The Wide Disparity of Pricing for Healthcare Services is Just a Taste of the Problems Yet to Come

This past week, ABC News reported on the practice of the Northside Hospital System in Atlanta of charging outrageous prices for their services. They cited the bill of one patient where they did a line by line analysis of charges. What they found were many examples of line items for which the patient was charged exorbitant prices for things that the hospital could purchase through its suppliers for a tiny fraction of the cost. One of the most glaring examples was a pill for which the patient was charged several hundred dollars in spite of the fact that the hospital could purchase it for less than a nickel.

Hospitals across the country engage in such pricing strategies, to one degree or another, in order to make up for losses as a result of low reimbursement rates by health insurance, managed care companies, Medicare, and Medicaid and also as the result of the cost of doing business in a dysfunctional system.

This practice is considered a strategy of necessity by providers of many healthcare services simply because that is the way the fee-for-service, zero-sum billing game has evolved. Payers establish reimbursement rates that enable them to stay in business, which means making a profit. And, do not be confused by hospitals that claim to be not-for-profit for even these providers must be able make money if they want to stay in business. The only differences are the uses of the profits and the bank accounts into which the dollars must inevitably be deposited.

Every billable medical or hospital procedure results in high-stakes competition to determine where those dollars will end up. Health insurance, managed care companies and other payers set reimbursement rates and also make providers jump through hoops as part of the claims processing strategy to look for any reason to justify denial of the claim. This forces providers to develop coding and billing strategies to optimize their revenue generation and also requires them to file and refile claims. It is a zero-sum game in which there are winners and losers in the competition for each and every healthcare dollar, not counting the patients who almost always are losers in the billing game.

What charges are not reimbursed by the various third-party payers are then billed to patients. Some of the money is eventually collected and much of it must be written off. Families burdened by outrageous medical and hospital bills is the single greatest cause for most of our nation’s personal bankruptcies. The write-offs necessitate new and more innovative charging and billing strategies. It is a vicious circle that drives up the cost of care enormously. Although we have seen some improvement, in recent years, in the rate of increase of aggregate healthcare costs, for at least two full generation the rates of increase have been substantially higher than the Consumer Price Index (CPI). There have been many years when the rate of increase has been double- or triple the rate of the CPI. Higher costs require providers to increase prices, which requires insurers to increase premiums on a merry-go-round that is anything but merry to the patients.

When we think about the number of healthcare dollars that never end up in the hands of providers of actual medical, hospital, or ancillary care, it can be a staggering amount. The insurance, managed care, and government payers always underestimate the percentage of dollars that are allocated to the administration process relative to those spent on direct care to patients. That cost is not just the cost of doing business for the private and public payers (which for the private payers must include profits) it also includes every dollar spent by providers for the purpose of coding, billing, claims processing, and management of receivables.

It truly is an outrageous process but it is the inevitable companion to the practice of fee-for-service (FFS) medicine in a market driven by health insurers and other third-party payers and processors.

The process is so complex that, in spite of claims on the part of health insurance and managed companies to the contrary, there is no accountability. Incompetent and inefficient providers pay no penalty for their poor performance and both the best and the worst providers survive no matter what the level of patient satisfaction.

Free market forces, in the true sense of the concept simply do not function in healthcare.

The biggest problems in healthcare in America, whether speaking of quality, cost, or access are the inevitable outcomes of a system driven by health insurance, Managed, care and other third-party providers; both public or private.

That Obamacare or, more correctly, the Affordable Care Act, (or more appropriately the Affordable Health Insurance Act) commits us to a health-insurance driven market is a recipe for continuing and escalating disaster. The motivation of Obama and the members of congress who finally chose to act was admirable if misguided. We have tried to fix a system driven by forces that even our smartest people seem unable to comprehend with a solution that can only aggravate an already tragic reality.

It is, truly, a national embarrassment that so many citizens of what we consider to be the richest and most powerful nation in the history of the world must deal with illness and injury of themselves and their families without access to what we also describe as the highest quality healthcare on the planet.

What makes the situation most ludicrous is that it is our stubbornness and our prejudices that keep us from embracing a solution that will provide comprehensive healthcare and prescription drugs to every single American man, woman, and child, without relying on socialized medicine, at a cost that will save the American people trillions of dollars.

My book, Radical Surgery: Reconstructing the American Health Care System, lays out a healthcare plan that will give us everything we need, at a reasonable cost, without any of the things that the American people seem to fear, pathologically.

Don’t believe me? Check it out!

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