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News April 2013

Washington Watch

Trying to Shop Around for Medical Care? Impossible if You’re Trying to Compare Costs

By Alan M. Schlein

It finds that the American health care system is not a free market and there’s hardly anything logical about how hospitals charge for procedures. Hospital billing is “a crapshoot,” the article says, “People fare differently according to circumstances they can neither control nor predict.”

 

Health care prices are high in America, the article concludes, because the federal government doesn’t stop them from being high, like other countries do. What sets the American system apart from other countries is rate setting. In the U.S., the federal government does not regulate the prices that health care providers can charge. But it does regulate the prices health care providers charge those over 65 and that’s what has helped Medicare control some of its costs.

c_stinger0413_smThe intense debate over health care reform in 2009 focused on who should pay the bills and who would pay the costs of covering an additional 30 million people. But little attention was paid to the other big question – why exactly are health care bills so costly and what can be done about it?

A recent Time magazine cover story examined hospital and medical bills from across the U.S. to find out how prices are set, who is setting them so high and what can be done about it. The story by Steven Brill called “Bitter Pill: Why Medical Bills are Killing Us” is a must-read for anyone dealing with health care costs or worried about friends or family members and costly hospital stays.

It finds that the American health care system is not a free market and there’s hardly anything logical about how hospitals charge for procedures. Hospital billing is “a crapshoot,” the article says, “People fare differently according to circumstances they can neither control nor predict.”

Be prepared. The lengthy article may make you angry about the cost of private health care, about the prices people are paying, about the lives that are devastated – roughly 60 percent of bankruptcies in the United States since 2007 are as a result of medical bills – and angry that the United States continues to be one of the few developed countries without adequate health care for all of its citizens. The article finds faults with hospitals, especially non-profit hospitals which are the cornerstone of many communities, for overcharging patients by sticking the powerless with inflated bills.

Brill spent months analyzing bills from hospitals, doctors, medical equipment manufacturers and drug companies. His conclusion is that tighter laws to restrict anti-competitive practices are needed after seeing the stunning differences between what hospitals collect if the patient is insured, uninsured or on Medicare. In effect, uninsured people sometimes pay up to 100 times what Medicare would pay for the same services administrated and up to 10 times what private insurance companies pay.

While we link to the entire story below (and strongly encourage you to read it), the magazine piece comes at the same time as conservatives in Congress continue to rail against Medicare, the government-run insurance program, as out of control. These Washington lawmakers see severe cuts in Medicare as a key to balancing the federal budget and reducing the federal debt. Ironically, Medicare emerges in the Time piece as a customer-friendly model for efficiency – especially when compared to the wild-west free range system that folks under 65 face when they deal with catastrophic illness.

What makes Medicare so valuable, the magazine story points out, is that services are valued at specific established fees. Private hospitals and non-profit hospitals arbitrarily set prices based on a mysterious internal list known as the “chargemaster” –the list of every product and service the hospital offers and how much it costs.

No hospital’s prices are the same and several hospital administrators interviewed for the article, conceded that the chargemaster prices are greatly inflated. Insurance companies pay discounted prices based on a variety of factors. But as a consumer, you are pretty much a powerless buyer in a seller’s market where the only absolute is the profit of the sellers.

Think about this as you ponder a catastrophic hospital stay. You usually have no choice which hospital you end up in, your hospital bill largely depends on the generosity of the hospital and how well your insurance company negotiates with it. While in the hospital, you are a completely captive audience – you have little choice of the services you are billed for – even if you somehow could know the prices in advance. You have no choice on how much the drugs cost that you may be prescribed, or the costs of the labs or CT scans you may have to get. And besides, would any of us really know what to do if we did have a choice? What is really bizarre is when asked about their billing practices, hospital administrators candidly said they expected insurance companies and patients without insurance to negotiate over prices.

In the story, Richard Umbdenstock, the president of the American Hospital Association concedes the current billing system is broken, but says hospitals aren’t to blame. When patients look at their hospital bills, he says, the prices reflect not just the cost of the particular item but “all the resources required to provide the care.” Moreover, he points out, the “vast majority” of patients don’t pay the initial bill; that’s just the starting point, he says.

