Author Elisabeth Rosenthal discusses her new book about the spiraling costs of health care.

rosenthalbookThe cost of health care in the United States is spiraling upward while politicians continue to bicker over how to fix a broken system. Elisabeth Rosenthal has a sweeping view of the problem because she has seen it from all sides. Rosenthal is a Harvard Medical School graduate who practiced emergency medicine before becoming a journalist. She covered health care and other topics for The New York Times for more than 20 years before being named editor-in-chief of Kaiser Health News. Rosenthal has put her breadth of knowledge and experience into a book titled An American Sickness: How Healthcare Became Big Business And How You Can Take It Back. She joined Knowledge at Wharton’s SiriusXM show to shine a light on the murky business model of health.

An edited transcript of the conversation follows.

Knowledge at Wharton: With all the issues in health care, this book had to be a massive undertaking. How long did it take you?

Elisabeth Rosenthal: This is kind of a life’s undertaking, in some ways. I trained as a physician and then came to The New York Times in the 1990s to cover the Clinton Health Reform Act. I did many different kinds of health coverage in the intervening years but came back to health care reporting in 2009. I’ve had a ringside seat to this slow moving heist of our health care system.

Once I came back to the Times to cover health care, I did a series called “Paying Till It Hurts.” It was about trying to look at the high costs of health care and how it came to be this way, because I genuinely didn’t get it. I didn’t understand why we are paying two to three times more than the rest of the world. From that, we used a lot of social media to solicit patient stories. I had so many stories and so much information that I decided, “You know what? A newspaper series, as good as it may be, looks at this system from many different angles.” Each picks off a piece of the element, but what I really needed to do was to write a book to put it all together. The book itself took about a year, but the research was ongoing over years. I’m really indebted to all the patients who contributed their stories because they gave me the tip of the iceberg to explore. When someone sent me a $117,000 bill that they didn’t understand, as a journalist I knew where I had to start looking. It was fascinating.

Knowledge at Wharton: Are costs the biggest problem with the industry right now?

Rosenthal: I would say so. I’d say it’s also the biggest problem for health reform, whatever form it takes. Whether it’s the Affordable Care Act or a Republican replacement, until we get these prices and costs under control, nothing is going to work very well for patients. Patients are and should be the focus of this endeavor we call medicine. But more and more, it’s the business incentives that has become the primary driver. As someone who trained as a physician, and my dad was a doctor, I found it really disturbing. It’s fine for me if people make profit, but they should make profit out of doing things that are good for patients and the best for patients. Instead, what we see is often profit without regard to whether there’s actual medical benefit, and that’s a sad state to be in. That’s a big part of why our costs are so high.

Knowledge at Wharton: It does feel like this is an industry that is out of control, to a degree. You have so many new companies that want to be in it because they know where the profitability is. Jobs are added to this sector every month.

Rosenthal: When I asked one expert, a former health commissioner, “Why is health care such a booming sector?” He said, “It’s like asking Willie Sutton why he robs banks. That’s where the money is.” It’s true. We like to say we have a market-based system, but it’s such a flawed market that even the most conservative economists look at it and go, “This isn’t a market.” As buyers, we don’t know prices of the choices that are put before us. Even the doctor doesn’t know the price. And the price can vary from block to block by a factor of 100. How can you possibly expect wise consumer decisions to totally solve this problem?

As I say in the book, I think being wiser can help. Once you understand how the system works and where you’re being taken advantage of, you can and should push back. But overall, we need to control these prices. The key question is, how are we going to do that?

“Whether it’s the Affordable Care Act or a Republican replacement, until we get these prices and costs under control, nothing is going to work very well for patients.”


Knowledge at Wharton: What does it take for the average American to have a good enough understanding of the system so that they are not being taken advantage of?

Rosenthal: I think this is a horrible burden to put on patients, especially when they’re sick, to say, “Oh yeah, shop around. Ask your doctor how much it’s going to cost. Say no if you think you’re not getting good value.” No other country puts that kind of burden on patients, frankly. But this is the reality we face right now. Before I dug into this system and understood what levers I could push, I would just throw up my hands and write the check and think, “Oh my God, this is crazy. But what can I do?”

I think the first point of information is for people to understand that you can question bills in health care as you would in any other sector. You can refuse to pay them. I became the de facto bill negotiator at The New York Times, when people would throw their medical bills in front of me and say, “What should I do?” My first piece of advice was, “Don’t write the check.” Ask for itemization because you are going to find 50% to 90% of hospital bills in studies have errors. You might find, as one patient in the book did, that he had been billed for a circumcision for his newborn. Well, his newborn wasn’t circumcised. He knew that. His insurer didn’t.

