The Hidden Costs of Healthcare

Mike Carberry

Americans know something is wrong with healthcare, but everyone feels powerless or unable to investigate the problems. We pay $3.2 trillion a year, more per capita than any other developed nation. We hold the gold standard in actual medical care, facilities, physicians and advanced processes and equipment.  Yet we are the most obese nation on earth; we rank 37th by the World Health organization in overall health; we rank 26th in life expectancy at birth and 29th in infant mortality.

What is wrong with this picture?

How much of these costs are hidden from you?  Would you like to know why you are paying more for healthcare than your counterpart in other countries?

Variety of Opinions as to the Cause

Most people will tell you that health care in the US is expensive… But people don’t agree on why our health care is so expensive. Is it because of all the new technology we use in health care? Or is it because too many lawyers are suing doctors? Do we over-utilize our resources? Do we have too many government regulations or maybe too few? Is our health care “market” too free or not free enough? Or, is it just because we have the best health care in the world and that’s the price we pay for being so healthy? The True Cost of Healthcare by Dr. David Belk, MD

Everyone has an opinion, but what is right?  Is there any single, simple answer?  Of course not, unless it is the brainless answer—it’s the high prices!  Yes, that is so, but why are they so high? And of importance to you, how much of this information is hidden from you.

Maybe the phrase “hidden” implies something sinister, or secret. I don’t think that secret is necessary for there is nothing hidden for you are being robbed in full daylight through the American system of healthcare every day. You feel someone digging through your pockets but you think that is normal.  It is not. And you have a right not to tolerate it.

Look at the high price of drugs

Did you know that the US is the only nation on earth that allows drug companies and hospitals to set the price they want, what the market will bear, without any intervention or governmental control? Every other country governs prices through governmental oversight and will not allow a freewheeling, free for all in the market, and then have to pay what is charged. Did you know that Medicare must pay, according to law, whatever price is charged regardless of its outrageousness.

Who did this to you?

Just so you will know who did this to you,  it was Billy Tauzin, a Louisiana lawyer, who got himself elected to Congress and connived his way to introduce a bill that prohibited Medicare from negotiating or even questioning the price of drugs.  It was passed through Congress early one morning as a sleeper when most of Congress was absent, but with enough votes to pass. Every other country has some control of these costs. Consequently the cost of drugs has skyrocketed in the US for there was no control or oversight except what the market would bear.  Almost immediately he retired and went to work for a major pharmaceutical company as lobbyist and on the board of directors, making two million a year.  Good old American politics.

Twenty Year Monopoly

Upon the FDA approving a drug, the company is immediately given a twenty year monopoly on its manufacture, permitting it to recoup the usually immense costs of its creation.  This is deserved when the drug saves lives. But it gives the drug companies (BIG Pharma) a license to steal.

Cost of Time Waiting in Doctor’s office

Every minute you have to wait in a doctor’s office waiting for service is a minute of cost to you.  In a Time article by Alan B Krueger, an economics professor at Princeton, in February 9, 2009 tells this story.

“After waiting more than an hour in a doctor’s waiting room, a friend of mine once presented his doctor with a bill for his time.

My friend’s frustration probably sounds familiar to anyone who has been kept waiting at a physician’s office. And while his response may seem a little extreme, perhaps he was on to something. After all, time is money. So, although it doesn’t currently enter into our national statistics, the time that patients spend getting health care services should be reflected in the way we calculate America’s national health care expenditures.

Any student of Econ 101 knows that economists measure costs by opportunity costs, meaning everything that is given up to get something else. Time spent interacting with the medical system could be used for other activities, like work and leisure. Moreover, spending time getting medical care is not fun. This time should be counted as part of the cost of health care.

Using the American Time Use Survey, I calculate that Americans age 15 and older collectively spent 847 million hours waiting for medical services to be provided in 2007. That’s a lot of bills to be delivered to health care providers.” Alan B Krueger, economics professor at Princeton,

Is this a hidden cost?  Absolutely.

