
stratifies even more where 50 of the
costs are driven by the top
five percent of people right so if five
percent of people are driving fifty
percent of the cost that means that the
next 15 percent are driving 30 percent
of the cost to get you to the 80. so
that that that 5 that's driving 50 so
over half of a company's health care
costs are driven by just 5
of people so in the case of this 200
member plan
that means that just 10 people are
driving half the healthcare costs for
the plan and again we said it's 10 000
per year so that's 2 million dollars so
that means that
10 people are driving a million dollars
worth of health care spending every year
or the equivalent of a hundred thousand
dollars per person now i'm not here to
say that's right or that's wrong but the
point is is that if an employer is going
to be lowering health care costs at all
it is super hard to lower health care
costs unless you do something about the
20 of people that are generating 80
percent of the cost for the 5 people
that are generating 50 of the cost so
there are ways to deliver better care
for them higher quality care for them so
they don't have to have as much repeated
care
ways to keep them healthier ways to
treat their diseases earlier so that it
doesn't become as catastrophic as it
could be and we're going to talk about
some of those uh practices in additional
videos so now
in terms of like what diagnoses drive
these high health care costs so what are
these people that cost like 100 000 a
year
like it's not spread out over across all
diagnoses there's actually three
diagnostic categories that drive the
majority of healthcare costs
for those high cost claimants and those
are musculoskeletal which is orthopedic
and spine it's basically having aches
and pains and mobility problems in your
joints whether it be like your hips and
your knees or your spine like those are
the major weight-bearing joints or your
spine your hips and your knees and those
oftentimes become painful and it's the
treatment of that pain and that mobility
in those joints that is hugely expensive
next is cardiovascular unfortunately
this typically takes the form of an
emergency for something like a heart
attack or a stroke or someone might have
peripheral vascular disease where they
uh they have decreased circulation in
their legs um and then the third
category is cancer which is obviously
devastating it's not necessarily an
emergency like the heart attack right
when the heart attack happens you have
crushing chest pain you go into the
hospital you immediately get admitted do
cardiac catheterization maybe coronary
artery bypass i mean it all happens
super fast with cancer it's obviously
incredibly serious but it tends to be
drawn out over weeks or months or maybe
even years as the person might get
surgery to remove the tumor the person
might get chemotherapy through an iv to
treat the cancer the person might get
radiation therapy where special x-rays
zap the tumor they might get a
combination of all three and that all
ends up being very expensive okay so
that's how it breaks down in terms of
diagnoses and then the fourth one
especially if companies have a lot of
younger employees is labor and delivery
and there the issue is that it's a
pregnancy that has complications either
for the mom or for the baby or it's a
baby that's born prematurely and ends up
being in the nicu for a prolonged period
of time so sometimes with companies that
have younger employees they tend to not
have cardiovascular tends to be issued
for folks that are over 50. so for
companies that have a lot of younger
employees cardiovascular might be
swapped out with maternity and labor and
delivery
instead now
how does it then break down in terms of
like location or source of cost so this
is diagnosis but this is the source of
the cost so 50
of all these healthcare costs actually
driven by the hospital the hospitals
drive the vast majority of healthcare
costs
compared to other categories now
professional fees which is doctors
therapists so all the people doing the
stuff that's 25
prescription costs actually 20
so believe it or not all the
professional fees actually are more than
the prescriptions and people complain a
lot about oh prescription prices are
costs are so high and yes it is a
problem and yes that is significant but
like 75 of the cost is in the hospitals
and the professional fees and then the
final five percent is other
now
let's talk about specifically how these
hospitals get paid a hospital's revenue
coming in is broken down
about 40 percent of their revenue comes
from commercial insurance and about 40
percent of their revenue comes in from
medicare and about 10 percent of the
revenue comes in from medicaid and about
10 of their income comes from people
without insurance or referred to as
self-pay now it varies depending upon
the part of the country so there's some
parts of the country that might have 15
medicaid and only five percent self-pay
and then there's other some parts of the
country that might have like 45
commercial insurance and only five
percent self-pay if they just happen to
have you know highly employed population
not as much unemployment in the area
okay now
let's break down
not all of these payers pay equally and
