Will You Ever Understand Your Medical Bill?

stress(A version of this Health Alert was published by Forbes.)

It is hard to exaggerate how painful the medical billing process is for patients. Steven Brill, an entrepreneurial lawyer turned journalist, became one of the most famous critics of American health care when Time magazine published a long article by him in 2013. It was a wide ranging criticism of pretty much everything in U.S. health care, which grabs and keeps our attention because it uses the absurd hospital bill as the fulcrum for his case:

The first of the 344 lines printed out across eight pages of his hospital bill — filled with indecipherable numerical codes and acronyms — seemed innocuous. But it set the tone for all that followed. It read, “1 ACETAMINOPHE TABS 325 MG.” The charge was only $1.50, but it was for a generic version of a Tylenol pill. You can buy 100 of them on Amazon for $1.49 even without a hospital’s purchasing power. Dozens of midpriced items were embedded with similarly aggressive markups, like $283.00 for a “CHEST, PA AND LAT 71020.” That’s a simple chest X-ray, for which MD Anderson is routinely paid $20.44 when it treats a patient on Medicare, the government health care program for the elderly.

(Steve Brill, “Bitter Pill: Why Medical Bills Are Killing Us,” Time, February 20, 2013)

It is hard not to get carried away on a wave of outrage when reading stories of patients faced with ridiculous bills, which (even if they can understand them) they might never be prepared to pay. A new crop of entrepreneurs is hoping to solve this problem.

Simplee, founded in 2010, has raised $37.8 million of venture capital in four fundraising rounds. Investors in this month’s Series C round of $20 million include American Express Ventures, the investing arm of the well-known charge card and credit card issuer. Simplee’s clients are health systems and physician groups which want to engage patients better through improved billing practices. Plus, they want to reduce increasingly problematic bad debts.

The hospital industry thought Obamacare would address the problem of accounts receivable going unpaid. The opposite has occurred. While hospitals are seeing more patients, those patients are less able to pay their bills. For-profit hospitals’ stock prices have suffered as they have written off more bad debt, and non-profit hospitals are experiencing the same phenomenon.

Other businesses are addressing the billing problem by focusing on employer benefits. Employers do not want employees confused and disgruntled by their medical bills, and health insurers can hardly be said to have solved this problem. Castlight (NYSE: CSLT) about which I wrote a year ago, offers a lot more than just helping clients’ employees understand and pay bills. It also engages beneficiaries with actionable information about the care that is appropriate for them.

After a blockbuster IPO, Castlight struggled to retain investors’ approval despite steady revenue growth. Quarterly revenue increased to $23 million from $16 million last year, although profitability appears a far off prospect. So, a strategic investor identified value where the stock market did not. Castlight has just announced a partnership with the software-as-service giant SAP (NYSE: SAP). This came with a capital injection that gives SAP almost five percent of Castlight’s equity. Castlight’s stock jumped about one quarter, suggesting investors are pricing in an eventual acquisition by SAP.

The Obama Administration itself is getting into the act, having just announced a competition to design “A Bill You Can Understand,” which will give prizes of $5,000 each to two designers who meet the challenges of making bills comprehensible and improving the workflow that generates them.

This sends a great signal. The Obama Administration commitment to billing transparency has had significant results. In 2013, the Administration managed to overturn a restraining order from 1979, which had prevented Medicare from disclosing how much it was paying physicians.  The resulting dataset (and similar hospital inpatient and outpatient files) are easy to navigate, and freely available to anyone who goes to the website.

Fixing billing is a much harder task. Crazy bills are a symptom of increasingly dysfunctional health prices, which the government prevents from being formed by normal market processes. Until that changes, entrepreneurs and government-sponsored challenges can relieve some of the pain, but they cannot make it go away.

Comments (11)

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  1. Mike says:

    Part of the problem is the billing contains the coding along with the pricing and they serve multiple purposes with this information.

