Healthcare Costs in America: Hospitals, Doctors, Medications and More

Summary

This 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

00:00

💰 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.

05:01

🏥 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.

10:04

💼 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.

15:04

🤔 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.

20:05

💊 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.

25:08

🛠️ 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.

Keywords

💡Health Care Costs

Health care costs refer to the expenses incurred by individuals, employers, and governments to access and maintain health services. In the video, it is emphasized that these costs are 'super high' and 'rising,' highlighting the financial burden on society. The script delves into statistics, such as the annual increase of about 7%, which is significantly higher than the overall inflation rate, illustrating the unsustainable nature of this growth.

💡Inflation Rate

The inflation rate is the percentage increase in the general price level of goods and services in an economy over a period of time. The script contrasts the typical inflation rate of 'two percent or even less' with the annual increase in health care costs, which is 'about seven percent,' to underscore the disproportionate rise in health care expenses.

💡Rule of 70

The Rule of 70 is a simplified formula used to estimate the number of years it takes for an amount of money to double at a given annual growth rate. The script explains this concept by dividing 70 by the health care cost increase rate, which results in health care costs 'doubling every 10 years,' indicating rapid growth.

💡Stratification

Stratification in the context of health care refers to the uneven distribution of health care costs among a population, where a small percentage of individuals account for a large portion of total expenses. The script mentions that '20% of the people are driving 80% of the cost,' and further '5% of people are driving 50% of the cost,' demonstrating the concentration of health care spending.

💡Musculoskeletal

Musculoskeletal refers to conditions and disorders that affect the muscles and skeleton, including the joints, bones, ligaments, and tendons. The script identifies musculoskeletal issues as one of the 'three diagnostic categories that drive the majority of healthcare costs,' highlighting the expense associated with treating orthopedic and spine problems.

💡Cardiovascular

Cardiovascular health pertains to conditions affecting the heart and blood vessels. The script points out that cardiovascular issues are a significant driver of high health care costs, often due to emergencies like heart attacks or strokes, which require immediate and expensive medical intervention.

💡Cancer

Cancer is a group of diseases characterized by the uncontrolled growth and spread of abnormal cells. The script describes cancer as a 'devastating' condition that often leads to high health care costs due to prolonged and extensive treatments such as surgery, chemotherapy, and radiation therapy.

💡Labor and Delivery

Labor and delivery refers to the process of giving birth, which can involve significant medical costs, especially when complications arise for the mother or baby. The script notes that for companies with many young employees, 'labor and delivery' can be a major cost driver, particularly when pregnancies are high-risk or result in premature births.

💡Fee-for-Service

Fee-for-service is a payment model where healthcare providers are paid for each service or procedure they perform. The script explains that this model 'incentivizes services,' meaning hospitals want to perform as many services as possible to increase their revenue, which in turn drives up health care costs.

💡Private Equity Firms

Private equity firms are investment firms that purchase and operate companies with the goal of improving their financial performance and then selling them for a profit. The script discusses how these firms have been buying physician practices and using strategies such as staying out of network to increase revenue and drive up health care costs.

💡Patent Thicket

A patent thicket refers to a strategy where a company applies for multiple patents for a single product or technology to extend its exclusivity and block competition. The script uses the example of the medication Humira, which has 'dozens of patents,' to illustrate how pharmaceutical companies use patent thickets to maintain high prices and increase health care costs.

💡Medical Devices

Medical devices are instruments or tools used in medical procedures, such as artificial knee or hip implants and pacemakers. The script points out that the cost of these devices is significantly marked up from the manufacturer to the hospital and then to the insurance company, resulting in a '100x markup' of the actual manufacturing cost, which contributes to the overall increase in health care costs.

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