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His hospital bill for a month of care was $6,172. 55. This is just a few dollars less than Mr. OConnors annual salary. But he did not have to worry about it; unlike most patients with some form of health insurance, Mr. OConnor had coverage that was essentially complete. His personal bill amounted to $357. 00.
In this, as in many other things, Mr. OConnor was a very lucky man.
The single most important problem facing modern hospitals is cost. This cost can be analyzed in a variety of ways, most of them confusing and unhelpful. But the following points are clear:
First, the cost of hospitalization has skyrocketed. The average MGH patient today pays per hour what the average patient paid per day in 1925. Even as recently as 1940, a private patient could have his room for $10. 25 per day; by 1964, it cost $50. 10 per day; by 1969, $72. 00-$ 110. 00 per day. This staggering increase is continuing at the rate of 6 to 8 per cent per year. Each year
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for the past three, the MGH has had to raise its charges. Nor is the teaching hospital unique in its financial squeeze. All American hospitals are raising their charges at this same rate.
Second, hospitalization cost has increased much more rapidly than other goods and services in the economy. Medical care is the fastest-rising item in the consumer price index in recent years, and per day hospital cost accounts for the largest proportion of this increase. [Physicians fees have also been rising faster than other items in the consumer price index. However, hospital costs have been nearly doubled in the past decade, while physicians fees have increased 30 per cent].
Third, the individual contemplating hospitaliza-tion no longer worries much, in a direct way, about cost. Third-party payment has led to public apathy about hospital costs, and this is unwise-if for no other reason than the fact that most people have only one fourth to one third of their costs paid by insurance, a fact they discover late in the game.
Fourth, the often overlapping coverage of health insurance permits some patients to make money from their hospitalization, while welfare reimbursements are always less than the true costs of care. In this situation, the hospital makes ends meet by overcharging private patients and their insurance companies to cover the welfare deficit-in the case of the MGH, roughly $10 a day overcharge.
Fifth, no single hospital stands alone in its financing problems, but rather is influenced by the activity or decline of other hospitals in the area. The decay of the Boston City Hospital, and its reduction in size to nearly half its earlier patient capacity, has created great pressure upon other Boston hospitals to take up the slack-by accepting precisely those patients on whom the hospital loses money, namely, patients covered by welfare.
The decline of Bostons municipal, tax-supported hospital is similar to the decline of other such institutions in other American cities. In each case, the reasons behind the decline are political and financial, but the consequences are always the same-to pass on costs to insured patients, and make them augment insufficient tax funding for welfare. In the long run, of course, it all works out to the same thing: one can either pay the money in taxes or in higher health-insurance premiums. But in such a situation, it is probably more efficient to choose one or the other-and the trend unmistakably is toward universal health insurance in this country. Dr. John Knowles notes that many Americans are required by law to arrange insurance for their cars; why should they not also be required to arrange health insurance for themselves?
Sixth, lest private health insurance seem a financial panacea, one should note that private companies are often irrational in their payment procedures. For example, for many years one could not collect for certain treatments-such as the setting of fractures-unless one were admitted to the hospital, at least overnight. Thus a person who might easily receive therapy in the EW and be sent home had to be admitted in order to receive insurance coverage. This unnecessary admission raised the total cost of health care, and ultimately such increases are passed on to the consumer in the form of higher premiums. Some of these odd payment procedures have been changed, but not all.
Seventh, the American medical system in its full spectrum-from the private specialists office to the municipal hospital wards-has never been able to structure the kind of competitive situation that encourages and rewards economies. Nor has American medicine tried. The American physician has been grossly irresponsible in nearly all matters relating to the cost of medical care. One can trace this irresponsibility quite directly to the American Medical Association.
