Thanks for a very informative post. Daily Dish is posting interesting testimonials from patients and healthcare workers last couple of days describing this bizarre system.

You are correct about how providers do the math to get the charges. Trying to figure out, and forecasting, payer mix is a big part of any cost analysis for a new, or modified, protocol or service. And an unexpected change in payer mix due to corporate shuffling of provider contracts and restructuring can cause a major disruption in the list charges and revenues. I managed to stay as far as away from that mind numblingly boring and exasperating process as possible, after learning how to do it.

An interesting thing about the testimonials at Daily Dish, and one that they point out explicitly, is that this confusing system makes consumer comparison shopping impossible, and a ridiculous method of cost control, even in situatons where there is time to do comparison shopping. Add to that hospital and clinic bills that itemize dozens (or a long admission perhaps hundreds) of goods and services separately, and payers may have a different payment policy on each item. It is simply impossible for any mortal, at least one who cannot afford a legion of lawyers and accountants, to understand how much things will cost until long after the service is delivered (almost always most of it delivered on their terms, not yours).

There are several concepts behind ‘consumer driven’ health care, so I don’t want to damn all of them -when you see the term, you need to read the details to see exactly what it is.

But the ‘consumer driven’ health care talked about by the insurance industry’s wardheelers on TV as a way of saving costs, is just a system designed to extract the maximum reimbursement possible from patient. Because if the provider decides it is worth it to go after you for this fictitious cost called the ‘charge’ you are the one with the least bargaining power and least legal protection.

Thought I would add a commment in favor of some of the ‘bad guys’:
Why worry about
“a major disruption in the list charges and revenues” as mentioed above?

Because believe it or not, not all services in most clinics and hospitals can pay for themselves through reimbursements. Some are cash cows, and they share their surpluses with the starvling services that run on a shoe string. Typically these are areas where reimbursement is stingy, must deal with lots of uninsured patients, or are squeezed between monopoly pricing for supplies and competition for services. Pediatrics, some types of infectious disease, and the institution’s pharmacy are examples in some regions. So a mistake in estimating payer mix may mean your service is broke and has to go begging in the middle of the fiscal year. Or a cash cow cannot shell out its designated payments to the poorer services (in which case you have to go explain your service’s greedy incompetent fat-ass self to the administrator, and everyone else thinks you are a big A-hole)

It is a true mess from every angle.

thanks for the confirmation. I hadn’t thought about how this makes comparison shopping impossible, but of course, that’s perfectly logical.

And I also appreciate the second comment about the complexity between different services, some of which may be provided at a loss. Sort of explains why some reformists believe moving away from the whole fee-for-service concept is a necessary, but not sufficient step. It’s not just trying to get the incentive better; it’s basically saying, “we don’t know how to make the fee for each service pricing model rational and predictable — hence it creates huge risks for providers, not just patients.

Thanks Scarecrow and thank you wesgpc. Great post and comments.

The high fixed costs and pervasive joint production in high tech medical care make the econ 101 marginal cost model of supply and demand meaningless between services in a hospital or between a hospital and, say, an inpatient rehabilitation center that receives a discharged patient. The apportionment of many costs is essentially arbitrary, and subject to constant financial battles to the death within and between institutions. If you look at studies that try to estimate the marginal and fixed costs of services, the estimates are all over the map. Totally useless for actually doing anything in the real world.

One problem I have with the catch phrase ‘Medicare for all’ is that skips over the problems of Medicare reimbursement policies, which often reflect arbitrary historical average costs, despite heroic attempts to remedy that problem. I have heard some Congresscritters express extreme fear at having Medicare rates being applied to all care provided their service region, and while I cannot judge whether these people are real reformers or legisliative concern trolls, I can understand their fear.

The nontrasnparency of of the pricing is a big problem that needs to be solved, but is difficult. That is one area where I hope some one is looking at the experience of other countries, since the problem is similar across many different health care systems.

Great two reads SC, and thanks Wes for adding to it.

I agree that the Medicare for all mantra doesn’t get at the problem of what something costs and how to price it. It solves one set of problems associated with the multiplicity of payors and payment systems, but it doesn’t tell us what the system should pay or how to figure that out.