i'm going to break down the implications
for that for the hospital this is a
little complicated so bear with me okay
now let's break down a specific example
here for a hospital that brings in let's
say a hundred million dollars a year in
revenue just to use a round number okay
so that means that there would be
ten thousand patients let's just say the
hospital saw ten thousand patients a
year again it's using nice round numbers
okay let's say they had ten thousand uh
patients come into their hospital a year
and each one of those patients on
average brought in ten thousand dollars
or ten thousand dollars times ten
thousand patients gets you 100 million
dollars now let's say that hospitals but
that hospital doesn't have an equal
distribution of patients across
commercial medicare medicaid so let's
say
if you added up all the patients that
had medicare plus medicaid plus that
were self-pay let's say 7 000 out of
those 10 000
patients were on medicare medicare
self-pay and let's say on average
medicare medicaid and self-pay only paid
five thousand dollars per patient so the
seven thousand patients times the five
thousand per patient gets you 35 million
dollars okay
but the hospital is bringing in a
hundred million dollars a year so the
hospital's like well shoot it cost us a
hundred million dollars to let's just
say the hospital's breaking even they're
not making any profit they're just
breaking even
right so let's say
that okay then they've got a remaining 3
000
patients right because there's 7 000
that are medicare medicaid self-pace
that means there's 3 000 that are on
commercial insurance and they've got 65
000 65 million dollars that they need to
collect from those 3 000 patients in
order to reach their 100 million dollar
budget so if you do the math on that
that means that there's it's 22 000
per commercially insured patient so you
can see that while the breakdown is 40
commercial 40
medicare 10 medicaid 10 self-pay right
and this example is a little different
because i was using round numbers here
for 5 000 per patient but in general
you're seeing that the commercial
insurance is
actually
over three times hot more expensive it's
higher than what it is for the
non-commercial insurance patients
twenty-two thousand dollars per
commercial annotations but seven
thousand dollars per medicare medication
so what the hospitals do
is they cross subsidize the low payment
per patient from medicare medicaid and
self-pay
and then they
over charge and over bill and get paid
much more have much higher negotiated
rates for their commercial insurance and
that process of cross-subsidization
is why health insurance is so expensive
for employers in america because
employers in america and employees in
america are cross subsidizing the low
payments by medicare medicaid and for
people that don't have insurance so when
healthcare costs go up by seven percent
per year what i mean is health care
costs for commercially insured people go
up by seven percent per year because the
com the hospitals are constantly robbing
peter to pay paul
from the commercial insurance folks to
pay for the other folks again i'm not
saying that's right or that's wrong i'm
just saying that's how it works and
that's important for everyone to
understand
thank you for watching
hello welcome back so in talking about
health care costs we are now going to
talk specifically about
increasing hospital revenue
now one of the most important concepts
in economics that anyone can understand
is that one person's spending
is another person's income or revenue so
when we talk about increased health care
costs whether it be for individuals or
for companies or for the government that
increased cost is another organization's
revenue and in this case it's the
hospital's revenue so
in order for hospitals to increase
revenue which is what they want to do
they need to increase health care costs
so we talked about how in the previous
part about how hospitals are actually
the largest
segment of healthcare spending it's one
in doctors it's more than pharmaceutical
spending so
hospitals are a huge driver of overall
health care cost increase in america now
we also talked in the previous video as
brief review that hospitals use
commercial insurance revenue from blue
cross united cigna aetna to
cross-subsidize their lower payments for
medicare medicaid for people that don't
have insurance now
the commercial insurance revenue is it's
not really coming from the insurance
company it's really coming from
employers right because employers are
paying the premium to the insurance
company and all the insurance company is
doing is facilitating the transaction
right so it's really employers in
america that are cross subsidizing
the lower payments by medicare and
medicaid now
hospitals have a couple of strategies
that they use for increasing that
revenue and it is
horizontal integration and vertical
integration now horizontal uh
integration is when hospital systems
merge with each other
so it's through mergers so
the majority of cities in america
actually do not have a lot of choices
right it's the whole idea where okay
well if
if you've got a whole bunch of of any
businesses competing when they're going
to compete on price and they're going to
