Mark Cuban: Why US hospitals "don't know their costs" | Hacker News Reader

Mark Cuban: Why US hospitals "don't know their costs"

beckershospitalreview.com

30 pointselo200067 comments

Clay Christiansen (the “The Innovator‘s Dilemma”/disruption guy) once pointed out to me that hospitals were subject to the same disruptive pressure that kills successful companies.

He gave an example (this was 25 years ago) of heart attacks: people used to get bypasses that needed an entire operating team and weeks of hospitalization. But then angioplasty and stents were invented, a treatment you could get and be home the same day, and that could even be done in outside clinics. But while they handled most cases, the hospital still got the rare but super serious ones. So they had these big expensive facilities and staff but not enough “business” to support it. Just like the steel minimill they lost their cost structure but couldn’t see it as it was happening.

Just be careful. While hospitals need to do better, a large part of what I want from a hospital is to be over prepared. Just in time is good, for a lot of things, but there needs to be a large buffer of things in inventory at a hospital just in case there is a large disaster. (this is hard - blood expires and people don't like to hear about their donation being wasted even though wasted blood means no doctor had to decide which person didn't get blood for lack of supply)

It's not even about inventory of individual items (like blood or enough scalpels) it's that they need to have every expensive machine. They need x-ray machines and MRI machines and proton beam cancer treatment and that stuff adds up very quickly. That's why a trip to the ER for stitches can cost five figures in the US, because a large amount of that bill is covering the hospital's cost to be ready not just for the stitches but also car crashes or mass shooting events or whatever

Then why does the expensive treatment cost 7 figures? Estimating hospital costs is hard, but a quick glance at many buildings/offices would tell you that they are by no means struggling.

We overpay for healthcare because we must pay, and it has institutional and natural bottlenecks which restrict availability and choice.

Because they are going to allocate as much as they can to that service that is actually using those advanced facilities. The stiches patient in the ER is carrying some load for the cardiac surgery suite just not as much as the person who actually has quadruple bypass. Plus that is just part of it. They're also covering uncompensated costs across the whole system

Even if you only have stitches you want the ER to have those machines just in case the doctor looks at your injury and says "wait, this isn't the standard routine thing everybody has we need to get you into the expensive machines". Probably this will never happen - the doctor will always look and see the standard routine things that everybody has and you don't need the rest.

This is why urgent care exists and is why if you don't have something that you think is life threatening, that's almost always better. If you need more than they can provide, they can and very much will forward you on to an ER

If you need stitches then the ER is the correct place to be.

Most of the minor lacerations which require stitches to heal cleanly can be handled perfectly well in urgent care. There's usually no need for ER level care.

Elective surgeries have fallen in price because many no longer occur in hospitals. In the USA, ERs have to treat everyone regardless of their ability to pay. That's why you see a lot of urgent care.

We've socialized healthcare, just in the worst possible (but politically easiest) way.

X-ray machines aren't all that expensive.

MRI machines generally run close to capacity because of how expensive they are. There is very little slack.

Cancer treatment already costs a fortune.

there's more expensive equipment than just an x-ray machine and MRI machines, those were just examples. The building itself is expensive. Having the labor there ready to respond and service patients is expensive. Overall there is a ton of overhead with very expensive inputs that even if you come in and end up just getting a tylenol, you're going to pay for part of it

A quick Google search shows me that I could afford to buy a used lower-end MRI machine... (not that I would) They don't seem that expensive (though there's a factor of 10 difference between the cheapest lower-resolution used machines and the high end)

The ease of availability of same-day MRI services in London suggests to me there's quite a bit of slack here at least.

EDIT: Though one solution to preparedness for temporary capacity issues without as much over-provisioning everywhere: Mobile suites. My local hospital currently has a mobile MRI suite parked outside to clear their backlog.

The machines cost the same in Poland and yet the personnel costs are still over 80% of the expenses.

To make it more concrete: the lack of hospital capacity is one of the major reasons why COVID lockdowns lasted for so long after vaccines were available. Hospital capacity numbers were what politicians and bureaucrats were watching to determine when and how to ease lockdowns. If we had more excess hospital capacity, the lockdowns would have ended sooner.

When hospitals routinely operate at 120% and a major crisis doubles what we ask of them, people don't get the treatment they need.

I'm sure most of us have stories of friends or relations who needed hospital care during COVID and received less care than they normally would have received outside of the crisis.

When hospitals routinely operate at 120% and a major crisis doubles what we ask of them, people don't get the treatment they need.

