Health Insurers, Hospitals Cannot Figure Out How To Pay For Catastrophic Care
An advocate of consumer-driven health care, who makes the case that individuals should control most of our health spending directly, will not get very far before hearing the rebuttal: “When you have a heart attack or get hit by a bus, you won’t be in any condition to negotiate which hospital you go to.”
Fair enough, which is why we advocate insurance for catastrophic events, just like for houses or automobiles. However, in the current system, insurers and hospitals are dropping the ball on even that:
Blue Cross and Blue Shield of Georgia faces separate lawsuits accusing it of sending reimbursement money for emergency room care directly to patients — and not to the hospital because it isn’t part of the insurer’s network.
That’s costing the hospitals money since patients don’t always turn over the funds, according to the lawsuits.
By sending money directly to patients, Polk Medical Center says the insurer forces the hospital to find ways to collect it. Even though patients are obligated to pay the facility the amount sent to them by Blue Cross, in some cases they have spent the money, according to the lawsuit.
The Polk lawsuit said that Blue Cross, in its new payment process, was pursuing “retaliation’’ for the Cedartown, Ga., hospital’s not agreeing to “unreasonable and unfair” terms in order to be part of the insurer’s network. Hospital officials said the payment shift has hurt the hospital financially.
(Andy Miller, “Ga., Calif. Hospitals Sue Blue Cross Plan for Sending Reimbursements to Patients,” Georgia Health News, June 30, 2016.)
Emergency departments patch people up first and ask for payment later. Nevertheless, Obamacare drove more patients into emergency departments, and hospitals are profiting from the shift.
Further, hospitals and emergency-department doctors have lobbied states to make insurers pay them whatever they charge, without negotiations. It is understandable that insurers are using this tactic to bring hospitals back to the negotiating tabl
Health insurers and providers cannot even agree on prices for catastrophically expensive care. Yet we allow them to fix prices for every good and service in our health system. Why?
Form a high risk pool in which claims start at $25,000
This cuts the premium 55 percent
Everyone in each state is a member for high risk is not defined by current health but by anyone who now or in the future has medical bills exceeding $25,000 in a year
Premiums are fully community rated for at that level age is not a significant factor as well as health since the pool is relatively clean
From the perspective of a patient caught in the middle for payment of unreasonably high chargemaster rates for care that had to be delivered under emergency conditions, the cost of providing the care has a lot of relevance in my opinion. Of course, defining costs isn’t so easy when it includes the need to allocate the indirect cost of hospital wide overhead from the executive suite to the IT and human resources departments to community service initiatives to each department that actually provides care. I’m reminded of the notorious chicanery that may still be going on in movie studio accounting where the studios made it look like every movie, no matter how successful, always lost money even though movies actually made money about 75% of the time. They would charge the movie 35% of revenue for distribution costs along with interest on overhead and overhead on interest. Crazy!
Now that we have more stand-alone emergency rooms that may include a handful of beds for observation stays and a surgical suite, we should be able to get more insight into what it actually costs to operate an emergency department around the clock seven days a week. Once we have a good sense for the cost, a profit margin can be tacked on to produce what public utility commissions call a return on investment within a zone of reasonableness. The regulated utility model strikes me as the most appropriate approach to pricing care that must be delivered under emergency conditions in the absence of an agreed upon contract reimbursement rate making the hospital part of the insurer’s network.
For care that can be scheduled in advance, the willing buyer / willing seller model is fine in theory as long as there is clear and easy to ascertain price transparency or, at a minimum, a binding estimate of out of pocket costs for those with insurance.
Separately, catastrophic costs are not so easy to define either. How do you address the need for ongoing cancer treatment, management of congestive heart failure, diabetes after significant complications have set in, MS, RA and a host of other very expensive to treat diseases and conditions?
I think you have gotten right to it. How to allocate high fixed costs? Currently, this is very politicized.
If the marketplace was free wouldn’t all centers be fighting to lower fixed costs and wouldn’t those centers that did so be most able to provide the service?
Costs could also be cut by skimping on staff and supplies, using more junior staff than competitors, etc. Quality of care is an important issue too but we’ve seen that it’s not so easy to measure or even define.
