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Hospital Charges and the Art of Obfuscation

Hospital Charges Even CFOs
Can’t Explain

It’s no secret that hospital charges in America are an indecipherable mess. Researchers at the Dartmouth Atlas Project – who I cite in Our Healthcare Sucks – have been documenting hospital charges and treatment disparities among hospitals and their medical staffs for decades.

But this week’s announcement by the U.S. Centers for Medicare and Medicaid Services (CMS) that they’ve posted data on their website documenting the wild disparities in hospital charges for the same procedures – often in the same towns – has drawn renewed attention to the confused and confusing world of hospital charges, prices, rates, payments and other ways devised to pad the hospital bills of patients across America.

“Big -picture” types are on record as saying that very few people actually pay hospital charges, as  most payers negotiate discounts from hospital charges. Bully for them, but tell that to the thousands of patients who are victimized by often scurrilous hospital charges and billing practices every day. It’s easy to be glib about such things from the comfort of your air-conditioned office and well-insured job sinecure, after all.

To suggest that hospital charges and billing practices have grown wildly out of control would be to understate the obvious. Many hospital CFOs are hard-pressed to explain it all, much less the patients often left holding the bag.

“Cut Your Budget, Son!”

Thinking about this made me recall my very first day as a mid-level administrator at a Boston teaching hospital more years back than I’d care to admit. Waiting for me on my brand new desk was a welcome package from the hospital CEO that included a memo to all hospital managers instructing us to prepare two budgets for our departments: one assuming a 10% cut and the other a 40% cut.

As a brand new employee, of course, I hadn’t the slightest clue about the ramifications of such cuts. But I quickly got up to speed and learned that the 10% cuts could be accommodated with only minor pain, while the 40% cuts would require eliminating some departments and, of course, lots of jobs. Welcome to the world of hospital budgeting.

As it turned out, neither scenario actually played out – just another false alarm that failed to survive the politics of the day. Hospital scares about budget cuts are as regular as the seasons, yet hospital spending hasn’t been seriously curtailed by any of it.

We use hospitals in America much less than they do in other developed countries, yet spend far more on them.

Part of this is due to over-reliance on expensive technological interventions – think CT scans for virtually any ER patient still breathing (I’m allowed a little poetic license here). And much of it is due to the higher hospital charges for these interventions – and the higher salaries earned by hospital personnel and attending physicians. If you do more to patients and charge more for it, well – guess what – it ends up costing a lot more (see “A Nation of Suckers“).

Gaming the System
with Hospital Charges

And hospital charges have grown incredibly non-transparent in responding to the massive fragmentation of healthcare in America. In other developed countries with single payer systems – those dreaded “socialized” medical systems (dreaded by everyone except those using them) – there aren’t thousands of insurers with different administrative requirements to hide behind. Costs are simplified and transparent. There’s less opportunity to game the system – and if you don’t think that’s the implicit job description of hospital CFOs these days, then you’re unwise to the ways of this world.

When something grows so out of control as to baffle even those charged with managing it, the obvious question becomes whether to jettison it altogether and start over.

How exactly would you do that without “throwing the baby out with the bath water”?

Well, it ain’t that complicated – except politically. The truth is we could have survived those 40% cuts back in the day – and we’d survive them today as well.

If hospitals in America were paid Medicare rates for all their patients – especially with more insured patients with expanded Medicaid (except for states that opt out) and subsidized private insurance coverage under Obamacare – the net impact would be more on the order of 20-25%. 

Now, would that be painless? Of course not, but we’re facing a painful healthcare future either way. Even with the recent curtailing in the growth in medical costs in America, they still greatly exceed the growth in other costs in our economy.

It’s not a question of whether healthcare costs will bankrupt America – only when.

Obamacare’s Marginal Impact

Changes forthcoming under Obamacare complicate all this, of course. Hospitals that serve large numbers of Medicaid and uninsured patients – so-called “safety net hospitals” – are especially vulnerable, particularly in states that refuse to expand their Medicaid programs under Obamacare.

But an in-depth analysis of these expected changes by the Robert Wood Johnson Foundation found that most hospitals would see a net gain from these changes. Here’s an excerpt from their report:

“The net result (of Medicaid-related changes under Obamacare) greatly favors hospitals. Altogether, for each dollar in private revenue that a Medicaid expansion eliminates (because of those shifting from private insurance to Medicaid), hospitals’ Medicaid revenue rises by $2.59.”

However the short-term effects of Obamacare shake out, you can be sure that hospital charges will be no more transparent than they are now. And their net effect is expected to be marginal in terms of healthcare costs in any event. Which means we’ll still be faced with what to do about healthcare costs – and convoluted hospital charges and billing practices – that will continue to threaten our economic viability.

This is the big strategic picture we can’t lose sight of as our attention is diverted over the coming months to the tactical, and very likely temporary, effects of changes triggered by Obamacare.

Token Efforts Bring Tepid Responses

Tepid reductions in the rate of growth in healthcare spending – like those predicted under Obamacare – do little to change the foreboding trajectory of America’s healthcare spending.

Even 10% cuts that would provoke all kinds of catastrophic predictions are beyond the political pale, never mind the even bigger cuts that are the kind of strong tonic – the “tough love” – our bloated and moribund healthcare system truly needs. 

In the meantime, we’re stuck with token efforts like displaying hospital charge data that’s of little use to the average consumer.

Will greater pricing transparency eventually help? Sure, but it’ll have to be far more user-friendly than the CMS effort.

And even that is only helpful for elective care, not  the truly urgent care that hospitals often provide.

If you think this is all too harsh, read David Williams’ excellent piece at the Healthworks Collective in which he describes how hospitals make money when they screw up and create complications that require more (reimbursable) treatment. It’s emblematic of a labyrinthian maze of skewed incentives and opportunistic billing practices that bear little resemblance to the lofty mission statements of those who profit from them.

And the data provided by the Dartmouth Atlas Project is not only more seasoned than the CMS data, but far more user-friendly. Give a visit and see how your local hospitals stack up. And, remember, higher-intensity (meaning more expensive) hospitals generally produce less desirable treatment outcomes.

Only in America.

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1 Awesome Comments So Far

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  1. Donald Quixote
    August 21, 2013 at 6:18 pm #

    Interesting article…I remember reading a similar one a while back but it was about a hospital that was actually competing for patients by charging reasonable prices that allowed a profit margin on the work without gouging the patients. The problem with a normal hospital is that they try to gouge the insurance companies by claiming an absurd number and having the insurance company only cover some of it…kind of like haggling over a purchase in a street market…anyway if I find the original story I will send it your way.

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