lower the price but if you can
decrease the competition then those
businesses can increase the price so
hospitals have merged to decrease
competition so that they can increase
their prices that way when the hospital
system goes to blue cross united signal
aetna they'll be like look for xyz city
you have to have us in your network what
are you going to do not have us in your
network there's not many other options
in town your members are going to be
like what you don't mean our hospital
systems in the network we're not going
to buy that insurance from you so that's
why hospitals use mergers to with other
hospital systems to increase their
revenue now
as i just mentioned the majority of
these americans don't have a lot of
competition so probably the a number one
example that is in phoenix where the
banner hospital system in phoenix it's
like the only game in town like you
don't really have any options in phoenix
other than banner and guess what
healthcare costs and phoenix are very
high likewise in the entire state of
wisconsin they really have like two
hospital systems kind of three right for
an entire state right so in milwaukee
they've got aurora which is now advocate
aurora because it merged with the big
hospital system in
chicago and then they have so ascension
is like the second or third largest
hospital system in america and it's big
catholic hospital system and
they have hospitals all over the country
but they bought the ministry health
system
in wisconsin so now all those ministry
hospitals are now ascension hospitals so
you've got aurora and ascension are like
the two the vast majority of wisconsin
only has access to those two hospitals
they got a little bit of mayo clinic
over by the wisconsin border but that's
it so guess what health care costs in
wisconsin are very high they're higher
than the national average yeah
the other way that hospitals uh increase
their revenue and increase healthcare
costs is through vertical integration by
buying doctor practices right so
vertical integration is saying okay well
we get our patients from somewhere and
can we buy something that will ensure
that we get more patient volume and the
answer is yes they buy physician
practices because people don't like make
appointments with a hospital they make
appointments with a doctor especially a
primary care doctor so
the number of physicians that are now
employed by
a hospital system is now the majority of
physicians in america most physicians in
america are no longer independent 10 15
years ago the majority of physicians in
america used to be independent now
they're not they're owned by and
employed by a hospital system that's
especially true for primary care
physicians and the hospital systems do
that because they use those primary care
docs as a referral funnel they say okay
well you go in to see dr xyz and then if
they need to order a lab or an x-ray or
an mri for you they're going to order
that at the specific hospital system
that owns them likewise if they need to
refer to your nose and throat doctor or
to a cardiologist they're going to refer
to a doctor that is also either employed
by the hospital or does all their tests
and procedures also at the hospital so
they use that as a funnel or a net to
capture more patient volume and that's
why they've gone through this vertical
integration strategy in fact there was
an example of a physician practice in
north carolina where the hospital system
said hey you guys need to refer because
we own you now you need to refer all
your patients to us and the group of
primary care doctors was like well what
if we don't want to what if there's
another doctor across town that we think
is better i want to refer my patients to
them and the hospital system oh no you
can't do that so you know what the
doctors did they left they quit and they
formed their own independent practice so
that they could refer to whoever they
wanted to because they didn't want the
hospital system telling them what to do
that was the atrium health system in
charlotte north carolina okay now
the underlying financial mechanism for
hospitals making money is what is
referred to as
fee for service so a hospital does a
service like an endoscopy or a surgery
or a cardiac stress test and they send a
bill to the insurance company and the
insurance company pays them back and
that's referred to as fee for service so
what does that incentivize that
incentivizes services the hospital wants
to do as many services as it can so that
it can collect as much fees as it can
it's in the name
what happens if people are healthy
the services go down
so ultimately
no hospital will come out and say this
but ultimately hospitals need people to
be sick
because if they're not sick then they
can't come in and do services for them
okay
now
what does that also mean that also means
that you might have heard of this term
value-based payment or value-based care
because the you know medicare and
medicaid a lot of the health insurance
companies and even employers are like
well we don't like this arrangement
because it incentivizes you to do more
than you should
now what if we just paid you a fixed
amount let's say per person
or maybe we paid you now keep in mind in
fee for service today there's no like