Do you really think you can be a good consumer when you are in the back of an ambulance going to the emergency room, or having just emerged from heart surgery in the hospital? I’m not sure about you, but, at least during my life-threatened hospital stays, I was either too medicated or way too “out of it” to think about “negotiating” my hospital bill. This is not like buying shoes or a car. Dealing with a major medical issue does not exactly put you in the strength position for bargain shopping.

 

One Woman’s Costly, But Typical, Experience.

While the article has many examples, let’s look at the case of a woman Brill calls Janice S. a 64-year-old woman who was rushed one night last summer from her home in Stamford, Conn, to a hospital emergency room. After three hours of tests and some brief encounters with a doctor, she was told she had indigestion and sent home. That was the good news.

The bad news was the bill: $995 for the ambulance ride, $3,000 for the doctors and $17,000 for the hospital --$21,000 for a three-hour precautionary exam that was a false alarm. Out of work for a year, Janice S. had no insurance. Among the tests she was given were three Troponin tests for $199.50 each. As anyone who has had a heart attack knows, a troponin tests measure the levels of certain proteins in the blood whose release from the heart is a strong indicator of a heart attack. The tests are usually done in intervals so the fact that she had three of them is not unusual. The price is the problem.

The Stamford Hospital spokesman said the price came from the hospital’s chargemaster, the internal price list. Because she was 64 and not 65, Janice was not on Medicare. But seeing what Medicare would have paid Stamford Hospital for the troponin tests if she had been a year older shines a bright light on the role the chargemaster plays in our national medical crisis.

Medicare collects troves of data on what every type of treatment, test and other service costs hospitals to deliver. They take seriously the notion that nonprofit hospitals should be paid for all their costs but actually be non-profit after their calculation. Medicare actually factors in expenses like overhead, capital expenses, executive salaries, insurance, differences in regional cost of living and even the education of medical students in determining what rates to pay hospitals.

Medicare would have paid Stamford $13.94 for each troponin test rather than the $199.50 Janice was charged.

Janice was also charged $157.61 for a CBC – the complete blood count test that those of us who have watched medical shows like “ER” remember hearing routinely ordered within the show’s hour. Medicare pays $11.02 for a CBC in Connecticut. Even if the price was higher to compensate for regional differences or to give doctors a little extra profit, that’s a big reach up to $157.

Another part of Janice’s bill was listed this way – just to show you how you need an interpreter to determine what the bill means –“ NM MYO REST/SPEC EJT MOT MUL.” This is a nuclear stress test – a special test using radioactive dye and a CT scan, which costs $7,994.54 –about six times more than the hospital’s regular stress test (but is considerably more useful in determining a heart attack.)

Here’s the problem – if she were 65, she would have been on Medicare, which would have paid the hospital $554 for the nuclear stress test. For many of the lab tests she was charged about 10 to 15 times more than the Congressionally-supervised Medicare rate. Janice was also charged $872.44 just for the dye used in the test and also billed separately by a cardiologist in the emergency room for $600 to read the test results on top of the $342 he charged her for examining her.

Asked to explain Janice’s hospital’s bill, a Stamford hospital spokesman brushed off Time, saying the chargemaster rates were “not our real rates” and when pressed, explained that her bill wasn’t relevant. “Very few people actually pay those rates,” he said.” But Janice S. was asked to pay them.

 

Who’s Really Paying for Those Exorbitant Markups?

According to the Time article, when hospital prices are involved, who pays is the key determining factor in how high the prices of your stay are. When an individual comes into a hospital, the patient can be subject to wild price-gouging. Unbelievable markups are often posted on everything from aspirin to blankets. Insurance companies have arrangements based on large numbers of patients that gets them volume discounts from the chargemaster rates.