A lot of people don't realize how stretched hospitals are these days.

The newspapers in Britain regularly run headlines about people waiting for hours, days, or even so long that they die on a gurney in the hallways.

It's better, but still problematic in the U.S., though for different reasons.

Here, a lot of people wait the hallways for hours and hours because there are simply not enough doctors, nurses, and support staff available. People look at a shiny hospital building from the outside and think it's brimming with doctors and patients. Often, it's not.

There can be many unoccupied rooms in a hospital simply because there aren't enough people available to meet the standard of care required to occupy a room. That leaves patients to wait in the hallways until the next shift change, and maybe there will be enough staff available to move a patient into a room.

The costs of “hospital overpreparedness” should still be clearly understood (and should probably be funded by taxpayers and not by people who need elective procedures).

> they don’t know what a bill of materials is for a hip replacement. Rather than identifying the actual labor, supplies, implants, overhead and other expenses tied to an individual procedure...

How often is there a malpractice case for a hip replacement?

I'm willing to bet that the costs of a malpractice case can be one, two, three, or even more orders of magnitude higher than all of those other expenses. Dwarfing any of those enumerated costs. Even cases that they win.

Of course they're looking at the statistics rather than counting beans.

You can do both!

Is that not already baked into the cost of malpractice insurance?

My insurance premiums go up on their own. They go up more when I file claims. I'm betting the same is true of hospitals.

Of course, that’s how insurance works. My point was there is no calculating needed. You know the risk for each doctor by their malpractice premium.

Every prospectus I've ever read, "Past performance is no guarantee of future results."

Not sure what you are trying to say? Yes past performance of investments is no guarantee of future results. It’s a pretty good gauge among other factors for measuring risk in insurance though. Imperfect yes but pretty darn good.

Going back to the original comment, your not wrong that hospitals are thinking about malpractice in cost (or should be) my point was that it should be fairly measurable in the base case and tail cases should be few and covered by other riders or self insurance.

I’m not sure that’s how it’s supposed to work.

Every insurer will tell you they calculate all the probabilities and charge you the appropriate premium.

But we all know they just recoup losses next year. There’s no actuarial math going into it.

perhaps, but insurance companies are very good at figuring this out and in turn amortizing the costs out.

Exactly.

Either assign an equal portion of your insurance to all procedures, or use the amortization techniques insurance uses to assign a malpractice risk to the procedure.

There is a financial product known as malpractice insurance in which the outsized cost of a malpractice case is spread out over a risk pool of people with similar risk exposure.

In any case, this cost is not directly part of the "hospital's" cost of service since the surgeon is most often a semi-independent contractor who bills the patient "professional charges" that are separate from the hospital's "technical charges."

Another problem is that one hip replacement is not the same as another. Differences in patients, complications arise, it's really hard to say you're going to need exactly X syringes and Y feet of gauze and Z liters of blood and which and how much of certain drugs for anesthesia, not to mention with procedures that involve prosthetics you may need multiple on hand, the first one you pick may not fit so you need to go to the second one but you have burned that first one

Finance guys think you're going to turn hospitals into walmart and make it up on ruthless efficiency and volume but it's not that kind of business. There's so much unknown going into any one situation that it makes this "transparency" hard to do. Plus, people want the best and whatever they need to survive so the "consumer" doesn't want transparency

And then you layer on top the huge amount of uncompensated costs from uninsured and denied coverage. It's why a single national payer system actually makes sense, if you can keep the fraud from running amok. We really should just pay for outcomes and spread the actual cost over the entire system

There's two different things you're talking about here. There's the cost estimate- the amount you tell people up front a surgery is likely to cost, vs the actual cost to the hospital. You don't need to guess how many syringes of X you're going to need when you've already done the surgery. At that point you just addd up all the stuff you used, price it up and that's the BOM. Cuban is saying they don't even do that - they don't track their costs on a surgery by surgey basis at all. And because they don't track any of that it's impossible to reason about it.

It's impossible to answer "How much will it actually cost to insure person X" because you don't have any of the data on what the costs will be when person X needs a given surgery, all you have is the aggregate costs of the entire system - a lot of which is misleading because things are cross-subsidized because no one is really tracking costs. It may well be that whilst every surgery is billed equally in reality obese patience are responsible for 80% of the cost. Or it may even be that the hospital is making an average loss on hip surgeries because their negotiations with the insurer drove those prices down whilst brain surgeries give a nice profit margin.

And so you can't ask "How much would it cost for the government to fund service X" because you don't know how much it costs, all you know is the aggregate money spent across all medecine.