quality aspect to that so it could be
like in fact they even did a study that
for commercial insurance that when a
hospital had a complication of a surgery
they got paid more
so financially the hospital was not at
risk enough with the complication of a
surgery now of course they're not going
out of their way to make complications
but at the end of the day complications
are financially good for a hospital
so
they've tried to counteract that
perverse incentive through these
value-based payments which is another
way of saying capitation saying hey
we're going to give you a fixed fee per
person well that would actually
incentivize the hospital to provide
less
for them
because they're getting a certain amount
and they they don't want to provide as
many services for them so in other words
that puts the hospital at risk for
providing more services for a fixed
amount of money guess what hospitals
don't want that hospitals do not want
value-based payment again they're not
going to come out and say that but they
don't want that
so
this is the mentality of a hospital
administrator now the front line people
the doctors and the nurses are not
necessarily consciously thinking this
way every day
but in terms of how the administrators
and the executives of the hospital are
organizing their
um
their hospital
like those are the the financial
incentives that are in place and so it's
super important for us in health care to
understand that thank you for watching
hello and welcome back now we're going
to discuss
increasing doctor revenue as a driver of
increasing health care costs so i
mentioned before that physician or
professional fee
income represents about 25 of overall
health care costs so it's substantial
and the major driver of the increase in
doctor costs in the health care system
are private equity firms so here's
what's been going on so private equity
firms are
where many of you probably familiar with
this but it's basically a firm that goes
out and um they get a bunch of investors
they give them a ton of money and they
borrow borrow a whole bunch more money
in terms of debt and they go out and buy
businesses and they uh they they either
turn those businesses around or they
combine those businesses to give them
more pricing power and increase their
revenue and then they either sell them
off to another private equity firm or
they uh they take them public on the
stock exchange so private equity firms
have been buying a ton of physician
practices but they haven't been buying
all physician practices historically
they have targeted very specific types
of physician practices they have
targeted er positions
radiology physicians
anesthesiologists and pathologists well
why these particular doctors it's
because when you see an er doctor or
radiologist who's reading your x-ray
or an anesthesiologist who's putting you
to sleep in the operating room or a
pathologist who's looking at your biopsy
underneath the microscope and saying
whether it is or is not cancer like you
have as a patient you have no choice you
you you don't ever say i wonder who the
er doctor is in that er you don't say oh
i wonder who the i'm going to choose
which radiologist is going to read my
x-ray you don't get a choice you don't
get a choice in what anesthesiologist is
going to put you to sleep in the or and
you don't get a choice of what a
pathologist is going to be looking at
your tissue biopsy so
what the private equity firms did is
they took advantage of the fact that
people had no choice in these physicians
and they made them all out of the
network they went to all the insurance
carriers and be like we have no desire
to negotiate a discount with you and
we're going to stay out of network so
what that means then is that your
typical like in-network reimbursement
for like one of these doctors might be
like 139
but when they're taken out of network
then they're literally charging like
fifteen hundred dollars like literally
our family got a bill from a radiologist
to read
an mri my wife's mri and literally it
takes like six minutes to leave this mri
and just for the physician not to
perform the mri but just for this
physician to read the mri and do six
minutes of work they charged us one
thousand five hundred dollars as an out
of network provider now if they were in
networking they only would have gotten
paid 139 so the private equity firm
without making the physicians see any
more patients or work any harder they
they increased the revenue of these
practices tenfold and again one person
spending is another person's income so
when you increase the revenue of a
physician practice you increase overall
healthcare costs so and this is bad for
patients because again when we talked
about plan design those out of network
goes like you can still submit a bill to
the insurance company and the insurance
company says oh this is out of network
so it's going to go to your out of
network deductible and a lot of people's
out of network deductible again it's
totally separate from your in-network
deductible so let's say you've mentored
a network deductible doesn't matter this
is an out of network bill you the
patient are going to have to pay it
because it's a completely separate
deductible and that out of network
deductible is pretty high that's two