  2. Barry Carol says:

    While I understand that payers need the CPT-4 or ICD – 9/10 codes for the service, test, procedure or drug, there are a few things I think can be done to make the statements more understandable for patients. The single biggest one is to translate the service, test or procedure into plain English. There is no real need to use medical terminology. I also think it would be informative if the list price for each service, test or procedure also included what Uwe Reinhardt calls a conversion factor which is the list price dividend by the Medicare rate even if a private insurer is the payer. That information would help to inform patients as to whether or not the list price falls within a zone of reasonableness especially for patients who have no insurance.

    Explanation of benefit forms should look more like checking or brokerage statements. Dates of service and services rendered should be listed in chronological order showing the date of service, procedure code, service in plain English, provider name, list price, conversion factor, amount paid by insurance, if any, and patient’s liability. The claims administrator should just send out a statement once a month just like banks and brokerage firms do. For those who generate few or no claims, a quarterly statement would probably be adequate.

    • I agree, and you have uncovered why medical bills and hospital bills are not like bank or brokerage statements. 100 percent of the float or commissions in a financial institution come from customers.

      Revenue from patients is a small share of health institutions’ revenue. Most is from insurers acting for private groups or government. So, patients are an after-thought when it comes to convenient billing.

      If health insurance was an indemnity product, where the insurer paid the patient and the patient paid the provider the entire amount, there would be an immediate and significant change in billing practices.

      • Steve says:

        So I suppose this means that patients are not really the customers of hospitals and providers – Medicare, Medicaid and private insurers are.

        John, we need to stop making so much sense of these things! It might lead to consumers actually gaining more leverage.

  3. bob hertz says:

    Another way to empower patients would some form of binding arbitration or health claims courts.

    A patient who could not understand their bill or thought it outrageous could legally postpone paying, with no credit reporting, and take the bill to an arbitrator.

    The government could pay for the arbitrators. This would be a popular service, so maybe $500 million a year in new federal spending.

    Cash flow for some hospitals would almost grind to a halt, and it would be their own damn fault. Lack of cash flow creates a tremendous incentive to mend one’s ways.

  4. Devon Herrick says:

    Years ago I work in hospital accounting. The business office manager reported to me. Yet I didn’t even know how to decipher those bills. In reality, hospital bills aren’t designed to be easily read because the hospital is not competing on price. The bills reflect a strategy to maximize revenue against third-party reimbursement formulas. Why else would a $0.02 cent item like acetaminophen be itemized and billed at $2.65?

  5. PJohnson says:

    Could “stock jumped about one quarter” be more ambiguous? Did the stock price fluctuate in one quarter of the year? Or did it jump a quarter of its price? Or did it just jump 25¢?

    Plus were “The Obama Administration commitment to billing transparency ” true, and I highly doubt it, it would be the ONLY transparency it is committed to.

  6. Barry Carol says:

    “Why else would a $0.02 cent item like acetaminophen be itemized and billed at $2.65?”

    Devon – I was told several years ago that the need to call the hospital pharmacy for a single dose package of a very inexpensive medication, have it sent up to the patient’s floor and delivered to the bedside, perhaps at 2:00 AM, is a very different cost and value proposition than a consumer picking a 100 count bottle of the same OTC medication or picking up his own inexpensive prescription himself at Wal-Mart or Costco, Walgreens or CVS.

    As for maximizing hospital revenue, with all the consolidation we’ve seen in the health insurance industry in recent years with probably more to come and with the local Blue being the dominant insurer in many states, price negotiations these days are more likely to be up from Medicare rather than down from chargemaster. Of course, high chargemaster rates are still helpful in maximizing payment from Medicare for outlier cases and from wealthy foreigners who want to come to one of our leading academic medical centers for treatment.

    Hospitals are continuing to close in response to the long term secular trend away from inpatient care. Just today in both the NYT and WSJ there were stories about plans to close the 125 year old 828 bed Mount Sinai Beth Israel Medical Center in Lower Manhattan which in recent times has been operating at only 60% occupancy. It will be replaced by a new 70 bed facility nearby. Numerous hospitals have closed in NYC in recent years but it still has about 6.1 inpatient beds per 1,000 of population. The national figure is 2.9. Shortly after World War II, the national figure was 10. With or without price transparency and understandable bills, these hospital closings are a positive trend for long term healthcare cost growth mitigation in my opinion.