The question is who can provide the best quality per dollar spent? Your bean counters can’t measure that. All they can do is punish the general physician population because costs are higher than they would like and that punishment does no good except to lead to higher costs. The bad apples are invisible to government.
That means the only one that can evaluate the care given is the patient who though not the best in any one encounter is the best in general whether by leading or creating sources of information such as Consumer Reports.
Please see George Akerlof, “The Market For Lemons: Quality Uncertainty and the Market Mechanism” (1970); and critics of his paper.
John, Akerloff was discussing information asymmetry in the 1970’s using the used car market (The Market For Lemons).
Today in the 2,000’s we have lemon laws and Consumer Reports. I wasn’t sure specifically why you brought up Akerlof in the context of my response except perhaps that you agree that his theory doesn’t resonate today as it might have in the 1970’s.
I should have also added that today the marketplace has a solution, the warranty.
Aside from Geisinger’s limited warranty for heart bypass surgery, I don’t see any hospitals or doctors offering warranties for their work, presumably because they are not prepared to assume the financial risk related to potential surgery related complications.
Separately, until the late 1950’s, there was no such thing as a MSRP sticker on new cars until Congress passed legislation requiring it. Information asymmetry was huge in the new car market before that. The market can’t always be relied upon to fix such problems on its own.
Eh? That is a completely different understanding of MSRP than I learned in antitrust economics. To which law are you referring?
I was taught MSRP is anti-competitive because it limits dealers from cutting prices. MSRP is weaker than Retail Price Maintenance, so perhaps you are referring to a law that reduced car-makers’ powers to impose retail prices on dealers.
Vertical restraints imposed by manufacturers on distributors are a well studied issue in antitrust economics. See the FTC’s section on manufacturer-imposed requirements.
Only because that article opened a whole line of economic inquiry that addresses the questions of asymmetric information posed in this thread.
I totally agree with the regulated utility model. However it might take a number of years to develop this and install it nationwide, while these payment crises are taking place every day.
A stopgap solution would be to declare that in the absence of network pricing, a hospital can charge 125% of the applicable Medicare rate.
(most observers agree that Medicare pays about 80% of an average hospital’s true costs.)
The 125% rule would apply to the uninsured, the partially insured, out of network patients, et al.
I have to think that many hospitals would privately be OK with this. They will get paid more in actuality than they do with chargemaster rates.
My next question is, who can impose a rule like this?
American law is a thicket of restrictions against this kind of industry-wide rule-setting.
Comments welcome!
Bob – As I think I noted before, here in NJ, hospitals can’t charge the uninsured more than 115% of Medicare if the uninsured person has an income of 500% of the FPL or less. Personally, I think the income cap should be eliminated. For the country overall, I agree that 125% of Medicare is a reasonable limit on what can be charged for hospital based care that must be delivered under emergency conditions.
The original NJ proposal called for limiting charges to 100% of Medicare but the hospitals convinced legislators that Medicare only paid them 91% of their costs on average. So, the limit was raised to 115% which, based on the 91% of cost figure from Medicare rates, would be sufficient to produce a 4.65% operating margin (0.91 x 1.15 = 1.0465). A payment rate of 125% of Medicare would produce an operating margin of 13.75%. I think that’s adequate and then some.
My understanding is that each individual state can legislatively determine its own rules for setting limits on how much hospitals can charge the uninsured. They can also set limits on what can be charged for out-of-network care as well. I don’t think either issue needs to be addressed at the federal level.
Good job John for Stinging the BLUES! The 36 Blue Cross plans are evil. Blue Cross used dangerous employer-based health insurance as a tool to become a giant monopoly. Blue Cross is an invasive, uncontrollable, dangerous, deadly, fatal, incurable, malignant cancer that is killing it’s host, the United States of America.
I enrolled a 22-year-old mother with a 4-day-old son yesterday for just $131 a month on Short Term Medical (STM) from America’s largest insurance company, other than Blue Cross. She has a little deductible on a PPO and can use any doctor in America should they become sick or hurt.
Of course this option for young American families will soon be gone thanks to Obama’s Democratic White House and HHS. We are still in the 60 day comment period and I have not seen one news article in America saying that the FREEDOM to purchase STM should not be eliminated.