thousand three thousand four thousand
dollars per person per year so in this
case the fifteen hundred dollars
completely applied to our out of network
deductible so we were on the hook for
all of that or if you're and that's only
if you have a ppo plan if you've got a
pointless or a cdhp if you've got a
point of service plan out of network
services aren't covered at all so it
doesn't matter if it's deductible
inaudible like you're on the hook for it
no matter what you essentially don't
have insurance for out-of-network
services so
what happened was obviously people were
getting these astronomic bills and it
wasn't just bills for 1500 some people
were getting bills for like a hundred
thousand dollars there was a couple that
had a premature baby at a hospital in
new mexico
where unfortunately the premature baby
was in the nicu for months and months
and months and that and the
um
the uh neonatal icu doctors again
neonatal icu doctors same thing private
equity firms by these folks too they
were all out of network so for months
and months and months they were getting
1500 a day
charges from the
nicu doctors ended up being
tens of thousands of dollars for them
now
so what happened was obviously people
were playing crazy crazy and they uh
talked to their congressman et cetera et
cetera and finally they passed the
surprise billing law which says that as
of january 1st of 2022 that if there's
an out-of-network charge that the health
insurance company and the out-of-network
doctor have to go to arbitration to
decide an amount
now
who was the largest opponent to this
legislation it was a consortium of
private equity firms because that is
their strategy for increasing revenue
and increasing healthcare costs
so when we talk about increasing
healthcare costs it's important to
understand the role of private equity
firms thank you for watching
hello and welcome back now we're going
to talk about a third area of increasing
healthcare costs and that is increasing
pharmaceutical company revenue in other
words
higher prescription costs and
prescription prices right we said the
prescriptions were about 20 of overall
us healthcare spending so let's talk
about why prescriptions are increasing
health care costs so
the u.s population does not take more
medications than other people in other
industrialized nations either in uh asia
or europe etc so the issue is not the
number of pills or medications that
americans take it's just that the price
per pill or the price per medication is
much higher in america than in other
countries now why is that so in america
we have very strong patent protection
rules where when a pharmaceutical
company creates a new medication they
can patent it which gives them
exclusivity for creating that particular
medication for 17 years and the whole
point of that is to
encourage pharmaceutical companies to do
more research to invent more medications
so that their technology or the way that
they you know biochemically created the
pill is not then immediately taken by
somebody else and duplicate it so
what that means is that during that
period of patent protection there are no
generics and that's fine okay but it's a
balance and arguably the patent
protection in america has gotten a
little out of hand and the
pharmaceutical companies use patent
protection to
make as much money as they can off of a
brand name medication and typically
those brand name medications they might
be like 350 a month and then once they
go generic they literally drop as low as
like
five dollars a month so we're not
talking like a 10 or 20
decrease i mean we're talking
multiple
orders of magnitude less expensive when
you make generic so
what do the pharmaceutical companies do
they extend the patents so when a
pharmaceutical company puts a patent on
a medication they don't just put one
patent on it they don't put two patents
on it they don't put 10 patents on they
literally put dozens of patents on just
one medication
to create what's referred to as a patent
thicket so the highest grossing
medication in america and even in the
world is humira and humira literally has
dozens and dozens of patents on one
medication so what happens is that you
keep extending out beyond the 17 years
so you can extend say okay well what
patent expires yeah but we've got
another patent that hasn't expired yet
okay that one's expensive okay but we
got another patent now it has an expired
yet so they create this patent thicket
now sure a company could make a generic
but then
the the original manufacturer and
creator of the medication would then go
after them and sue them and increase the
cost of creating that generic because
they could say look you violated one of
our 27 patents okay next let's say
there's some at the end of the day all
the patents expire shoot
the
the it's up
generics can now be made the makers the
original makers of the brand
pharmaceutical will actually pay
other pharmaceutical companies that want
to make the generic the maker of the
brand name medication will pay the
potential maker of the generic
medication to not make the medication
they essentially bribe them to not make
the medication it's referred to as pay
to delay oh
and one of the biggest ones is takeda
pharmaceuticals so decade of