For the past forty years, the American Medical Association has worked to the detriment of the patient in nearly every way imaginable; it is a peculiarity of this organization that it has worked to the detriment of physicians, as well. Dr. James Howard Means has said: "Its ideology is very like that of the big labor unions. . . it has now set up a continuing political action committee quite like those of the fighting labor unions. Every attempt that has been made by liberally minded groups to improve medical care and make it more accessible. . . the AMA has attacked with ever increasing trucu-lence. . . They forget perhaps that medicine is for the people, not for the doctors. They need some enlightenment on this point. "
The truculence of the AMA has been expensive. In terms of the modern-day cost of medical care, we may cite the following points. Beginning in 1930, it opposed voluntary health insurance, such as Blue Cross. In 1932, it opposed prepaid group-practice clinics. In 1933, it began a successful campaign to block the construction of new medical schools and limit enrollment in those already in existence. We now have a shortage of doctors. More recently, the AMA spent millions-probably no one knows exactly how many millions-to fight Medicare, a program that resulted in health benefits to 10 per cent of the population and vastly increased income to physicians. (Indeed, a good gauge of the AMAs shortsightedness can be gained by imagining the outcry from private doctors should anyone now try to repeal Medicare. ) Further, the AMA has failed to take any strong stand on prescription pharmaceutical prices in this country, which nearly every objective observer regards as grossly inflated. And more insidiously, the AMA has permitted what may politely be called blind spots in health care. The Journal of the American Medical Association refused to print a government study of combination-antibiotic drugs which concluded that many of these expensive medications are either worthless or dangerous; the AMA has still failed to condemn cigarette smoking despite overwhelming evidence that this habit, though profitable to certain industrial groups, is directly responsible for much disease, suffering, and medical expenses in this country.
One can only conclude that the American Medical Association has not considered the interests of patients for forty years, or perhaps longer. On the basis of its record, it is opposed to both better and cheaper medical care. Its only commitment is to the doctors bank account-and even then, it makes astonishing errors in judgment.
In 1967, in his inaugural address, Milford O. Rouse, the incoming president of the AMA, deplored the growing sentiment in this country that medical care was a right, not a privilege. His opinion was not well received by an angry public, and later presidents have been more circumspect in voicing their views. Nonetheless, it is customary for AMA presidents to travel about, speaking to groups of doctors, applauding what they call "the phenomenal growth of the health industry. "
That growth cannot be questioned. Personal consumption expenditures for medical care rose from $7. 5 billion in 1948 to over $27 billion in 1965, and more than $50 billion in 1968. By 1975, it is expected to reach $100 billion or more. This is the sort of news to make a Wall Street broker squeal with delight. But medicine is a service, not an industry, and one really ought to look at it differently.
In fact, the United States spends more of its gross national product (6. 2 per cent) on medical care than any other country in the world; it spends a larger absolute sum than any other country in the world. Y
et by most objective standards of health- infant mortality, life expectancy, and so on-it is far from the leader.
Other countries are doing better, and most of them have some form of socialized medicine. The United States is extraordinarily backwards in this respect. However, many clear-headed American observers have looked at European socialized systems and have come away shaking their heads; and there is a widespread doubt whether any European system can be adapted to this country. Very likely, America will have to work out its own system. The combination of group insurance with a group-practice system (essentially the system at Kaiser and others) seems a feasible, economical, and practical method, acceptable both to doctors and patients.
Without question, the notion of the doctor as a legitimate fee-for-service entrepreneur, making his fortune from the misfortunes of his patients, is old-fashioned, distasteful, and doomed. It is only a question of time.
Ultimately, however, it is not useful to lay blame, whether on physicians, health-insurance administrators, politicians, or an apathetic public. For they all seem to share a common blindness-a total failure to understand why hospital costs are rising. In 1967, the average cost of a hospital room in America increased 15 per cent. What is happening?
The per-day room charge is the largest single item in the hospital bill. There are many ways to break down this charge-as many ways as there are accountants-but the clearest is the following.