Hospital Cost Just Short of Half American Healthcare Costs

Hospital Costs account for just less than half of the $3.4 trillion spent on U.S. healthcare, and medical professionals from health aides to nurse practitioners are in high demand. But the sheer complexity of the system also has spawned jobs for legions of data-entry clerks, revenue-cycle analysts and medical billing coders who must decipher arcane rules to mine money from human ills. Here is a quote from an article by Chad Terhune, Kaiser Health News, April 24, 2017: “In many ways, the healthcare industry has been a great friend to the U.S. economy. Its plentiful jobs helped lift the country out of the Great Recession and, partly due to the Affordable Care Act (ACA), it now employs 1 in 9 Americans—up from 1 in 12 in 2000.

Health Care Just Became the U.S.’s Largest Employer In the American labor market, services are the new steel. From an Atlantic article by Derek Thompson, January 9, 2018

Due to the inexorable aging of the country—and equally unstoppable growth in medical spending—it was long obvious that health-care jobs would slowly take up more and more of the economy. But in the last quarter, for the first time in history, health care has surpassed manufacturing and retail, the most significant job engines of the 20th century, to become the largest source of jobs in the U.S.

In 2000, there were 7 million more workers in manufacturing than in health care. At the beginning of the Great Recession, there were 2.4 million more workers in retail than health care. In 2017, health care surpassed both.

Ratio Doctors to other workers—1:16

For every physician, there are 16 other workers in U.S. healthcare. And half of those 16 are in administrative and other nonclinical roles, said Bob Kocher, a former Obama administration official who worked on the ACA. He’s now a partner at the venture capital firm Venrock in Palo Alto, California.

“I find super-expensive drugs annoying and hospital market power is a big problem,” Kocher said. “But what’s driving our health insurance premiums is that we are paying the wages of a whole bunch of people who aren’t involved in the delivery of care. Hospitals keep raising their rates to pay for all of this labor.”

Lack of Transparency

Do you know what your doctor or hospital will charge before you go in for service? Is the first time you know of the charges when you get a bill a week or so later? Does a bolt of fear strike through you when you see that envelope in the mail box, for it could not herald anything good, and then upon opening it you are so shocked you have to sit down? This is common in our America.

That is total lack of transparency as these health care providers can charge pretty much what they want, and you and your insurer may have to pay it regardless of how unreasonable.

Why don’t we know these costs? To start with, unlike any other business in America, almost all of the financial transactions in health care are hidden from the providers as well as the patients. Doctors order tests, procedures and medications to manage our patients, but very few of have any idea how much any of those things cost. Patients rarely pay directly for these services and the payment for any service varies substantially from different payers. Billing charges for a medical service typically have little relation to the actual cost of the service or even to the expected reimbursement rate for that service.

Hospitals have separate billing departments that are far removed from anyone ordering or performing tests or procedures. No one directly involved with patient care has any notion of the charge or reimbursement for their service. Most private doctors’ offices don’t even bill their own patients—they contract billing companies, who just send them a check each month from the total amount collected, leaving them no notion of the actual charge or payment for any individual service they provided.

So for years we’ve been discussing the total cost of a system where almost all of the individual costs of that system are completely hidden from us. Is it any wonder the cost of health care in the US has mystified so many? Dr. David Belk

Healthcare’s ‘hidden costs’

By Bob Herman  | November 18, 2014

“What comes to mind when America’s healthcare bill is mentioned? Usually physician services, hospital care, prescription drugs. While those areas of healthcare account for the bulk of U.S. health spending, another area of out-of-pocket spending mostly goes unnoticed.”

In 2012, the nation racked up about $2.8 trillion in total healthcare expenditures. ($3.2 trillion in 2017) But that does not include an estimated $672 billion in “hidden costs,” according to a study from the Deloitte Center for Health Solutions.

For example, Deloitte analysts said Americans spent about $531 billion in 2012, or 79% of all hidden costs, on supervisory care. Supervisory care is when family members or friends take care of someone at home, but the cost of providing that care comes out of their own pockets. Analysts estimate only clinical services and hospital care represent a bigger portion of U.S. healthcare spending.

More than $60 billion was spent on nutrition items, such as vitamins and health supplements. People also shelled out billions in 2012 for complementary and alternative services like yoga and acupuncture, elderly home care, weight-reducing centers and healthcare publications, Deloitte said.

These so-called hidden costs have grown 5% every year since 2007, and Deloitte’s report finds that older people generally incur higher hidden costs, mostly due to home care.”