pharmaceuticals makes a ton of generic
uh medications so like literally a brand
a the maker of a granny medication will
pay takeda to like well don't make this
particular one we're going to pay you to
do that so essentially the generic
manufacturer like gets paid for doing
nothing so
very
sneaky strategies for increasing
healthcare costs and prescription costs
in america okay now
the of course you've got to get the
physicians to actually prescribe this
stuff so the pharmaceutical companies
actually have ways of incenting doctors
to prescribe this as well now you can't
do direct kickbacks anymore believe it
or not 20 30 years ago that's actually
more like 30 years ago pharmaceutical
companies used to literally pay doctors
to prescribe medications they would give
them trips to hawaii oh if you prescribe
a certain number of medications we'll
give you a set of golf clubs if you
prescribe a certain number of
medications we'll give you a free trip
to hawaii that obviously is not in the
best interest of the patient where the
physician would be financially
incentivized to prescribe medications
for the patient that the patient didn't
necessarily need so the government came
back and said if you can't do those
kickbacks that's illegal and so the
pharmaceutical company found ways around
that where they said look instead of
just paying you outright for prescribing
these medications we'll just give you
money for being a speaker
and promoting our medication there's
nothing wrong with that and they'll have
like some you know back room and a
restaurant where they'll invite other
physicians in and that physician will
find oh i've been to these before the
doctor gets up and talks for like five
minutes about the medication and then
the rest is just a fancy dinner and
socializing likewise the pharmaceutical
companies will pay a consulting fee to
the physicians for their insight about
the use of the product in the
marketplace and that's just sort of a
thinly veiled it's not a kickback but it
is certainly pretty close to a kickback
for just prescribing a lot of
medications so in other words there are
still ways to incentivize and one of the
biggest ways too is just food so the
pharmaceutical companies bring tons and
tons of food to the physician's office
and in fact
physician practices will have a schedule
of okay you know pharmacy rep a's coming
on monday with italian they're coming on
tuesday with chinese they're coming on
wednesday with vegetarian and so one of
the benefits that a physician practice
then says to their employees to the
clerks and staff and the nurses and say
look if you come work at our practice
you get free lunch every day catered by
the pharmaceutical company so a lot of
times it's even just done in terms of
food for the practices so there's a
variety of strategies that
pharmaceutical companies use to increase
the the demand and to increase the
prices for their prescriptions which
overall contributes to increasing
healthcare costs thank you for watching
hello and welcome back now we're going
to have another session about increasing
healthcare costs and it's due to
increased medical device revenue driving
increased healthcare costs now most
patients and health insurance companies
they don't directly buy medical devices
but by medical devices it's things like
the actual artificial knee and hip
implants themselves or the pacemaker
that goes into a person's heart
now
these let's just take a knee or a hemp
replacement now the companies that make
these are on the fortune 500 so some of
the largest companies in america are
actually these medical device makers a
lot of people never heard of these
companies before say so they actually
make a knee or a hip implant it only
costs them about 300
to make it
now the manufacturer the knee or the hip
implant then sells it to the hospital
for three thousand dollars okay so
that's a 10x markup
now the reason why the hospital is
willing to pay so much for something
that only costs 300
is then the hospital is then able to
turn around and build the commercial
health insurance plan a line item so a
carve out in there when they negotiate
their contracts they negotiate a
specific line item for reimbursement of
the implant itself and they'll have the
line item for like 30 000 where the
hospital negotiates with blue cross
united state and hey you're going to pay
me 30 000 for that implant itself so
that's another 10x markup from what the
hospital paid for it so a 10x mark up
here and 10x mark up here so essentially
it is marked up a hundred times
what it costs to actually make the
implant so and this is a perfect example
of how the actual
implant the technology itself is not
that expensive
what makes it expensive is when you have
revenue generation driving price
increases because at the end of the day
you're like again your patient's not
going to shop around for the actual
implant they don't have any say it's the
doctor that decides it's the hospital
that decides
so
this markup here is a fantastic way to
make money and it's a fantastic way to
increase costs at the same time because
again one person spending is another
person's income and that's my point for
today thank you for watching
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