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Hospital care drives health costs

Helen Palmer Dec 7, 2006

KAI RYSSDAL: A federal advisory panel met in Washington today to talk about heart stents. The Food and Drug Administration’s considering whether some of the devices used to keep clogged arteries open are riskier than they ought to be. Cardiac stents are a multibillion dollar market in this country.

But that’s just a fraction of the two trillion that will be spent here this year on health care. That’s what you and I pay. What our employers and insurance companies pay. And what the goverment pays, too. It works out to almost 20 percent of Gross Domestic Product. But answer me one question. If we’re all paying, where’s the money going? That’s a question we’ll be looking into over the next few months. Helen Palmer reports today from the Marketplace Health Desk at WGBH by far the biggest chunk — nearly a third — goes to hospitals.

HELEN PALMER: It’s no surprise that hospitals get most of the money, I mean, we’ve seen how they work on TV.

JIM UNLAND: Hospitals are very expensive in every way. They’re extremely capital intensive to build and maintain, and they’re also very expensive to staff.

That’s Jim Unland, editor of the Journal of Health Care Finance. He says hospitals are like high-tech hotels staffed 24/7 by medical specialists trained to deal with whatever arrives in the emergency room. That makes staff one of the biggest hospital costs says Paul Levy. He’s CEO of Boston’s Beth Israel Deaconess Medical Center.

PAUL LEVY: In a hospital like ours with a billion dollar budget a year, the cost of salaries and fringe benefits is 40 percent of that — it’s 40 percent.

Those $400 million pay for about a thousand Beth Israel nurses and some 5,000 other staff, like housekeepers and technicians. It also pays Levy’s million-dollar salary. But it doesn’t pay for physicians — they’re mostly self-employed. So to lure the very best doctors to their hospitals, administrators spend big bucks on the most modern technology.


WOMAN: What’s that for?

DOCTOR 1: That’s the machine that goes ping.

DOCTOR 2: And that’s the most expensive machine in the whole hospital!

Beth Israel Deaconess has its own version of Monty Python’s machine that goes ping in its totally electronic emergency department. Emergency room doctor Stephen Epstein.

STEPHEN EPSTEIN: This is our emergency department dashboard . . . the dashboard is . . . what you’re seeing is the display of a computer program. It lists every patient who’s in the emergency department with a whole bunch of color-coded tags to indicate where they are in their process of care.

Rebuilding the ER and installing this state-of-the-art system cost $13 million, but that’s just the tip of the technology iceberg. Paul Levy again.

LEVY: We take it for granted, for example, that if you have a problem with your knee, you’re going to have an MRI.

So Levy’s hospital has five MRI machines. They cost between one and two million dollars each, with annual maintenance fees on top. Nancy Kane, who teaches health management at Harvard’s School of Public Health, says the new fancy machines are a prime driver of hospital costs.

NANCY KANE: If you have five MRIs you’re going to use five MRIs. But if somebody else puts one up in your neighborhood, they’re going to use theirs too.

Kane says if you build it or buy it, it gets used. Supply drives demand. But the new technology’s also a danger for hospitals, says Jim Unland of the Journal of Health Care Finance.

UNLAND: The advances in technology favor outside-of-hospital treatment settings such as free-standing surgicenters, free standing diagnostic centers — many of which are now owned by doctors.

Unland says there are now more surgical centers than hospitals, over 4,000 of them. They deliver treatment as good as hospitals more cheaply. They have fewer overheads and focus on a limited range of treatments — say, heart care or orthopedic surgery — that just happen to be the most lucrative for the doctor owners. Paul Levy says hospitals can’t compete.

LEVY: We provide a broad range of services, many of which are not profitable. Neurology, primary care and certainly psychiatry all lose money.

And hospitals have to treat everyone who comes through the door whether they can pay or not. Patients, especially the poor and uninsured, use the hospital for care that could be much more cost-effectively delivered in the doctor’s office. And that pushes up insurance charges for everyone else. But as corporate America becomes increasingly concerned about health costs, and as we end up footing more of the bills ourselves, that’s becoming untenable. Jim Unland thinks hospitals may totally change their role in future.

UNLAND: We may end up transforming a lot of our hospitals into a combination of urgent care facilities and just flat-out intensive care units and everything else may be delivered on an outpatient basis.

Then it’ll be doctors, not hospitals, that command the biggest share of the health care dollar.

In Boston, I’m Helen Palmer for Marketplace.

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