When I see this through the lens of my regulatory experience, this looks like a very complicated cost-of-service regulatory system that hasn’t figured out how to determine cost of service.

I was hospitalized for three days several years ago because of a possible cardiac problem. After several tests (I’m sure extremely costly, and some of which have since been done again) I finally saw a cardiologist who declared I could go home, that my heart was basically in pretty good shape as though he was wondering why I had been hospitalized and tested so aggressively. I knew intuitively it was because I was on Medicare and they could make some money. When I got the bill I questioned some of the items with a billing clerk and after checking into them, she reduced the bill by several thousand dollars. I was totally naive to think that an itemized would have some reality based integrity. I am no longer so naive, but only recently begun to understand some of the insanities. I intuitively know that insurance covered costs aren’t just inflated to cover uncovered costs, but I had no real sense of what that means. These posts and comments have been very helpful in understanding more.

Blessings,

PS Yea for your sis, no only for her perspective, but also for her integrity for walking away.

Blessings to you both

I asked Sis what she’d recommend to fix this mess; where would she start? “Blow it up,” she said. “Blow it all up and start over.”

But wait. I thought that was what the teabaggers want. ;-)

But blowing up would be “disruptive.”

This doesn’t get at what is deemed elective. A whole other kettle of fish, I’ll be bound.

The idea that it’s the evil hospitals doing this to us is nonsensical, because there has been a lot of vertical integration over the last 20 years. Health insurers have been buying up providers: hospitals and group practices.

I know two examples from here in my backyard: Cigna Insurance bought out Lovelace. Lovelace is the clinic that screened the Mercury and Gemini program astronauts. The other example is Health Care South (yeah, those bandits) which owns hospitals and provides insurance.

So, if the reimbursement models are crap (and I agree that they are — I saw a bunch of weirdness when I was working with the Medicaid people here, all covered by NDAs) it’s at least in part because the insurers want it or allow it to be a cluster fox.

I asked Sis what she’d recommend to fix this mess; where would she start? “Blow it up,” she said. “Blow it all up and start over.”

When I came back from my sabbatical I had to submit a report of my year in Wonderland. I asked the Dean if he wanted the short version or the long version. He said, “Give me the short version, write up and submit the long one.”

“No matter how f***** up you think our health care finance system is, it’s worse than that. If someone wanted to fix it, the best thing to do would be to trash it and start from scratch.”

“Blow it up and start over” would mean the following:

1. Patients would be responsible for their provider fees totally
2. Providers would have to accept cash or in-kind payments (car repair, discounts, etc.) from patients as payment for services
3. The informational economies of scale of large institutions would disappear and providers would be individual practices once again
4. County governments and charities would run the hospitals at a loss
5. Insurance would disappear until a few folks would get together to create a mutual risk pool
6. Government would have no role in healthcare
7. Families would provide assisted care and home healthcare

Hospitals bill for things they can get paid for to cover the cost of things they have to do but don’t get paid for. Thus, we get that outrageous charge for a Tylenol. Even removing the profit motive, they do this because of a crazy reimbursement system.

That is another interesting issue: the amount of churning in ownership and concentration, reshuffling contracts and reorganizatons that are driven more by corporate shell games and financial market issues than health care. I have been away from the financing part of health care for a few years, so I do not know what has happened since 2000. But previous to that, for example, the perceived cost of capital caused many integrated providers to avoid ownership of hospitals and skilled nursing facilities. Rent it, don’t own it, was the motto. I think this led to problems with quality control, maintenance, and medical error control programs in hospitals. For awhile they were scrambling to pay their bills. Integrated managed care organizatios such as Kaiser and Group Health were seen as dopey slow dinosuars headed for extinction because they could not control the cost of their capital. They were not cut out for the buzz words of the day “nible” “quick” weird out of context slogans about “just in time” access to capital services that no one wanted to pay for.

Group Health is still here of course. Kaiser has sometimes been a leader, and sometimes has has big problems, depending on region. So, their old fashioned notion that it might be a good idea to own their own capital stock did not kill them off. Group Health in particular used that to good advantage because they could integrate inpatient and outpatient care, eliminate wasteful lack of coordination, and actually do the research that these people say they are doing (but actually very rarely do at all).

