AHA disputes 'Bitter Pill' assertions

The American Hospital Association has responded to a Time magazine article on healthcare costs, saying it contains "inaccurate or misleading statements," and pointing out that "even not-for-profit hospitals ... must have revenues that exceed expenses."

The article, which was written by Court TV and American Lawyer magazine creator Steven Brill, portrayed non-profit hospitals as overly focused on the bottom line, charging uninsured patients and insurers enormous markups on even basic items such as aspirin. Meanwhile, the hospitals were using their revenues to build large new facilities and to pay their top executives seven-figure pay packages, according to the article.

"There is a rigorous process prescribed by the IRS for setting executive compensation," the AHA said in its response. "For most hospitals, an impartial panel made up of members of a hospital's board of trustees is charged with setting CEO compensation. This impartial panel relies on benchmark data from similar organizations to determine a CEO's compensation."

The AHA also appeared to defend the more than 10,000 percent markup for a Tylenol pill as reported in Time. The AHA said hospitals most factor in the cost of a physician prescribing it, its dispensing from the pharmacy, transportation and the document of its administration.

The organization also made the point that if hospitals don't mind the bottom line, they won't stay in business. 

"Even not-for-profit hospitals need a profit, meaning they must have revenues that exceed expenses--known as a positive margin in the not-for-profit world," the statement notes. "Hospitals need a positive margin to help to finance the facilities and equipment needed to keep pace with advances in care and meet the rising demands of our aging population. Additionally, hospitals need to be financially sound to borrow the additional funds needed to meet these investment needs. Chronic failure to have a positive margin leads to the deterioration of facilities and equipment, eventual bankruptcy, and closure."

Brill, in an interview with FierceHealthFinance, disputed one of the assertions made by the AHA regarding the average operating margin for hospitals nationwide as 5.5 percent, significantly less than many of the hospitals he profiled in the article. Brill said the AHA arrived at that figure by not including asset depreciation in its calculations, which he did for the article and stated in a footnote near the beginning.

"I defined operating profit to add back in depreciation, and they conveniently took that out," he said.

Brill agreed to publish a correction after pressure from the AHA regarding the article's assertion that all charity care is based on chargemaster prices rather than cost--but he said that conflicting information makes the AHA's assertion unclear.

To learn more:
- read the AHA letter (.pdf)
- read the AHA News Now article
- read the Time article