What's behind those rising health-care costs?
Opinion/Editorial, Special to the Sacramento Bee Metro Section, Page B7, 
Tuesday, December 18, 2001

By David Gibson, MD

It has been said that a conservative is a liberal who was mugged last night. I just was mugged.

My daughter, a freshman intercollegiate athlete (crew), developed an intense sore throat last August. After two days of fever, difficulty swallowing, enlarged tonsils and malaise, she was seen by her personal physician. A full workup eliminated a bacterial cause. Mononucleosis was not found.

Because she was mildly dehydrated, her physician referred her to a local hospital emergency room for an elective infusion of intravenous fluids for symptomatic relief. This is not a major therapeutic procedure. After all, college football players are given this intervention on the sidelines during games.

I am happy to report my daughter felt much better and went on to college. Unfortunately, I received a bill for $2,850.05 from the emergency room and the physician on duty in the ER. He charged $273 for a repeat physical exam and $144.30 for starting the IV. He then ordered a series of redundant laboratory tests, which cost $700.45.

The hospital charged my daughter $1,063.50 for just walking into the ER. The invoice listed $387.20 for pharmaceuticals, which I estimate are marked up from actual cost by a factor of three. Intravenous solutions, therapy and supplies were billed at $281.60, which were marked up by a factor of ten.

So, in Sacramento it now costs $2,850.05 for a healthy 18-year-old to get an IV infusion for symptomatic relief. The actual price should be one-tenth that. Does this pass muster with common sense? For the past several years, both my patients and their employers have been screaming about the increasing cost for access to health care. Small group employers -–those with two to 100 employees, which make up the core of Sacramento’s business community – are facing rate increases in the 20 percent to 50 percent range next year.

Until this episode, I tended to blow off the complaint. After all, a study by the accounting firm of Price Waterhouse revealed that physician compensation in Sacramento has decreased by 24 percent over the past decade. Reimbursement rates for California’s primary care physicians are running between 20 percent and 40 percent lower than rates paid to counterparts elsewhere. Consequently, the number of doctors practicing in Sacramento and El Dorado counties dropped 13.4 percent between 1995 and 2000 because they found the reimbursements in Sacramento inadequate.

So, where is all the money flowing into health care going? This year the Center for Studying Health System Change in Washington, D.C., found that hospital spending on inpatient and outpatient care accounted for nearly half of the 7 percent increase in health care costs in 2000. Thus, hospitals are now primary driving force in health care inflation. This increase in hospital spending during 2000 drove the largest health care cost increase in a decade while prescription drug spending began to moderate.

This inflationary driver problem compounded during the 1990s. Hospitals became "vertically integrated" into health care systems. They evolved into regional health care conglomerates as they acquired community-based not-for-profit hospitals. These systems encompassed both inpatient and outpatient services. They now strive to internalize referrals and thus gain control over the markets they inhabit. This is the case across most of the Northern California today. In Sacramento, this trend is exemplified by the growth of both the Sutter Health System and Catholic Healthcare West (CHW).

Managed care has profoundly damaged the infrastructure of California’s health-care system over the past decade. However, one often overlooked trend has been particularly detrimental. By leveraging the contract for the most expensive resource in health care – the hospital bed – health systems such as Sutter and CHW and managed care insurance companies have been able to eliminate competition for ambulatory services. Thus, independent community-based diagnostic and therapeutic facilities (clinical laboratories, ambulatory radiology facilities, outpatient surgery centers, etc.), other than those owned by the hospital systems, have been eliminated from the Sacramento market.

We now face a virtual monopoly with few competitive alternatives to the services provided by these hospital systems. The result is unjustified markups and service prices, such as those listed above, that would not be tolerated in any other industry.

So, what should we do? The answer – more physicians need to get mugged. I am now a highly motivated conservative. I now understand, finally, that the current trends for health-care premium costs are simply not sustainable. These costs are hurting my patients and damaging Sacramento’s economy.

My colleagues and I know how the system really works and I am now prepared to roll up my sleeves and work with the policy-makers, patient groups and business leaders to bring this problem under control. It is a shame that I was not mugged sooner.


Drs. Label, Nations and Rubin and I have discussed the specific points about code structure, ordering of redundant laboratory testing and the use of tertiary cephalosporins raised in this debate. The points do not rise to the level of a peer review complaint and I prefer not to use valuable print space to argue those details. That would distract from my principal points:
emergency room charges are outrageous, and Sacramento Area physicians should get together to protect their patients against these costs in their health care.

Dr. Johnson, on the other hand, does raise serious public policy issues that warrant further discussion. We have begun to do that and I hope we will continue that discussion.

Dr.Johnson asks for "evidence" of my assertion that hospitals have succeed in developing a monopoly for interventional services and have used their contract advantage with third party payers to drive physician competitors from the market.

The managed care contracts currently in force in Sacramento pay four-times more to deliver the same IV infusion in the hospital ER setting than in an office or outpatient convenience clinic. Hospitals can and do charge ten times more for drugs than what others can charge, for laboratory testing, fifteen to twenty times more. The low payments to physicians for those same services in their offices has made it economically impossible for them to offer those services to their ambulatory patients. Therefore, there is no alternative to the hospital, creating a monopoly.

Dr. Johnson defends facility fees totaling more than a thousand dollars that hit the patient just on entering the ER as justified to let the ER serve low-pay or no-pay patient, the "poor". One cannot dispute the deteriorating business environment that hospitals face. Unfunded state mandates, under funded federal entitlement programs, and below market compensation from HMOs have brought California's entire health care system to its knees. The hospital industry argues that any competition for their ambulatory service technical franchise will destabilize the system that must service these well intended but inadequately
funded programs and HMO contracts.

The consequence, I argue, is a "private tax system," charged by the hospitals and paid by the private-pay sick, that is not accountable to the public.  It is a most cruel tax that has produced the leading cause of bankruptcy for the middle-class in Sacramento.

As employers move from first dollar coverage back to high deductible indemnity products for their employees, our patients will face the full fury of this inflated "retail" pricing. I consider the $1,971.05 contracted payment for an ER administered IV infusion outrageous, but I predict that, unless the process is changed, the individual patient will be exposed to a $2,850.05 liability for the same service.

Let's consider what we must do together to prevent that.

David J. Gibson, MD, is a Carmichael rheumatologist and a member of the Sierra Sacramento Valley Medical Society. He can be reached at

© David J. Gibson, MD 2001