It is all very dramatic and interesting to financial people and economists. But, I am kind of old fashioned in some ways, and have to ask what that all has to do with maintaining population health and giving people safe effective and considerate care on an individual basis.

Seems to me that future population health, and an individuals’ health should not be implicitly discounted at high rates due to financial market fluctuations. It the population’s health is not risky capital in my view, but the costs of risky capital certainly did enter into big decisions about the organization of care.

If the whole system was heading towards some stable equilibrium that made some kind of sense, and people could more or less figure out and plan from, that might be one thing. Adjustment costs might be worth it.

But, as people like Akerlof, Rothschild and Stiglitz have shown, whenever there is an insurance market involved, and different levels of risk in the population that are difficult for the insurers to see, there is good reason to believe that there is no equilibrium. Things will just churn around forver, heading towards nothing in particular.

I read the NYT article referred to in the article
Very enlightening

maybe your on to something

Need a chuckle.
check out Jon Stewart on the “mobs”
Jon Stewart on the Crazed Town Hall protesters

http://crooksandliars.com/john…..protesters

One think Stewart failed to point out is that the anti invasion/war protesters were acting out on the streets not during meetings or hearings. And when they do act out during meetings and hearings their asses are hauled out of the meeting and if they resist leaving they are arrested.

Blow it up! Then Medicare for all, but re-jigger the payments. Surely many specialists are overpaid and should get lesser pay, but those family practice grunts on the line deserve far more than they get currently. This is why we practically forbade our younger son from going into pre-med 15 years ago, enlisting the aid of our physician friends. He is now happily unemployed with a doctorate in African art history looking for a museum job. He is damn good at it and did real honest-to-God fieldwork, BTW.

Oh, that is truly, truly, bullshytte of the worst sort.

It’s entirely possible to say, “This chaos is not a system and we need to start over,” and design a transition to a rational system. Some things have to be accepted when the decision is made to do that. Things like:

(1) Some oxen are going to be gored;
(2) There will be pain in the transition;
(3) There will be unforeseen side effects.

1. Patients would be responsible for their provider fees totally

And they aren’t now? I guess you haven’t gotten into a reimbursement squabble with an insurance company.

2. Providers would have to accept cash or in-kind payments (car repair, discounts, etc.) from patients as payment for services

Funny, my PCP is set up to handle cash and credit cards. She doesn’t seem to have a problem with it.

3. The informational economies of scale of large institutions would disappear and providers would be individual practices once again

Information doesn’t just disappear, no one is saying that group practices would have to disperse. Even if the information disappeared, it’s not at all clear that the pricing data is worth the electrons needed to store it.

4. County governments and charities would run the hospitals at a loss

Do you have some evidence to back this up? In some areas, not for profit hospitals did just fine until investor owned hospitals came into their market and skimmed off the paying customers.

5. Insurance would disappear until a few folks would get together to create a mutual risk pool

Gee, you think Kaiser and Group Health are going to disappear from the face of the earth? I don’t. Aetna and Cigna’s healthcare subsidiaries might, and I’d say good riddance to bad rubbish.

Now you’re just making stuff up.

7. Families would provide assisted care and home healthcare

They don’t now?

Basically, you are saying because it’s too hard to the right thing, we shouldn’t do anything at all.

Very interesting. I have in front of me my husband’s most recent bill from the hospital where he had a kidney procedure last month. He went in to pre-op @ 10:45 and was home by 3:00. This is just the hospital’s bill, not the surgeon’s. The total is $10,871. The “itemized” charges include 15 listed for “Facility Services” and 2 for “Surgery.” The insurance company pays 50.3% of the charges. The “Amount You Do Not Owe” is 49.7%. (We are within a few dollars of paying his max for this insurance year.) Every few years there’s a huge public brouhaha between the hospital and the ins company, with the ins company threatening to take away the hospital’s “in-network” status. Each time it seems they’ll never reach agreement, but somehow they do. After reading this post, I presume the arguments are over what miniscule percentage the ins company will pay above and beyond the 50% mark.

Meanwhile, the ins company’s CEO’s BONUS for 2008 was more than $3 million.

Just throwing it out there.