You are paying for hospital losses

Hospital emergency rooms are required to treat or handle any case that comes through the door.  A huge percentage of those have no insurance, are indigent, or have no means to pay.  So the hospital, with 7/24 continuing costs in the form of paying for all of its expenses, nurses, doctors, utilities, etc., takes a loss.  How do they manage to handle that?  They pass on their losses to paying patients in the form of bills, which are usually paid by insurers or out of pocket fees. This explains how one hospital may have a different charge for procedures than another, and then that may vary according to the variables of the week or month in collections.  Hospitals are no different than any other business, except they are supported by insurance.

”From a financial perspective, accounting for healthcare is much like accounting for any other type of service. We must have enough revenue to cover our costs. If we cannot make a profit, we cannot replace worn out plant and equipment or invest in the latest technologies. However, there is one difference unique to the healthcare field. That is the enormous amount of free care and under-paid care we deliver. We must charge each patient more to recover the unreimbursed cost of care provided to the uninsured and “government payers.” As a result, hospitals write off 40-50% of what they charge. Article by Douglas Yarborough,MBA, NC Med J March/April 2005, Volume 66, Number 2

Huge Bills

A patient is apt to faint if he opens the bill from the hospital nowadays.  As seen above you never know what will be charged. It seems to be an arbitrary call, hospital to hospital, either randomly priced per item or according to some hidden formula used to make up the losses, depending on the income/loss status of that day or week or year. There is no standard. If there was ever such a standard proposed, it would be opposed and never activated. Just look at the paycheck for the ranking hospital executives. Read this article if you feel sorry for the impoverished hospitals:

Ridiculous Charges – Examples

Following a patient’s diagnosis of lung cancer, he was charged $308.00 for four boxes of sterile gauze pads each containing twenty-four 4 inch by 4 inch dressings, which can be bought over the counter at Walgreen’s for $3.99 a box. These were tacked onto his $348,000.00 bill. Another patient was charged $18.00 each for Accu-Chek diabetes test strips. Amazon sells boxes of 50 for about $27.00 or 55 cents each. For the price of one Lipitor pill in the US you can buy three in Argentina. One hospital charged $1.50 for one 325-mg acetaminophen tablet. You can buy 100 tablets on Amazon for $1.49. That’s a 10,000% markup. How about $800 for a bag of salt water. (The Daily sheeple)

This one takes the cake: A hospital charged the mother $39 for a “skin to skin” after a C-section. That is, she was charged $39 bucks to hold her own newborn. (Rupai Srivastava, Oct 4, 2016, Romper)

The Problem is Prices

Here is an article by Sarah Kliff Oct 16, 2017, VOX, “The problem is the prices. On September 28, 2016, a 3-year-old girl named Elodie Fowler slid into an MRI machine at Lucile Packard Children’s Hospital in Palo Alto, California. The scan took about 30 minutes. The hospital’s doctors used the results to start Elodie on an experimental new drug regimen. They were shocked a few months later when a bill arrived with a startling price tag: $25,000. The bill included $4,016 for the anesthesia, $2,703 for a recovery room, and $16,632 for the scan itself plus doctor fees. The insurance picked up only $1,547.23, leaving the family responsible for the difference: $23,795.47.

“Americans pay exorbitant prices for all kinds of care. As a health care reporter, I find myself writing about $25,000 MRIs, $629 Band-Aids — even a $39.95 fee just to hold one’s own baby after delivery. People send me these types of bills quite regularly via email. The health care prices in the United States are, in a word, outlandish. On average, an MRI in the United States costs $1,119. That same scan costs $503 in Switzerland and $215 in Australia. These are uniquely American stories, and they are the key to understanding our dysfunctional health care system.”

“The Affordable Care Act reduced the price to consumers, but it didn’t reduce the actual, unit price,” says Johns Hopkins’s Gerard Anderson. “It essentially made everything affordable to people, but the prices actually accelerated in growth post-ACA.”