>Cuban is saying they don't even do that - they don't track their costs on a surgery by surgey basis at all. And because they don't track any of that it's impossible to reason about it.

Then Cuban is wrong. I had a heart valve replacement surgery last year and I got a detailed to the penny to the mg of tylenol what they consumed and what they charged. It was not a big massive one line "heart surgery" on the invoice, there were dozens and dozens of line items. I think quite the contrary they know exactly what their inputs are to a surgery, it's just that is not the only cost you get billed.

>because you don't have any of the data on what the costs will be when person X needs a given surgery

This was exactly my point, and yes part of it is because of cross-subsidization, but it is also because my valve replacement almost certainly cost someone differently than the next guy having the same surgery the next day because of any number of factors

Also part of determining insurance costs is that you probably don't know which surgeries someone is going to need at the time the premiums are being set. Even if you knew perfectly how much every surgery in the system costs, you don't know how many of those surgeries you are going to have to pay for

Let's say every now and then, you need to do X.

That means you need to be prepared to do X.

And what if some of the components of X expire? That means you have to pay to keep them on hand.

And the distribution of how often you do X is absolutely not predictable. Sometimes it's months between them. Sometimes it's 10 in a day.

If you had to be prepared to serve 20 hamburgers, any given afternoon, with no warning, how much ground beef would you waste, over a year?

Counting how much ground beef you did use does actually provide some information. I'm not discounting that. But it absolutely does not tell the whole story.

They are insured against such risks and with that the insurance costs will be another fixed post on the expense list.

Some practices are self-insured. Some practices have to pay the first million, up to five million, out of pocket.

Malpractice insurance is less than 1% of revenue for all medical specialties except the one that is dangerous and used routinely.

> Mr. Cuban argued hospitals often rely on broader accounting methodologies that spread costs across services.

Maybe they do this intentionally to avoid insurance refusing to pay for the most expensive but potentially necessary services.

There is a real problem. There is a lot of overhead. You can use accounting to hide it in various places, but it still exists. I want a hospital large enough to handle disasters (think tornado destroys a large area), but that means there will be a lot of rooms that the hospital is making payments on but are never used.

It's funny because you're basically making the argument that it's not solely the insurance providers fault, but also equally the providers (which is what most reputable studies on why American health care is so expensive seems to point to).

If a hospital doesn't know what it's own costs are, and are doing creative accounting to hide charges in random places, how the hell is an insurance company supposed to know how much reimbursement makes sense, and if a procedure should be done that costs $10K at this hospital vs $5K at another down the street with seemingly no difference in outcomes.

So w/ the creative accounting, which both the provider and the insurance company knows everyone is doing, you get administrative bloat where both sides have massive billing departments dedicated to figuring out each others BS. And this bloat is a hilariously large amount of the reason why costs balloon.

Both the providers and insurance companies are aligned in driving up costs. Hospitals probably will never get their act together in knowing actual pricing, but lying about it through creative accounting hurts everyone.

Reminds me of the Surgery Center of Oklahoma which cause such a huge news buzz back in 2009ish for publishing packaged pricing. Brilliant move. (And they still do it!)

I remember the Econtalk episode with the co-founder, "Keith Smith on Free Market Health Care" [0]

0. https://www.econtalk.org/keith-smith-on-free-market-health-c...

There is no one way of doing cost attribution. So, at scale, there is no such thing as one perfectly calculated cost per product. Hospitals are outliers compared to more regular firms in that they produce tens of thousands of procedures / products. In the Netherlands we’ve standardized products for billing and negotiation purposes but still most negotiation is on a higher level than price per product.

Tl;dr Mr Cuban is right, but I think hospital accounting nears P/NP-level complexity

Maybe Mr. Cuban should put his money where his mouth is and buy a hospital

He has done a lot for affordability with Cost Plus Drugs.

Well he has done that on Rx drugs which is equally a hot mess. So he has credibility in this space.

He’s not just some blowhard billionaire with an opinion. He’s really legit shaken things up in Rx and proven it’s a racket.

That said... even though it reads like you're correcting him, you're simply reinforcing @sfn42's message...

beg your pardon?

I appreciate the opportunity to clarify; I see I wasn't clear earlier.

    sfm42: "MC should buy a hospital and fix it!"
    cmiles8: "MC isn't some armchair pundit, he has improved similar areas!"

cmiles8 sounds like he's criticizing sfm42 as though he thinks MC is just whining.