How insurance companies “save” money: I was overnight in hospital in May of this year. I’ve been calling for weeks now to find out why my bill has not been paid (I’m “lucky” enough to have insurance.) Today the goon on the phone at the insurance company says that my bill is “in inventory” and can stay there for a month or two before being assigned for review. The reviewer has 30 to 45 days to slice&dice and decide which parts of bill will or will not be paid. Meanwhile, the hospital goes without pay and I go without security that I won’t receive a huge hospital bill if my insurance coverage is mysteriously denied. The insurance company keeps its money. Yeah, Medicare-for-All…..one or two years at a time downward if necessary …. with Medicaid available while everyone adjusts.

Also, my sister just got a bill for service provided over a year ago and eventually denied by the insurance company despite the bone density test having been prescribed by her PCP. She will fight it as long as she can — probably until someone places a lien on her home.

Look at the goodie I found over at Andrew Sullivan’s place. A price comparison/esitmation site with tips for negotiating with your doctor.

http://healthcarebluebook.com/

Boy I really don’t understand why President Obama did not force Congress to pass this bill before the recess. I think he may have underestimated the “here we go again” factor of the average person. Most people want health care reform but have been jerked off on it for so many years they are resigned to the status quo, and when they see what’s going on they figure it’s going to happen agian. The anti-health-reform pros are fully aware of that phenomenon and have mobilized to take advantage of it. The Democratic leadership should have seen this coming, but once again they get punked because they are too naive about the motivation of lunatics.

OT: On the authority of Scripture, S. Hannity is doing a diatribe in which he lies and distorts the end of life planning that may be a part of health care. Anyone familiar with the issues knows that end of life documents are invaluable, and when done, are the papers for carrying out the wishes of the patient who may not be able to speak for oneself when the question is ripe or critical. His assertions and information are factually wrong and patently absurd.

I know this topic is not the crux of health care reform. But can we powerfully refute and expose the lies and the liars who are bringing their insane hysteria to the debate? A full page ad? Bill Clinton? Doctors? Flood the news to expose how damaging these claims are in their malevolent wrongness.

Atul Gewande had a New Yorker piece last year, I think, where he points out that every single procedures, even the tiniest, is supposed to be charged according to an industry-wide standard — yes, there is a list. Next time you have a test, look for the number (e..g, 231.2 [made up] where it says ‘diagnosis’] Tests cannot be run without this number, which is, as I understand it, linked to the lists the New Yorker article mentioned.

I don’t understand anything about how it works; my husband had an operation and the hospital said it cost $40,000; the insurance paid them $4,000, and the hospital then, billed us — as expected — for about $6-700.00. The disparities are amazing. And I still don’t understand how they calculate, even after this and the NYT article.

I asked Sis what she’d recommend to fix this mess; where would she start? “Blow it up,” she said. “Blow it all up and start over.”

no no no, how about making it mandatory to tithe premiums to the insurance cartel, on penalty of fines?

Obama has made peace with the individual mandate, which is included in the bills that cleared three House committees and one Senate committee. The House bill imposes on anyone who neglects to purchase health insurance for himself or his family a 2.5 percent tax on modified adjusted gross income. The Senate health committee bill imposes a minimum penalty of $750.

Obama Open to a Mandate on Health Insurance
By ROBERT PEAR
Published: June 4, 2009
President Obama said he was receptive to proposals to require every American to have health insurance and make employers offer it, but he also said there should be exemptions.

http://www.slate.com/id/2224258/

thats what FDL and other ‘progressives’ have been whipping for – an unfunded mandate to compel participation in the rigged ‘marketplace’, which is why the insurance industry was salivating over the passage of Obamacare, as noted in the recent Businessweek article:

The industry has already accomplished its main goal of at least curbing, and maybe blocking altogether, any new publicly administered insurance program that could grab market share from the corporations that dominate the business.

http://www.businessweek.com/ma…..op+stories

haven’t read comments yet, but thanks, Scarecrow.

Maybe some or even all of us here pretty much knew that this was going on, but the confirmation is both crucial and timely.

This post needs to go large.

When my son was advised to have surgery by a specialist, we could not get anyone to tell us what it would cost, not even a range of “from this at the minimum to this at a maximum.” With the insurance company denying the medical necessity of it (which after three months of appeal, we finally got overturned), we needed to know what it might cost before committing to do it here. We were looking into taking him to Thailand or Indonesia for the surgery, but had no way of comparing any costs.