He goes on further to say that the problem is worsened by the fact that Americans overuse the system, spend the clinic, emergency room and doctor’s time when that splinter could have as easily been removed by tweezers and then washed with disinfectant at home. In the Emergency room the doctor that attends the stubbed toe has to put as much time as on a heart attack, and be ready for either to come in. This is the reason for, take, for the example, a bill I was sent last year: a $629 fee charged for an emergency room visit where a Band-Aid was placed on a 1-year-old’s finger. The bill included a $7 fee for the Band-Aid — and a $622 facility fee.  Well, maybe, I have to consider the cost of keeping the ER in readiness with a whole staff and an expensive doctor on hand.

On the other hand, how about this one?  Erika Siegal went to San Francisco General Hospital ER, after she flew over her handlebars in a bad bike accident. Her wedding ring had smashed her finger, leaving it badly bruised. She estimates she spent less than a half hour there.

But when you run into this kind of bill from an ER, you only can scratch your head in wonder.

For those who can remember the days before there were Emergency rooms, and the only choice was to hope your doctor was in his office, or that you could find a doctor in a hospital, the existence of ER’s is a modern wonder and worth the extra “facility fee,” if it is reasonable. But $3,174?

Comparison of Identical Bills Between States

Some other interesting information from NerdWallet is that Hospital bills vary dramatically between states. Driving a few hours can save patients tens of thousands of dollars. For the most common hospitalization, Major Joint Replacement (commonly knee or hip replacement), California hospitals charge an average of $88,239. However, hospitals in next door Oregon charge an average of $41,007.

Disparity of costs for same procedure

There is a huge disparity between different states for the same surgical procedure or treatment process.  This disparity may exist between cities or between hospitals in the same city. There is a site that breaks this data down into 100 separate medical procedures by state. Here are two examples how of far apart these costs can be.

Following are two examples, the first being for hip and femur procedures and the second being for Neck or Back Fusion:

Full Coverage, then no worries

If you are fortunate, or unfortunate depending on where you stand on the issue, enough to be over 65 years of age, you have blessed Medicare that covers 80% of your bill. If you are smart, or smart enough to have a good insurance agent, you will have a supplement, such as United Healthcare or Humana, to cover the rest, or 20%, which will then pay for 100% of your medical bills.  You won’t really care how much It costs, for the skin you have I the game is your monthly premium.

If not, you may be a bankruptcy candidate

But if you don’t, then you may be one of the statistics because of the ravenous eating habits of American healthcare, for according to a CNBC article by Dan Mangan, published 25 June 2013, Medical bills are the number one reason Americans file for bankruptcy, He said, “Bankruptcies resulting from unpaid medical bills will affect nearly 2 million people this year—making health care the No. 1 cause of such filings, and outpacing bankruptcies due to credit-card bills or unpaid mortgages, according to new data. And even having health insurance doesn’t buffer consumers against financial hardship.” Hospital bills cause people to lose their homes, life savings and assets.  They can be detrimental to your credit score, affecting the types of loans you qualify for and even preventing you from qualifying altogether.

According to NerdWallet, medical expenses are the leading reason Americans file for bankruptcy. When unforeseen expenses arise that are too great for insurance policies to cover, or if the patient is not insured at all, the results can wreak havoc on personal finances and drive individuals into financial ruin.

“One stay in the hospital could destroy your economic well-being,” writes Pat Palmer on the blog. “An evening in the emergency room – even if the underlying problem might not be considered severe – could have you owing what it costs to buy a car.” Professional Medical Services, by Admin in Healthcare Industry News.

Discount to Medicare

Medicare which is charged fully for these ridiculous bills, may be thought to pay the full amount, but a NerdWallet Health Study finds Medicare gets a 73% discount on hospital bills. That’s good news, for that means you should be able to negotiate a substantial amount off of your bill, and maybe more than 73%.  For every $1 Medicare is billed by American hospitals, only $0.27 is paid, a 73% discount.

Can you get such a discount?

Why not? If you have received such a bill as seen above, there is no reason you cannot approach your insurer wanting payback, or the hospital dunning you for the amount on your bill not paid by your insurer or other resource and demand a discount.  You may be even able to go over each charge on the bill and negotiate each down to the discount given to Medicare.

Who pays for the Unpaid Difference?