I would say look at the bills, see if there are errors, question things that don’t look right. One common thing is after surgery, when a nurse or someone comes in and says, “Do you want me to help you walk down the hall?” You say OK, and you see that come up on a bill as a $300 physical therapy charge. Say, “No, that wasn’t physical therapy. All I did was walk down the hall.”

I think the more we question these bills, first of all, it will save us some money. But second of all, if we start questioning it, the sellers, the hospitals, the providers, the testing centers will have to respond. You look at a restaurant bill and say, “No, you never brought that second glass of wine.” But we don’t feel entitled or empowered to do that with health care. Sometimes it’s because our insurer is paying. But more and more, we’re paying. I’d also like to remind people that if our insurer is paying outrageous prices for things that weren’t done, your premiums are going up next year.

Knowledge at Wharton: What was the trigger that made health care costs just explode over the last decade?

Rosenthal: It really is a kind of slow-moving phenomena, where the dominoes fall one by one in different sectors of health care. That’s why the book is organized that way.

You could argue the original sin of our crazy health care system was the creation of insurance. That doesn’t mean insurance is bad. In an age of high-priced medical care, people need insurance. Remember in the good old days, insurers pretty much covered everything and your employer paid for the premium, so you didn’t even know what it was. What happens when you don’t feel like you’re paying? Americans become very price-insensitive. And what do you do if you’re a for-profit business, as most of the providers and device makers and pharmaceutical companies are? You say, “We’ve always charged $10 for that when someone was paying out of pocket. But now they’ve got insurance, so it kind of feels like nobody’s paying.” Maybe that $10 becomes $50 or $100.

“It’s fine for me if people make profit, but they should make profit out of doing things that are good for patients.”

What you see around the turn of the century — and it’s in response to the managed care push to lower prices — is hospitals and providers get business consultants in. They have people from Deloitte and McKinsey come in and say, “How do we make this work for the bottom line?” And what they’re told is, “Hey, you can do everything you’re doing in just the same way, but you bill more effectively, you capture revenue.” Then that $25 goes not just to $100 but to $1,000. And some hospitals say, why not $5,000? As long as insurers keep paying it, that works. Then insurers start pushing back and negotiating discounts, but they’re not discounts to the $25 or $50 or $100 price. Maybe they’ll take the $5,000 to $4,000. It’s all this kind of inflationary cycle where everyone has the sense that nobody is paying.

We developed this fiction that insurers are on our side, they are in our corner, which is kind of crazy. We don’t think our car insurer is in our corner. But we have this notion that health insurers promote, that “we’re here to help you.” No, they’re just pass-throughs. They take in premiums and they pay out claims. As long as they can raise premiums and deductibles, their response to paying out claims that have higher and higher prices is mostly just to pay it. They don’t care. As one insurance salesman says in the book, “They are too big to care about you.” It’s too much trouble if they get a bill, as one patient did, for $117,000. It was out of network. He said, “Why is my insurer paying this?” I called the insurer, which was Anthem Blue Cross Blue Shield, and asked, “Why are you guys paying this? It’s for an assistant surgeon.” And they said, “To not pay it, we’d have to investigate it. We’d have to figure out what was done in the operating room. We’d probably have to take the guy to court because we don’t have a contract with him. It’s easier for us just to write the check.” And they said to me, “Oh, are you going to write about this? Because we don’t want the other surgeons to know that they can get away with it.”

We’re encouraging this kind of entrepreneurial behavior in people who are inclined to it. And of course, we’re creating outrage in the good doctors who are working hard, trying to do the right thing for their patients, without regard to the finances. I think they’re in the majority. They don’t want their patients ripped off. But they feel as powerless as we do.

Knowledge at Wharton: Many people thought that the push into digital health was going to affect this industry in a positive way. Do you think it is having a positive effect?

Rosenthal: I think it has potential to be an enormous, positive force. I think what we see, sadly, is that it’s not living up to its potential the way it’s deployed now. The best example of this is the digitized medical records and electronic medical records, which in theory would be great. In the Recovery Act, we all spent billions and billions of tax dollars to make health care providers digitized and to use electronic medical records. That, in theory, should allow any doctor anywhere to send my record to another hospital. But what we find is because of commercial reasons, hospitals don’t want to share that. That’s like giving away their data. If they share that, then you can go to the other hospital system. So, it’s being used in very perverse ways.