A few examples that Time found in researching specific patients’ bills:

  • In one person’s bill, a single Tylenol tablet cost $1.50. But you can buy 100 of them on Amazon for $1.49 even without a hospital’s purchasing power.
  • One patient got charged $6 for a marker used to mark his body before surgery. A five-pack can be found on Amazon for $1.70.
  • Another was charged $39 for a surgeon’s gown – the one worn by the surgeon, not worn by a patient. Yet 30 of them can be bought online for $180. That same patient was charged $32 for the blanket used to keep him warm during surgery. While potentially reusable, a new one can be found on eBay for $13.
  • A patient was charged $7 for an “alcohol prep pad” – a box of 200 of these can be purchased online for $1.91.
  • Another was charged $18 each for 88 diabetes-test strips that Amazon sells in boxes of 50 for $27.80, and was also charged $24 each for 19 niacin pills that are sold in drugstores for about a nickel apiece. His bill also included $77 for each of four boxes of gauze used, which can be found on Amazon for about $6 per box.
  • A patient was charged $283 for a simple chest x-ray that Medicare routinely pays $20.44 for.

One of the key services that most insurance companies do is negotiate with hospitals. But in many communities, the hospitals have more bargaining leverage than the insurance companies. The article noted that the best negotiator by far is Medicare, which is so big it can force hospitals to accept something close to a standardized price. But even Medicare is handicapped because Congress has expressly prohibited Medicare from using its leverage to bargain for better prescription drug prices or to use “comparative effectiveness” tests in approving drugs or procedures. Medicare is also not allowed to negotiate for durable medical equipment like walkers and canes.

Just a thought exercise for a second: Can you imagine a day where a non-Medicare patient presented with a big bill, could, at a minimum, readily compute the price Medicare will pay for services and at least use it as a starting point for negotiations? Too bad that’s not something most of us know to do when we get hospital bills.

Health care prices are high in America, the article concludes, because the federal government doesn’t stop them from being high, like other countries do. What sets the American system apart from other countries is rate setting. In most other countries, governments set rates for what both public and private plans can charge for various procedures. As a result, many other countries have lower growth in health-care costs. In the U.S., the federal government does not regulate the prices that health care providers can charge. But it does regulate the prices health care providers charge those over 65 and that’s what has helped Medicare control some of its costs.

Medicare, it turns out, has had success at bending the cost curve for enrollees. Not only does Medicare manage these costs better than the private market, the article points out, Medicare’s administrative costs are two-thirds of one percent, or less than $3.80 per claim. Private insurers administrative costs run much higher. Aetna, for example, run 29 percent, or $30 for each claim, Brill points out. How ironic, then, politicians in Washington are focused now on trying to make cuts to Medicare as a way to curb the deficit.

One other vital lesson consumers can walk away with from the Time story: an emerging field of experts exists to help you negotiate outlandish debts, if you find yourself in trouble. Patients can hire medical billing advocates, a growing cottage industry of people who read and understand the hospital bills and try to reduce them.

“The hospitals all know the bills are fiction, or at least only a place to start the discussion so you can bargain with them,” says Katalin Goencz, a former appeals coordinator in a hospital billing department who now works as an advocate in Stamford, Connecticut. Goencz is a part of a trade group called the Alliance of Claim Assistant Professionals. Another similar group is Medical Billing Advocates of America.

Together they handle about 5,000 patients a year out of what must be tens of millions of Americans facing these issues, which may explain why 60 percent of the personal bankruptcy filings each year are related to medical bills. Goencz has helped many dramatically reduce their bill and advocates like her are something you may want to keep in mind if a loved one not covered by Medicare, or in 2014 by the new health care reform legislation, suddenly goes into a hospital.

 

Also contributing to this story was Time magazine.

Where to Read the Article

Time only makes the article available online to subscribers. You can go to your local library and see the story for free with a digital version of the March 4, 2013, Time magazine or you can read a pdf version of it on one of the following sites: http://livingwithmcl.com/BitterPill.pdf , courtesy of a Mantle Cell Lymphoma website, or on a part of the University of Texas Arlington website: http://www.uta.edu/faculty/story/2311/Misc/2013,2,26,MedicalCostsDemandAndGreed.pdf

 

Alan Schlein runs DeadlineOnline.com, an internet training and consulting firm. He is the author of the bestselling “Find It Online” books.

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