One may ask at this point, “then who pays for the unpaid difference?” Dear Reader, by now you surely understand that none of these incredible entrepreneurs, and it seems out healthcare system is primarily entrepreneurial, are going to suffer any kind of a loss.  If anything they turn the loss into a gain. That is the way the game is played.  The bill is pumped out of proportion to begin with, and then the fantasy loss is absorbed by charging more to other paying patients and tax write-offs. Be assured, the poor hospital is not going to suffer a loss.

Few Know the Real Truth of the Crisis

Nine out ten of your friends and neighbors don’t know there is a crisis, and they just shrug it off, as they haven’t had the misfortune of experiencing it, and feel that all is well as long as they can eat and pay their car note. They have heard horror stories and getting a constant overload of false data from every source, it is just considered more of the same, and hearsay doesn’t motivate.  People do not react and take action unless it directly affects them.  They should know that the healthcare crisis does vitally affect them, and directly. If you are of an average family four, did you know that the crisis costs you over $500 of discretionary income every month?

Here is how it costs You

The Rand Corporation did an in-depth study to see just how much the average American family (husband, wife, two children) is affected by the costs of healthcare.  Here are the Key Findings:

Health care expenditures, including insurance premiums, out-of-pocket expenditures, and taxes devoted to health care, nearly doubled between 1999 and 2009.

This increase has substantially eroded what an average family has left to spend on everything else, leaving them with only $95 more per month than in 1999.

Had health care costs tracked the rise in the Consumer Price Index, rather than outpacing it, an average American family would have had an additional $450 per month — more than $5,000 per year — to spend on other priorities.

Without going into a detailed explanation of how this was derived in Rand Corporation’s investigation, let us say after all of the factors were considered, the average family had “take-home” for discretionary spending only $95 more a month in 2009 than it did in 1999.  There should have been a take home of an additional $545 a month to spend in 2009.  (September edition of Health Affairs). In other words, taking into consideration all of the factors, the cost of American healthcare deprived your family of over $5,000 a year—a new car, a nicer home, a vacation, better provision for your kids. This is over and above your cost for your insurance—simply picked your pocket, robbed you in broad daylight and you freely handed it over without knowing it.  This is intolerable. If healthcare was in normal range or at a par with all other developed nations, and not a runaway as it is, you would have this extra money to spend.


Fraud, waste, and abuse are a major threat for healthcare around the world. An estimated $455 billion in global healthcare spending is lost every year due to fraud, waste, and abuse (FWA). In the United States, FWA (and the extra rules and inspections required to fight it) cost Medicare and Medicaid $98 billion in 2012, raising their total spending by 10% – and in the EU, FWA drains €56 billion out of the healthcare system every year. The World Health Organization lists FWA among the leading causes of inefficiency in worldwide health.

Healthcare payers are the first to be affected – FWA cuts into their bottom line. So they have to charge higher premiums or taxes, and pay healthcare providers lower rates. When private payers have to renegotiate with providers, their networks end up shrinking, which is even worse for business. Ultimately, FWA leads to smaller budgets for providers, lower quality of patient care, and higher costs for everyone through premiums and taxes.

Although everyone is affected by FWA, payers are alone on the front lines: they are the first to feel the pain, and they are the primary party tasked with identifying and preventing improper claims from being paid. The more healthcare payers are familiar with different types of fraud, waste, and abuse, the better job they can do preventing it. Enterprise

The Whole Picture involving American Healthcare

If American Healthcare were a movie, if it was not a slapstick comedy, it would be more of a horror show starring three huge vampires* joined at the hip, each with a catheter connected into America, sucking its very lifeblood, all in the light of day. *Big Pharma, AMA, Big Insurance.

It’s a mess. It is not the fault of our gold standard medical care, with its stellar diagnostic and treatment devices and physicians. It is the system that runs the show. It is the broken train that takes the troops to the front to fight disease, but it is so decrepit and loaded down with illegal passengers, fraud, and engineers stealing the diesel fuel that it is always late or stalled.

Good Stuff Coming

Wait for it! If you have been following these articles, you may think there is nothing good happening in the healthcare industry. No, there are wonderful things happening. Medical Innovations, whether they come from the US, Russia, Germany or Israel, are improving healthcare worldwide in leaps and bounds. The next article will cover the mind boggling tools that we have available to help us to have happy, healthy and productive lives.




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