John, you should be the one lone voice in the woods that stands up and supports the FREEDOM of Americans to purchase low-cost STM so their families will be safe. John you have to hurry and write about this in the 60 day comment period.
Hillary is here in Florida today. Florida Blue Cross gives more to politicians than any other entity in the state. That’s why they have all of the government contracts and are screaming for $41 Billion dollars of Medicaid expansion. Trump is right that the system is RIGGED.
John write about STM and save our FREEDOM so in the future the former U.S. Secretary of State John Kerry will say, “Dr. John Graham and President Donald J. Trump ravaged Blue Cross and Blue Shield in a fashion reminiscent of Genghis Khan.”
Barry, there are some states which not likely to ever regulate hospital charges. In area after area of health care, certain states protect patients over and over, and other states (at least 20) do nothing for patients unless prodded by the federal government ( and not always then, either.)
I suppose this is a larger debate about federalism, but when it comes to consumer protection I am right in there with Ralph Nader. I do NOT respect the supposed wisdom of the mostly-red states have a very long tradition of siding with big donors.
Quick note to Ron:
If your 22 year old client gets pregnant in the next few months with another child, she will not be able to purchase another STM policy then even under current law. These plans are cheap for a reason. I like them in the right circumstances though.
Bob — I think the feds could prod the states to pass the appropriate legislation by providing an incentive like picking up an extra few percentage points of the each state’s share of Medicaid costs.
I personally wouldn’t have a problem with the feds taking action on the issue directly but since this is a blog run by conservative free market types, I’m trying to be open to a state by state solution. Unlike the ACA Medicaid expansion, however, protecting patients from unreasonable bills won’t cost the states any tax dollars now or in the future. That’s an important consideration.
Bob, the mother’s STM goes until January 2017 and if she has to go to the ACA then, because she is pregnant, well that’s the law.
Many of the poor on Medicaid will use the age-based tax credits when Obamacare is replaced. That will be much cheaper for the tax payer and better for the consumer and medical providers.
A problem that is typical with radiologists, anesthesiologists, pathologists and emergency medicine doctors is that patients generally have no role in choosing them. By definition, then, there can be no meeting of the minds on price, especially for care that must be delivered under emergency conditions, and, most of the time, even for care that can be scheduled in advance. To deliberately refuse to join any insurance networks including those that the hospital(s) where they practice are part of is tantamount to dealing in bad faith, in my opinion. For an anesthesiologist to bill and expect to be paid significantly more than the surgeon was paid is just plain wrong, I think. There is a reason that these four specialties are sometimes collectively referred to as the RAPE doctors.
When a Canadian comes to the US for a procedure at one of our hospitals all of this is generally managed before he crosses the border. Is our government acting as an intermediary in this transaction? No, but the Canadian knows exactly what he will be paying and agrees to the fee.
You advocate for more government involvement, but the Canadian doesn’t have that type of involvement and has to work with a free market system.
What does that tell you?
Alan raises a good question. Maybe the Canadian gov’t has agreed to a fee schedule for medical tourists? I do not know.
Barry’s comment about unconscionable charges by some emergency docs and anestheseologists raises a good point. In many other countries the doctors regulate
one another one fees and on malpractice, for that matter.
\Apprarently that practice is long gone for America, and we have lone wolves charging what the
“market” of helpless desperate patients will bear. Shame on the medical profession for its greed, if I am right.
I would love to see the greediest doctors hit with lawsuits or even jail time. It happened in California a couple of years ago, and I think it was actually a therapist. I will try and find the citation.
Bob, I don’t believe the Canadian government is involved at all. This is simply a free buyer and a free seller deal.
If there was no deal about fees then the fee is in dispute and adjudicated by the courts. What is needed is common sense judges.
You want to jail someone for greed, something difficult to define, even if it isn’t illegal. Sounds like you are looking for street justice rather than civil justice in a civil nation.
What Allan is describing is a free-market transaction by Canadians who do not want to wait for treatment at home. There are brokers who facilitate this.