However, the rebuttal reinforces the idea that MC really should buy a hospital and go fix it.

MC has money, willpower, and a proven track record of improving this area.

So go do it, Mark.

Walk the walk.

I see now, but I don't think buying a hospital is the solution here, a hospital by itself is just a single unit in a broken system, but that single piece is thousand times more complex than reducing drugs prices.

What is Rx?

Prescription drugs

It's the odd North American English "abbreviation" for a "prescription medicine". Where a "prescription medicine" is one that cannot be bought directly by a consumer and instead requires a medical professional to prescribe it: https://en.wikipedia.org/wiki/Medical_prescription

It's a standin for "Prescription", but for more details check wikipedia: https://en.wikipedia.org/wiki/Medical_prescription

(used to be Latin for "Recipe", aka, here's how to make this medicine)

Prescriptions

An ASCII-friendly way to spell ℞, an R with a crossed right leg, shorthand for the Latin singular imperative recipe! “take (the following)!”, which is the conventional start of a prescription; by extension, something necessitating a prescription to buy.

Right, so if he's right then it would be great if he could do the same thing with actual healthcare right?

He'd make even more butt loads of money than he already does, people would get more sensibly priced healthcare, everyone wins. Except the crooked and apparently incompetent existing healthcare execs, who don't deserve to win anyway.

The question is can he do more? Or he is already at the limit of what he can oversee and attempts to do more will mean he can't oversee everything and so everything gets worse.

he said that if he bought a hospital, he would operate it like a startup, strip out unnecessary overhead

And then he would charge whatever the market would bear in order to maximize return on his investment.

"Running it like a business" *is* part of the problem.

Health care is not just another business. Once you're in the hospital, it's a little late to go price shopping. And with your life on the line, do you really want to choose the low cost provider?

He didn't charge "whatever the market would bear" for prescription drugs. Also there is obviously a huge difference between urgent/emergency care vs more routine procedures. If you're getting a routine colonoscopy every few years, it may be feasible to shop around.

He didn't charge "whatever the market would bear" for prescription drugs.

His prices are fairly comparable for his limited selection of cheap generics compared to other mail order options. Also, his pricing is cash only --- no insurance.

But dispensing drugs is not really comparable to "health care". Running a hospital comes with a lot more unknowns and risk.

If he has it all figured out, why hasn't he bought a hospital? Let me guess --- it's not a good investment.

If you're getting a routine colonoscopy every few years, it may be feasible to shop around.

Have you actually tried this? Most won't give you a fixed price up front because of the potential for things to go wrong.

The thing is he'd find a lot of the "unnecessary overhead" is necessary to deal with the payers in the system. You need a massive billing organization to make sure insurance actually pays you. You need a massive compliance organization to make sure Medicare pays you (and that you don't kill your patients and get sued)

If you reformed the whole system you could trim a lot of hospital overhead, but it's a systemic problem. More overhead and waste is happening in the insurance companies which is what needs to be cleaned out first, then you can start dealing with providers' overhead that exists to serve the rest of the system

I was wondering the same thing. I see the difference in my primary care doctor who does not take insurance. So much less overhead, same salary, and better patient outcomes. There is a multiplier effect, as you add people at some point you might need an office manager and then more nurses to keep up quota but for every new dollar of revenue you make the margin goes down.

You wonder how much of a hospital is true emergencies vs scheduled care. While ERs are indeed busy, how many of those should actually go to a primary care doctor instead. Even then I would imagine your schedule appointments are the bulk of the volume at a hospital.

The ER vs. having a regular doctor is a big impact. It's partially why there are so many urgent care centers, but a lot of uninsured use the ER as their primary care as the ER has a duty under law (and ethics) to treat anyone who comes through the door for anything, regardless of whether they can pay or not, where a primary care physician can turn people away if they can't pay

Agree and I cannot help but think we in the US always digs this hole. I wish at the federal level we required citizens buying into health insurance with a very generous sliding scale for those at lower incomes. It reminds me of medicaid/care. Folks will not go to the doctor because of costs and then once they age or cost into assistance their condition is now permanent.

> treat anyone who comes through the door for anything

nitpick, but it's anything imminently life-threatening (mas o menos), not anything

like if you show up in the ER with burgeoning cancer they won't provision chemo

This feels like misdirection. My understanding from providers is that insurance underpayment is the cause of price inflation. Ex. They bill $100, get paid $10, so over time they increase the billing to $200 to collect actuals.

Customer/Doctor/Insurance is the classic blame triangle.

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