Price check on isle 5

When you go to the grocery store to buy a gallon of milk the price is clearly marked and everyone pays the same price.  When you to go to a restaurant the price on the menu is what you can expect to pay for your hamburger.  When you go to a hospital, who knows what you’ll pay.

It’s hard to know what you’ll pay because the price is different for everyone.  OK, that’s not exactly true but private insurance, Medicare, and Medicaid all pay different prices for the same service. 

Health care is expensive and hospital charges are high but it’s rare that anyone is expected to pay what they’re charged, unlike the grocery store or your favorite restaurant where you’re expected to pay what’s on the price tag.  Hospitals like GVMH have three main pay sources, private insurance, Medicare, and Medicaid – we’ll call them the Big 3.  For the same procedure hospitals are typically paid more by private insurance than they are by Medicare or Medicaid so of the Big 3, private insurance pays more.

Here’s an example: Let’s say you go to the hospital to have your blog removed and the charge for the procedure is $100.  Private insurance pays the hospital $75, Medicare pays the hospital $40, and Medicaid pays $14.  Point is, no one pays the same price.

Now that you’re an expert on hospital charges and payment and you understand how the Big 3 work, let’s look at the procedure from a cost perspective.  Let’s say it costs the hospital $50 to remove a blog.  Costs include labor (staff), supplies, equipment, and plant (building and utilities) there are a few others but these are the big ones.  Now think about what the Big 3 are going to pay the hospital for the service.

The hospital will make $25 per procedure from private insurance, lose $10 from Medicare, and lose $36 from Medicaid.  If three patients had their blogs removed on the same day and each of the patients pay source was one of the Big 3, it would cost the hospital $21 more to provide the service than it would be paid.  In short, the hospital would lose $21 that day.

Hospitals like GVMH are in business to serve their communities and save lives, they are not in the business of making money but it goes without saying they need to make some money to stay in business.  Of the Big 3, private insurance pays the most and over time hospital charges get elevated to get more money from private insurance.  Medicare and Medicaid tell us exactly what they are going to pay and there is no room for negotiation but we can negotiate with private insurance and in doing so we increase our charges to get a little more money to offset payments from Medicare and Medicaid that in many cases do not cover our cost.  Private insurance passes the increased cost onto their recipients and the cost of health insurance for individuals and businesses goes up year after year to the point that many individuals and businesses are struggling to be able to pay for the service and provide insurance for their families or employees.

So whats all this have to do with health care reform? Everything.  Health care reform provided an opportunity to reduce health care cost, make private insurance more affordable and pay providers in a fair manner. 

Health care reform did little to lower cost.  There are three easy ways to lower cost in health care.  First, determine what it actually costs, on average, for a hospital to perform a procedure or run a test.  Health care reform could have required that Medicare and Medicaid increase payments and pay hospitals close to cost.  Wait you say, how can increasing Medicare and Medicaid payments save money.  It’s easy, hospitals currently charge private insurance higher amounts to make up for what they don’t get from Medicare and Medicaid.  Private insurance would be able to negotiate lower rates which would decrease premiums paid by individuals and businesses and allow more businesses to provide insurance to their employees removing people from the Medicare and Medicaid systems.  It’s subtraction by addition!  If a hospital were paid at cost, I guarantee you hospitals would do all they could to become more efficient and provide the service in a cost-effective manner because it would become a matter of survival.  Second, health care reform could have lowered the amount hospitals pay for supplies, drugs, and technology.  If you have your knee replaced the artificial joint can cost a hospital as much as $40,000 even though it may cost the device company only a couple hundred dollars to produce. We all know how expensive new medications can be, and medical technology prices continue to rise even in this down economy.  Medical device companies, drug companies, and medical technology suppliers continue to post record profits and health care reform did nothing to keep these hospital suppliers in check.  Third, health care reform could have provided more protection to doctors through Tort Reform.  Limiting the amount a physician can get sued for an honest, unforseen error would control cost in two ways.  Malpractice rates would be lower and doctors would not need to practice defensive medicine.  Every day physicians order tests and procedures to protect themselves from lawsuits, it costs money to provide these services and many times they aren’t needed but the doctor must protect his reputation and his ability to provide for his family.  Eliminating unneeded tests and procedures would have a dramatic effect on decreasing health care expense for everyone but until a physician can practice in an environment where he isn’t afraid of losing his livelihood and damaging his reputation, the practice won’t change.

Don’t get me wrong, I fully believe hospitals have a responsibility to become more efficient and provide care in a more cost-effective manner.  Hospitals must partner with physicians and implement practices that will provide sound, proven care to the patients they care for.

Health care reform could have done a lot more to lower health care costs for all of us, instead health care reform told hospitals and other providers “we’re going to pay you less, you need to figure out how to do what you’re doing, and a whole lot more”. 

I fear that health care reform in its present form will only lead to rationing of health care which, in the end, will cost all of us more than money.

About Craig Thompson

I am a young professional with two great sons, and I work in the healthcare setting. I am employed in hospital administration and serve as Chief Operating Officer at Golden Valley Memorial Healthcare in Clinton, Missouri. These are challenging and exciting times in healthcare and my blog will focus on healthcare, raising boys or being raised by boys, and living in mid America.
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6 Responses to Price check on isle 5

  1. Holly says:

    This type of artical would be very informational to the public. Most people don’t understand the expenses and reimbursements of healthcare and blame hospitals and clinics for high prices. I can’t tell you how many times I’ve heard various complaints of how were just out to, well I don’t know if I can say this, but “rape” the public, like they think we can just put any price we want to on a procedure. More people need to understand why the prices are what they are and why their insurance costs what it does.

  2. Cam Lewis says:

    Hurray, Craig!!! Most of us who understand billing and payment in healthcare feel like you. So, why don’t our elected officials listen to us? Maybe you should run for office or, maybe an organization like the American Hospital Association should mount a campaign to educate the public at large. You can’t make knowledgeable decisions if you aren’t educated in the proper areas.

  3. Kristen Bertz says:

    Great job. Thompson for President!

  4. kay says:

    why are medications different prices? My insurance usually gives out about october and then I have to pay myself. If I don’t file the insurance then it doesn’t count with the company, but I have noticed that sometimes when you do not use the insurance the price is lower..Very frustrating!!!!

  5. Tammy says:

    Thanks for bringing this topic down to a level that we can understand!

  6. bk says:

    Great explaination of a complicated topic.

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