BTW, the Canadian government does not have any fee schedule at home either. Provincial governments run the health system and they will periodically pay for out-of-country treatment (cancer, bariatric surgery) but it needs prior approval. (See for example http://www.health.gov.on.ca/en/public/programs/ohip/ooc_faq.aspx.)
There are some examples of Canadians who pay directly for out of pocket treatment and then (after the fact) assert the treatment was medically necessary and try to get the provincial health plan to reimburse. Litigation has been tried in provincial court but I do not know of any case in which the patient has succeeded.
The patient did succeed in Chaoulli v Quebec, but that was for payment to a private organization in Quebec.
The court found that the government’s care violated the human rights of the individual that are guaranteed by the Quebec constitution. There were some interesting comments made by the individual judges.
The Cleveland Clinic struck deals with several large employers including Boeing, Lowe’s, and Wal-Mart to provide heart surgery for those companies’ employees for a very competitive bundled price though the price has never been disclosed as far as I know.
There are several reasons why the Cleveland Clinic would be willing to do this. First, its home market of metropolitan Cleveland, Ohio is a slow growth region. Second, it probably has excess capacity that it would like to fill. Third, by quoting a competitive price, it has a chance to fill some of that capacity that would otherwise lie idle and contribute to its bottom line in the process.
It’s important to note that all hospitals have very high fixed costs and comparatively low marginal costs. They might be willing to price some of their excess capacity below their average fully allocated cost that they report to Medicare but they could not survive if they priced all of their capacity that way.
Outfits like Medibid sound like consolidators which help hospitals fill some of their extra capacity at prices that can vary from month to month or even day to day depending on the season. There are companies that perform the same function for airlines, hotels and cruise ship operators.
As for the willingness to travel, Canadians and U.S. residents alike need to factor in the cost of travel and lodging if they want a spouse, other relative or friend to accompany them and help to deal with complications should they arise or just to provide moral support. Also, most people would prefer to have a surgical procedure done close to home for both convenience and the psychological assurance that comes from being near home in familiar territory. If they’re paying out of pocket and are willing to travel, they may indeed be able to get a better price for a procedure that lends itself to bundled pricing which a lot of hospital based care doesn’t.
I think the concept’s applicability is much more limited than the author suggests though I do think reference pricing is an excellent idea, again for procedures that lend themselves to the concept and I wish it were more broadly used. In the meantime, hospitals’ average cost information as reported to Medicare could be of considerable value to both patients and referring doctors to help patients determine whether or not a quoted price for a given procedure is reasonable or not.
I think for a big ticket item like heart surgery, many people would be willing to travel, especially if the venue is high quality and there is a financial incentive, too.
There are a lot of reasons Cleveland Clinic can do this. A major reason is selection. Those too sick to fly don’t go to Cleveland, those in a lower socio economic group have more post op problems and they don’t go to Cleveland and once the patient returns home Cleveland no longer has to treat them unless they return to Cleveland.
I think if we researched it we would find otherwise. Especially with respect to post-op care co-ordination between Cleveland Clinic and local site. Take, for example Medstar Georgetown University Hospital’s Heart and Vascular Institute in DC. It is in an “alliance” with Cleveland Clinic and it would not surprise me to learn in some cases that means operation in Cleveland and well co-ordinated post-op at home.
That may be, but patients fly to Cleveland Clinic from all over the country so such alliances are too finite. On the other hand I have treated patients that flew to Cleveland Clinic and others to Sloan Kettering along with a host of other centers. Some of them had progression of their disease or complications and were treated locally so I am not sure what you expect the research to find.
Remember if the patient referred to Cleveland Clinic returned to its alliances and not the original treating physicians I would guess the original treating physicians would be reluctant to send people to those places in the future.
Thank you for your insight. Let me just ask that we do not demand the perfect solution when there is likely not one.
Ask away. There are no perfect solutions, but there are better and worse solutions.
I have written on the issue of transparency. It should be harder for providers to collect fees that were not disclosed and agreed on prior to service delivery. A doctor the patient has never met should not be able to say after the fact “Oh, I’m not in your network, I charge $500 for an evaluation” (when the going rate is $200) and expect the courts help them collect. If the patient and doctor have both agree that $500 is acceptable, then a signed agreement should be enforced.