In 1969, the cost of a semi-private room at the MGH was $70. 00. Breaking this down, we find:
Per-Day Room Charge: $70. 00
Utilities, housekeeping, maintenance,
plus business offices ("hotel expense") $ 6. 96
Food and special diets 5. 82
Nursing 18. 42
Labs, records, house staff,
X rays, and pharmacy 28. 80
Overcharge (to cover welfare debts) 10. 00
Total $70. 00
Now this breakdown contradicts one of the oldest complaints about hospitals, as quoted in a national magazine: "My work puts me in contact with hotels and hotel management and I know that a good hotel can give you a beautiful room for $30. 00 a day, with three meals, and make a profit and pay taxes. And yet any hospital, which doesnt pay any taxes, operates in the red for $65. 00 a day. I say it must be poor administration. "
If the analogy were true, the conclusion would be correct. But the hospital is not a hotel-and in any case, its "hotel" costs are quite reasonable at $6. 96 a day; this is approximately half the cost of a decent motel room in Boston. The charge of $5. 82 for food, or approximately $1. 95 a meal, is equally reasonable, especially when one considers that as a restaurant the hospital must provide an extraordinary range of services, including some eighty special diets.
The true hospital costs-the expenses incurred in a hospital but not in a hotel-are, on the other hand, very high. They account for 82 per cent of the total per-day room charge. And the question, really, is whether these charges are reducible. No sensible businessman would bother to try to get his hotel and food costs below thirteen dollars a day; if there is to be a decrease in costs, it must come from the non-hotel charges.
These in turn largely reflect the increased technological capacity of the hospital. Mr. OConnors example is a case in point: most of the tests performed on him were not available in 1925, when he could have had his room for one twenty-fifth of what it cost him today. The maintenance of this new technological capability costs money-and to a large extent, in medicine as in education, law enforcement, sanitation, and a variety of other services, you get what you pay for. If you are going to enter a high-quality acute-care facility that has six employees (most of them non-physicians) for every patient, and if you are going to pay these employees a decent wage, then your care will be expensive [All this is sometimes easier to see if it is taken out of the hospital setting. If a man had to hire six secretaries for an eight-hour day, at $2. 50 an hour, it would cost him $120. 00 a day. If a man had to hire two gardeners at $4. 00 an hour, for a single eight-hour day, it would still cost him $64. 00 a day]. If you are going to purchase technological hardware, maintain it, and keep it up to date, this costs money. If you are going to keep the hospital in continuous operation twenty-four hours a day, three hundred sixty-five days a year, this costs money.
All this becomes clear in the instance of a simple procedure such as a chest X ray. A private radiologist in his office will perform this for you at one half or one third of what the hospital charges. His charge largely reflects the fact that his unit can operate on an eight-hour day and a forty-hour week; other costs, such as equipment and supplies, are the same. In medicine today-as in every other industry-people are more expensive than anything else. Sixty-three per cent of the hospital budget now goes to the salaries and benefits of employees. And much of the rise in hospital costs is directly attributable to the demand of these employees that they not be personally forced to subsidize the health business by accepting wages incommensurate with similar jobs in other industries. Their demands are justified; most employees are still underpaid. Their salaries will increase in the future.
One cannot, however, fairly claim that hospitals are superbly efficient. Especially in a teaching hospital, attention to cost in the medical, non-hotel sector is less central than one would like it to be. One can argue about whether too many tests are ordered, and the argument can continue endlessly. But certainly, when physicians who order these tests dont know what patients are charged for them, eyebrows must go up. In general, doctors tend to operate on a "spare no expense" philosophy which will, eventually, need to be tempered.
But, more fundamentally, the present cost structure of the hospital seems to lead to a rather old-fashioned conclusion: no one should go there unless he absolutely has to.
If a diagnostic procedure can be done on an ambulatory, out-patient basis, it should be; if a series of tests and X rays can be done outside the hospital, they should be. No one should be admitted unless his care absolutely depends upon being inside the hospital; no one should be admitted unless he requires the hour-to-hour facilities of the house staff, the nursing staff, and the laboratories.