  7. William Davis says:

    We have found the solution for employees’ healthcare bills, let the employees hire the same organization that figures out their employer’s healthcare bills! They are the only organization that knows the price of the service and the amount the employee should pay! Pay for the employee portion when the employer pays and subtract a fee for this service at a level lower than the providers costs of billing and bad debt. Then give the employee a monthly statement to collect the amount they owe.

  8. charlie bond says:

    Hi John,

    I believe I have written here what I have been saying for 25 years: The fundamental problem with the health care system in America is that there is no cost-based pricing.

    Rather than setting prices based on the costs the provider incurs in rendering the services, doctors, hospitals, laboratories, and all ancillaries charge the maximum they can get away with. Likewise for drugs, devices and other health care products–e.g. the $1.50 generic Tylenol).

    Prices in health care are set by a combination of historical accidents and a rampant culture of “reimbursement maximization.”. The same doctor, for example, may be paid wildly varying sums for different surgeries, even though they take about the same amount of the physician’s time and involve a comparable use of the physician’s resources. Indeed the doctor’s price for the same surgery may vary depending on who is paying the bill.

    The Kaiser Foundation did a study of the cost of an appendectomy in California hospitals and found that the price varied by tens of thousands of dollars–not just from hospital to hospital, but within the same hospital. The price varied by payor. We have been doing appendectomies since the time of the pharaohs–there are mummies with appendectomy scars. So we should have been able to figure out what the procedure costs in that amount of time.

    The irrational pricing in every sector of health care is the heart of our American crisis. How can carriers underwrite health insurance if the price of care is flexible?

    Of greater concern is the impact of variable pricing on individuals. While I believe HSA’s have their place, self-payors often are charged the highest price in health care. And all too often, patients don’t have the option of shopping or the skills to make the comparisons.

    For years, the policy wonks have argued for “transprency”–as if knowing prices would encourage shopping for medical treatment, hospital services or other health care could be like shopping for tires. The truth is, even if we were to have perfect transparency, and be able see the “prices” of health care, what we would see would just a hot mess with prices all over the lot. And that scramble of pricing warps the entire economics of health care, which in turn warps our entire enconomy. If nearly one in five dollars in the GDP is in the health care sector, nearly 20% of our economy is based on irrational economics.

    While the Medicare reimbursements offer some guidance, the codes are indecipherable. As one friend says, Hospiital accounting makes Hollywood accounting look like child’s play.

    So what are we doing to address this complexity–We are requiring the entire health care industry to shift from ICD-9 to ICD-10 codng–which has thousands more indecipherable codes. And like the push for EMR’s that have yet to be interoperable, the government is forcing the expenditure of billions of dollars of health care providers’ capital to make this conversion. The conversion does not improve medical quality, nor does it improve access to care or otherwise directly help the patient. To the contrary, it makes “transparency” a mere meaningless buzzword while sucking from our health care system billions of dollarsthat could be invested in patient care.

    And why the change? To get more data, because the bureaucrats believe that more data will tell them what health care really is. They want more data so bureaucrats can set protocols of care that ignore the infinite variabliities in medicine and patient care. Protocols may be useful guides, but they are cannot substitute for medical judgment and training. Protocols will work–as soon as they standardize the human body and all the agents of disease and injury that can befall it.

    While actual patient care is complicated, its pricing need not be.The fact that we permit this irrationality to persist in our health care economy is only a testament to our lack of fortitude and foresight. The shortest distance to health care reform is for average patients–like you and me–not just to demand clarity in the billing, but demand ratonality in health care pricing. Otherwise the medical-industrial complex will continue to bamboozle us and health care will bankrupt our country.

    I look forward to your thoughts.

    Charlie Bond