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High on Healthcare: Profits Soar While Consumers Pay

Healthcare stock investors have experienced the intoxicating rush of avarice as their accounts have swelled in value over the last two decades. Many healthcare provider stocks have been firmly in the "good buy" category. By way of example look at UnitedHealth Group stock (symbol UNH).

Investor Bob purchases 100 shares of UNH on November 8, 1993 at the closing price of $73.73. For purposes of this example transaction charges will not be factored in, so the cost will be $7373.00. Investor Bob holds on to this stock until November 8, 2013, exactly 20 years after his initial purchase. If he redeems all his shares at the closing price of $70.50 he will receive approximately $56,400.00. How? Over the last 20 years this stock has had three 2 for 1 stock splits. So the first time it happened his 100 shares became 200 shares. The second time his shares doubled again to 400 shares and the third time he ended up with 800 shares. Selling 800 shares at $70.50 is $56,400.00 and increase on the initial investment of approximately 768%. It should be noted that during that same 20 year period UNH did not have the highest rate of return.

They make how much?

Investing in many healthcare stocks has been an intoxicating elixir of avarice enjoyed by investors and the CEOs of these companies. In a recent report by Equilar healthcare company CEOs averaged earnings of $11 million, more than CEOs in any other industry.

"Today the American people are questioning whether or not we receive fair value for the $2.6 trillion we, as a society, are expecting to spend this year on our healthcare system. The vast majority, including those of us at UnitedHealth Group, believe the answer is, 'No'".

— Stephen Hemsley, CEO, UnitedHealth Group

(In 2009 Mr. Hemsley took home approximately $109 million when you count salary, benefits and stock options)

The Kaiser Family Foundation released a study showing that the average annual premiums for 2013 are $5,884 for an individual and $16,351 for a family. Looking only at the salary of $11 million for a CEO in the health care field, this would be enough to pay the premiums for 1,869 individuals or 672 families. Looking at the full compensation including benefits and stock options, those numbers might easily be ten times those amounts.

Secret to their success

After suffering from a bad case of perpetrating fraud (see below) the Hospital Corporation of America (HCA) has staged an amazing comeback financially. In a NY Times article it points out that HCA has made more money due to more aggressive billing. They reduced emergency room expense by simply not treating patients with non-urgent conditions unless the patients paid in advance. They also billed Medicare and their patients much more aggressively by changing billing codes it assigned to sick or injured patients. This resulted in an increase in earnings in 2009 by almost $100 million in the first quarter alone.

It gets even better

In 2009 United Healthcare (a subsidiary of UnitedHealth Group) paid over $350 million to settle a class-action lawsuit brought against them for underpayment of claims. Apparently they were not making enough money so they began paying out less than they were supposed to on claims.

They are not alone, the Hospital Corporation of America (HCA) had to settle with the US Government for $1.7 billion in 2000 and 2003. The charges included fraudulent billing of Medicare and other programs and paying kickbacks to doctors, among other charges.

Speaking of fraud

Fraudulent Medicare claims cost taxpayers many billions of dollars every year. So much so that if the government could stop all of it, the recouped funds would be just about enough to pay for Obamacare. A study done in 2012 by a RAND Corporation analyst and former C.M.S. Administrator indicated that Medicare and Medicaid fraud and abuse cost approximately $98 billion in 2011.

Not only does it cost taxpayers money, it hurts people. In one case a doctor refused a woman because Medicare had flagged her for "overuse". It turns out she was a victim of identity theft and the thieves had used her number to bill her doctor's office for 40 visits in one day. Other cases including doctors billing Medicare for hospice for patients who were not terminally ill. Sometimes a doctor might order a number of tests that are unnecessary just to bill Medicare.

Medicare has set up a fraud prevention website to help Members report suspicious activity.

Medical bills and bankruptcy

In a study done by NerdWallet "1 in 5 American adults will struggle to pay medical bills this year." That equates to roughly 56 million people. In addition, 3 in 5 bankruptcies will be due primarily to medical bills. Due to these struggles many Americans are simply not picking up prescriptions or skipping doses to save money. This can lead to bigger health bills and both health and financial problems down the road.

Healthcare in America

Healthcare CEOs are extremely well compensated. Thanks to aggressive and sometimes creative billing healthcare providers are making more than ever and their stock prices are soaring. Fraud and abuse are ongoing problems costing taxpayers billions and are often perpetrated by our own medical professionals and healthcare workers. Insurance coverage provided by many employers has dwindled while expenses climb. Over 20% of adult Americans are struggling with medical bills and over half of all bankruptcies are due to medical bills. All things considered, some sound advice would seem to be "don't get sick."

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