This post is Part Three in the series, Healthcare: Yes We Can.....But We Probably Won't.
WHY MEDICAL COSTS ARE SO HIGH & WHY THEY RISE
Why does an aspirin cost $7, a Bandaid $19 on your hospital bill? The hospitals aren’t trying to gouge you; they are covering the less visible costs of operating a hospital.
When we see an exorbitant sum charged for a particular item, we forget about all the people that made our inpatient hospital stay possible. Kitchen staff, housekeepers, laundry personnel, janitorial staff, medical records, IT, nursing staff, doctors, lab personnel, human resources, reception, clerical staff, transcription, billing and coding staff, insurance verification, switchboard operators and administrators to ensure that everything runs as smoothly as possible. Not to mention the costs of medicine, medical supplies, sterilization supplies and equipment, food, telephone, TV, electricity, linens, pillows, mattresses, beds, cleaning supplies, etc. The list goes on and on. Since it is impossible to determine actual cost of each of the services these people provide until the end of each year, the costs of wages, benefit packages, utilities and services are built into other charges. Keep that in mind the next time you’re trying to remember whether your Bandaid displayed a Presidential portrait.
Medical costs rise for the same reason other costs rise. As the cost of supplies, wages and benefit packages increase, so do the costs charged by medical facilities. But medical costs also rise for other reasons.
As cuts are made to Medicare/Medicaid reimbursements, medical facilities must charge more in order to keep their doors open. Medicare/Medicaid reimbursements have been reduced annually for the last seven years. In 2008, Medicare reimbursements were just enough to cover facility overhead, with nothing left over to pay provider staff. Medical cost increases are directly attributable--at least in part--to reduced Medicare/Medicaid reimbursements.
Private insurers also pay less-than-full-price under agreements made with medical providers and facilities. The facilities have little choice but to accept the reduced fee agreement, as insurers will funnel subscribers to participating facilities and providers. Failure to comply means likely closure for all provider and facilities--with the exception of those who serve the wealthy who self-pay--as it costs subscribers a great deal more to use non-participating facilities and providers. Private insurers regularly change the percentage of full price they are willing to pay, and providers and hospitals must increase their fees just to receive the same amount they were paid the previous year.
For example, say a not-for-profit provider charges $100 for an office visit, Medicare/Medicaid reimbursement is 50%, private insurers pay 75%, and the uninsured (self-pay) pay 100%. So the office visit costs Medicare $50, the private insurer $75 and the uninsured $100. The following year, the provider’s costs have risen 10%. The government cuts Medicare/Medicaid reimbursement levels to 25%, and the private insurers cut their payment to 50%. Despite the fact that costs have risen only 10%, the provider would now be forced to charge $220 for the same visit in order to receive the same $50 + 10% from Medicare. The private insurers wouldn’t stand for the increase from $75 to $110, so they would cut their agreed upon payment rate even further; they also raise premiums and co-pays.
Another trick the private insurance industry plays is "allowed amounts". These appear on statements sent by your insurer, and mean that you can't afford Junior's college tuition after all.
An "allowed amount" is the amount that the insurer has agreed to pay for a specific charge. Your health insurance policy may say that the insurer will pay for 80% of inpatient charges incurred within the network(participating providers and facility), meaning; you, the patient, will be responsible for paying the rest. What the insurer doesn't tell you is that "the rest" is usually more than the 20% you thought you would be paying. For example: You are admitted to an in-network facility for a covered procedure and must stay in the hospital for three days. Later, you receive a statement (THIS IS NOT A BILL) from your insurer.
Semi-private room: $15000 Allowed amount: $9000
Insurer payment: $7200 YOU PAY: $7800
Wait a minute.....what? What?! WHAT?! 80% of 15 grand is $12,000...isn't it? How did 3 grand turn into $7800?! Wait..."allowed amount"? What the hell is "allowed amount"? Oh...Hold on...I guess "allowed amount" means I need a proctologist, cuz I'm getting &)^#*%!!!
"Allowed amounts" slap medical facilities and providers with unpaid bills, collection costs and bad debt; the insured with large debt and interest from loans obtained to pay their portion of the bill, and everyone else with increased medical costs.
In short, healthcare providers don’t really know what the rates of reimbursement/payment are going to be, making it difficult to budget. The uninsured pay the most in direct, taxable, out-of-pocket funds for the same services. Medical providers and facilities must require payment up front for the non-insured or potentially deal with debt from unpaid or slow-paid bills. Hospitals also eat the cost of pricy emergency care to the uninsured--for whom it may take years or even decades to pay off a single bill--and pay for collection attempts. Collections may also have to be initiated for the portion of charges to be paid by the insured, who often need years to pay the bills (slow paid)from inpatient stays or expensive procedures.
At budget time, legislators must try to secure large portions of entitlement spending to assist hospitals with debt so they can continue to serve the community. Non-profit community groups and hospital guilds hold fundraisers to pay for needed medical equipment, expansions and remodeling. In some communities, the situation is so dire that donated funds are used to pay down hospital debt.
None of this assistance is necessary because of overspending by the hospitals, or the purchase of excessive expensive equipment. Hospitals are in debt because no one wants to pay for the actual cost of care.
Huge medical bills are frustrating, especially for those who pay exorbitant health insurance premiums. But remember that hospitals are not the bad guy. If Medicare/Medicaid and private insurers would commit to paying the actual costs incurred by their subscribers, hospitals would find it much easier to stay in the black and might be able to forego government assistance. If private health insurance was eliminated altogether, hospitals would realize significant savings, and so would the American public.
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Farleftside
MeatMonkey
Dr William Lee
Dennis Loo
Mike Lucier
Dan O'Mahony
Salon.com
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