I had to promise to cover a totally unknown cost. They owed me no explanation. I found it bizarre. The insurance company finally covered parts of it, but I could make no sense of bills. Meanwhile, I was getting threatened with collection agencies for not paying bills within 20 days of the printing of the bill, yet the amount was still in reconciliation between insurance and support services (like the lab).

I’m sort of happy to be back overseas just to have the kafkaesque system out of my life.

Insurance and health-care conglomerates are the new rail barons and monopoly criminals for the late 20th and beginning of 21st century…they should be disbanded and owners sent to prison for life, no exceptions.

Excellent summary of a bizarre example of why there is no way a “market economy” can be imposed on health care. Republicans are just crazy to think it can be. Then there’s the problem of the impossibility of being a knowledgeable consumer. Do you know whether that test is really necessary, or is the most cost effective option? Neither does anybody else. Hence the evil of “efficacy research”. Then you ask “How much will this cost me? The last time I asked that question, I found myself talking to a billing clerk in the corner of the clinic basement who walked through the baroque logic described in this piece to arrive at an estimate.

Oh wait. I almost forgot. This web of bizarre pricing decisions is the “value” health insurance companies are selling. That and denial of care and blizzards of paper claims. And their price for this service? Probably on the order of 25% – 35% of all health care spending.

For more about this system in action, I needed blood work done for an annual employment related physical exam. One year I got it at a hospital in PA. They charged me $283 for two blood samples and a routine urinalysis about six years ago. I recently got the same blood work done with a urinalysis for less than $80 at a Mexican clinic that is using the exact same technology to do the work that the US hospital was. I know that I was getting screwed over by the hospital in PA just because I didn’t have insurance. Blowing the system up is ok, [edited by mod].

[mod note: no violence, please.]

Scarecrow, I do this for a living. Let me explain, you need to bill the $400 even though you know $180 is the Medicare allowable. If you billed Medicare just the $180 allowable – it becomes the “prevailing fee” when the stats are compiled for your geographic area. You need to bill more than allowed always, or you lock yourself in a box.

That premise goes for all insurance, though the contracts may pay a lesser allowable, you always bill more than the allowable.

All our docs give a 30% discount for the uninsured.

By the way, insurance companies base their contracted allowable fees on Medicare, usually offering to pay 120% of Medicare. Not much negotiating with them, take it or leave it. Unfortunately, not many docs can afford to leave a network such as BC/BS – they have a huge market monopoly in NC and I’m sure all over the country.

Scarecrow, thanks for the commentary. Doesn’t this all summarize, though, as today it’s the uninsured & the out-of-area folks that are subsidizing the billion-dollar insurers & the government programs? W/o an insurance card my bill for simply room & board at a local ‘non-profit’ hospital’ was almost $6500/day. But w/that little card my room dropped to

In other words, the real price for a $400 pocket frammistanectomy is $280? This system is insane.

Not really, darms. An awful lot of that ends up being written off as bad debt or sold to collection agencies for nickels on the dollar. It does come back and get wrapped into Medicaid and Medicare reimbursements via a mechanism that I don’t understand.

What it really boils down to is that no one knows how much anything really costs in the world of health care. Except for the VA, and group plans like Kaiser and Group Health.

You betcha!

Diane, thanks for the insight. Do you know if there are publicly available materials available on this point?

Scarecrow and wesgpc, this is very interesting. I note that this pricing system, weird as it looks, is a very rational response to the current system.

My child was injured in a motorcycle accident. i reached the hospital about 8 hours after he had been admitted. Before I could see him, I had to make financial arrangements with the office. The bill had already reached ~22,000 even though he was already out of the ICU. The printout of the charges was over 4 pages long.

When I showed that I was insured but paying direct to be reimbursed by my insurer, the hospital offered to raise the bill by 25% so that I could recover my deductible.

Not speaking as authority, speaking as someone who #1 – flat does not know & as 2 – someone who has always paid his bills. I’ve got the docs from Seton ‘daughters of charity’ here in Austin, TX, & the numbers are uglier than shit w/corn. Not only did the bastards require a $3000 co-pay immediately before I underwent the knife (in case I died), the bastards refunded $600 three months later although they would not say why. Non-profit? Har-de-har-de-har-har-har…