Direct Marketing and Deep Discounts Come to Health Care

How free screening tests are helping hospital bottom lines

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Last week, Kaiser Health News broke a story about hospitals marketing directly to former patients they’d identified as smokers by offering them discounted CT scans for lung cancer. “A 10-second scan could be life saving,” said the headline on a flyer put out by St. Luke’s Hospital in Bethlehem, Penn. University Hospitals in Cleveland promoted its $99 scan with a video on its website, while at least one hospital mailed postcards directly to patients, telling them that current or former smokers over 55 should come in for a lung scan.

Handing out discounted or even free cancer screening tests is not a new practice for hospitals. Every October, during prostate cancer awareness month, hospitals advertise free prostate specific antigen or PSA tests. Throughout the year, hospitals set up booths in malls and vans in parking lots where they provide tests for everything from high blood pressure to heart disease to ovarian cancer.

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At first glance, free screenings might seem like a generous public service, a way for the hospital to help people who might not otherwise get the medical care they need. In some cases that’s undoubtedly true. Catching high blood pressure and treating it, for example, reduces the chance of stroke or heart attack. But cancer screening is more problematic (see my column on PSA testing, for example,) especially the CT scan for lung cancer. Many experts worry that the biopsies and treatments that follow widespread CT screening will harm more patients than they help.

But offering free screening tests does lead to more (paying) patients for the hospital. In other words, it’s clever marketing. In the business world, offering something for free or at a deep discount is known as a “loss leader.” Hewlett Packard and other manufacturers sell computer printers at rock bottom prices. Once you run out of ink, you find out the cartridge costs almost as much as the printer did. The biggest product launch of last Christmas — Amazon’s Kindle Fire tablet — sold for less than the price of its components, even without accounting for Amazon’s advertising costs. Amazon makes it up on the e-books, TV shows, and Amazon Prime subscriptions purchased by Fire users.

Hospitals more than make up for the cost of free tests on all the treatments patients wind up getting. A hospital marketing director once told me that giving out $200 PSA tests was a big moneymaker. If 100 men have the test and four of them go on to surgery at $15,000 to $20,000 a pop — well, you do the math. What’s more, the men think the hospital saved their lives and both they and their wives become loyal customers.

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Hospitals aren’t just another business. They enjoy a privileged spot in our national consciousness — and special tax treatment. About three-quarters of privately owned hospitals are nonprofit organizations, allowing them to avoid about $50 billion in federal and state taxes. They can use unpaid (volunteer) labor, accept tax-free donations, and obtain access to special kinds of financing in the bond market.

In order to maintain their nonprofit status, the Internal Revenue Service requires hospitals to provide a “community benefit,” services that improve the health of their communities. Guess what many hospitals list as one of their community benefits? Free or discounted screening tests.

Some states are now investigating the activities local hospitals list as their community benefit. I hope those states and the IRS take a long hard look at screening tests. How about a few more primary care clinics in poor neighborhoods instead? Or making sure homeless children get their vaccinations? Nonprofit hospitals should be searching for more effective ways to improve the health of their communities, not just the health of their bottom lines.

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