The complaint that you hear from doctors and why you see your doctors in front of computers all the time now is that because these medical record systems are designed to capture revenue. They’re designed for billing purposes, not for the patient’s best interest. To me, that is the essence of the problem. What are the values of business? They are efficiency, revenue generation, revenue capture, profit. Those are not the values of health care. Efficiency is your doctor seeing you for five minutes, but good medicine is, “I want my doctor to talk to me and explain why I need this test and to think about, should we order it or could we wait two weeks?” Efficiency is, “Let’s just order it all because better to have all the results upfront and then we can make a decision, and the hospital is probably making a lot of money from all those tests anyway.”

“You could argue the original sin of our crazy health care system was the creation of insurance.”

Knowledge at Wharton: There was a time where the health care sector really did focus on the patient and not necessarily the bottom line. Doctors used to make house calls. Maybe stopping the home visits was the first step to this industry becoming more financially focused?

Rosenthal: One thing I am always a little amused by is the push now to do tele-medicine. Maybe you have a homebound person and they have a simple question for their doctor, or a doctor could look at someone over a screen. That’s great in situations where the doctor really can’t see the patient or maybe doesn’t need to see the patient for minor things. But we see this escalation because it’s a better revenue generator if you see less and less and less and do more and more from your iPad. Now, there are programs to do home hospice care by iPad. Maybe that’s efficient, but I think most people who are in home hospice want an actual human being to come there and hold their hand and talk to them. Again, it’s the values of business efficiency versus the values of what has long been a caring human-focused endeavor. I think we have to be really careful about losing that important profession.

Knowledge at Wharton: We are going to see more baby boomers getting older and going into care facilities. How do you look at that element to the health care problem?

Rosenthal: We have an aging population, and that means costs are going to go up. That puts an even greater import in controlling these prices and focusing on the actual medical needs, not on the business models. Look at something like artificial hips and knees. We often pay over $50,000, over $100,000, for an artificial hip and knee, which can be done in other countries for $10,000 to $15,000. When you look at some of the medical business literature, they see this as a bonanza. There’s going to be a 300% rise for artificial knees. Artificial knee replacements are great, but we’re going to need to be doing a lot of them, so we need to get the costs under control because this isn’t sustainable.

People often talk about the promised land of Medicare because they don’t have to deal with this crazy system. More and more physicians are saying, “Fine, let’s just do Medicare. At least I don’t have to deal with this hassle.” Medicare has its problems, but it is the one part of our system that does a little bit of price control and price setting. They can’t do it for drugs, which is partly why we see these crazy pharmaceutical costs. But they do it for hospital stays, they do it for doctors’ visits. We’re going to have to look towards some kind of solution with a real way to control pricing as our population ages. Otherwise, every single one of us, unless we’re in the top 1%, is going to spend every last penny we have on health care. And I think that’s not where I want to be.

“We developed this fiction that insurers are on our side, they are in our corner, which is kind of crazy.”

Knowledge at Wharton: Big pharma has drawn an amazing amount of attention the last six to 12 months about where it is going with costs.

Rosenthal: Part of the distress for me as a journalist and as someone who’s looked into this world is that, yes, it rises up to the surface when there’s a particular bad guy like Martin Shkreli or the EpiPen episode. There are hearings and everyone says, “Isn’t this terrible?” and then it recedes into the background. What I like to remind people is that there are a lot of Martin Shkrelis out there doing pretty much the same thing. There are a lot of EpiPen episodes. People were having problems with the cost of EpiPens for several years before it blew up. Why are we waiting until one company or one drug overplays its hands to control this? That’s a real problem because it’s not just the EpiPen and it’s not just Martin Shkreli, it’s all of these drugs that are constantly going up in price.

I think it’s fascinating. You look at something like drugs for multiple sclerosis, which is a serious, progressive disease that crippled people in the old days. Now there are pretty good drugs for it and people live long, fulfilled lives with these infusions, but they’re hugely expensive. Every couple of years, a new anti-MS drug comes onto the market at a higher price than anything else was out there, because it’s kind of new and improved, and then guess what happens? All the others move up to that sticky ceiling.

Instead of competition and a bunch of drugs bringing down price, you have this phenomenon in pharmaceuticals called “sticky pricing,” where everything just goes up to the highest price. That’s partly a flaw of our system, where we give the same patent to “me, too” drugs as we do to the really true innovators. It’s also a flaw of our philosophy that profit motives will give us the right answer. Because with all these companies making a lot of money from MS drugs, those drugs haven’t really been tested against each other and it’s in no one’s interest to know which one’s actually better because, hey, yours might not be the one that wins.