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What a Scorpion Sting Teaches Us about Hospitals and Insurance

Posted: September 14, 2012 at 5:00 pm   /   by

By G. Keith Smith, M.D.

A woman recently received treatment for a scorpion sting in the Chandler Regional Medical Center emergency room in Phoenix and was billed $83,000, $80,000 of which was for the new anti-venom serum, Anascorp.

According to an article in the Arizona Republic, the patient’s insurer paid more than $57,000, and the hospital is asking her for the balance of about $25,000. This is said to be the “out of network” cost.

This is scandalous, but not because her “insurance” company didn’t pay enough on this claim. Actually, part of the scandal is that the insurance paid as much as it did!

Chandler Regional Medical Center (a “not for profit” hospital) refused to disclose how much it paid for this new drug, prior to marking it up to $40,000 per dose. Would it surprise you to find out that they paid $3,750 for the drug? Actually, the patient received two doses, so it has $7,500 in drug cost to recover. So its markup is 1,000 percent. Insurance paid a little over $50,000 and the hospital, needing another $25,000 to not make a profit, is aggressively billing the patient.

Do you think that making sure that everyone has insurance is the answer?

Before you decide, consider that the drug is manufactured by a Mexican biotechnology company, and Mexican residents are charged about $100 per dose.

The drug has been used for years in Mexico, but was only approved by the FDA for use in the United States on Aug 3. The FDA granted the exclusive U.S. distribution rights for this drug to a Tennessee company called Rare Disease Therapeutics. Understand that this company doesn’t make this drug—it’s just a distributor, like for beer. It did have to fund the clinical trials that the FDA requires for approval in the U.S. And somebody has to make a profit at every step along the distribution chain.

Hospitals make a haul from patients who pay them, and say that this helps to pay for other patients who don’t. However, hospitals also make a haul from patients who don’t pay, through the uncompensated care scheme. They benefit from this to the extent that they claim they lost. Thus they need to claim ridiculous losses. Such losses are also necessary to offset ridiculous profits so they can maintain their “not-for-profit” status.

Then there are the insurance companies. Bills like this represent their excuse for driving up premiums every year. Brokerages that sell insurance products receive commissions based on the amount of the premiums, so you know they are fighting their tears when they tell you about your higher rates next year. Insurance companies will also “back charge” group insurance plans for “repricing” claims. In this woman’s case, the insurance company will get a percentage of the amount they “saved” the group plan by reducing the hospital payment from $83,000 to $57,000. Can you see now why the insurance company actually loves hospitals that charge like this? One insider has told me that the majority of the insurance company profits come from this “repricing” scam, not from premium collection. The “repricing” fees are not included in the calculation of the medical loss ratio and will thus not be affected by the (Un)Affordable Care Act (UCA).

Suppose this woman had been taken care of by her personal physician in the emergency room of a hospital he owned? The hospital would be glad to just recover its costs. Despite what the American Hospital Association tells you, physician-owned hospitals are bargains compared with their “not-for-profit” competitors. Her insurance company is unlikely to contract with the lower-cost hospital, but the patient would still be better off there.

So what does the UCA do? It outlaws new physician-owned hospitals, forces patients to buy insurance from the big cartels, and starting in 2014 will send Medicare payments to giant hospitals to dole out to physicians.

From this scorpion sting, we can see the effect of putting the government (and agencies like the FDA) plus the insurance/giant hospital cartel in total control of medicine, as the UCA will do if not repealed.



Dr. G. Keith Smith is a board certified anesthesiologist in private practice since 1990.  In 1997, he co-founded The Surgery Center of Oklahoma, an outpatient surgery center in Oklahoma City, Oklahoma, owned by 40 of the top physicians and surgeons in central Oklahoma.  Dr. Smith serves as the medical director, CEO and managing partner while maintaining an active anesthesia practice. 

In 2009, Dr. Smith launched a website displaying all-inclusive pricing for various surgical procedures, a move that has gained him and the facility, national and even international attention.  Many Canadians and uninsured Americans have been treated at his facility, taking advantage of the low and transparent pricing available. 

Operation of this free market medical practice, arguably the only one of its kind in the U.S., has gained the endorsement of policymakers and legislators nationally.  More and more self-funded insurance plans are taking advantage of Dr. Smith’s pricing model, resulting in significant savings to their employee health plans.   His hope is for as many facilities as possible to adopt a transparent pricing model, a move he believes will lower costs for all and improve quality of care.

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  1. dleeper47 says:

    Dr. Smith’s approach is the correct, market-oriented approach to healthcare and the antidote to the coming Obamacare debacle.  
    Watch the Great American Left try to restrict, tax, and outlaw his simple market-oriented, competitive approach to health care services.  With Smith’s approach, we might not need Sebelius’ sanctimonious central-planning supervisors in Washington.  Where would that leave them? 

    1.  @dleeper47 Yes, we are so far from market-oriented approaches that most people cannot even imagine what it would be like. Trying to convince people that things (health care, charity, etc.) can be done privately, and done better than by government, is an uphill climb.
      My next task, David, is to convince you that there is no need for the public education system ;-)

      1. sleepergirl says:

        @WesternFreePress @dleeper47

        I would whole-heartedly endorse SCHOOL CHOICE. Check out how it works in Belgium, where it’s the way it works period.

        1.  @sleepergirl  @WesternFreePress  @dleeper47 Agreed, though school choice is still only a half-measure. Right now, public schools are funded by taking money by force away from one cohort (homeowners, whether they have children or not) while another cohort (renters) are not required to pay anything, even if they have seven children, even if they are rich and renting by choice. That is not only inefficient from a consequentialist standpoint, it is also immoral, as it is a violation of equal claim to natural (human) rights (treating one cohort’s natural/property rights differently from another’s). School choice would return the property taken from the homeowner, giving him/her more choice, and that is good. But those vouchers would also be given to renters who pay nothing, thus requiring funding for that to come from *somewhere* (other homeowners, other taxpayers, whether they have children or not). That, again, means that one person or cohort is placed in economic bondage to another, which is morally impermissible (even though it is commonplace in our current society). (And all of this is not to mention the fact that funding for schools has skyrocketed for the last 40 years, but performance is worse than flatlined—–because the money is going to teachers’ unions to allow their teachers to have 170 days off a year and retire in the 50s, all on the hardworking taxpayer’s dime.)
          Better to do away with public education entirely. Before public schools, there was universal education (not counting slaves, obviously, but that would not be an issue now). So no one would be left without the opportunity. People would have to pay, but competition would keep prices lower. Only the people using the service would be paying for it, which is more moral and more efficient. For those who truly could not afford it, we would have a combination of private charity and a very limited, carefully targeted social safety net. Public schools are unnecessary.

  2. sleepergirl says:

    This sage makes my blood boil. This is why we need to reform health insurance so that individual consumers shop the market for competitive health insurance, whether they want “prepaid” health care or true “risk” insurance for catastrophic care. Since I buy health insurance on the private individual market and I buy $10,000 deductible in-network insurance, I NEED to know costs of doctor visits, diagnostic tests, ER services, since I pay the first $10,000.

    We need to “unbundle” employer-provided health insurance. Let the employer “give” employees a fixed amount to purchase insurance on the open market that best meets the needs of their families. Let individuals reap the same tax benefits as employers.

    We have all been “burned” by these outrageous costs of medicine. It has to stop. First reform is to repeal Obamacare. This law scares the daylights out of me.

    1.  @sleepergirl In other words, we need to set the whole thing free. No more regulating the insurance market. No more mandates. Let my people go!

What a Scorpion Sting Teaches Us about Hospitals and Insurance