In no way do I claim to be an expert on business or even the healthcare system, but the more experience I get with the U.S. healthcare business model the more I realize there simply is no business model. We can all agree the system is broken. There is no shortage of statistics or personal anecdotes supporting that statement. The more you dig though, the more you realize just how crazy it is.
How is it that two hospitals in the same city receive different payments for the same procedure? The difference in cost is in no way tied to quality or convenience like one would expect outside of the healthcare bubble. If one digs long enough, at best you find a jumbled, nonsensical list of criteria that the Centers for Medicare and Medicaid Services (CMS) “take into account” when deciding reimbursement rates.
Private insurance companies develop individual contracts with hospitals. Call me crazy, but I doubt that there is any reason an arthroscopy costs $400 more if the patient is insured by United Healthcare instead of Aetna. Costs for some procedures can vary 10 times or more from hospital to hospital. From a billing and reimbursement standpoint, this sounds like nothing short of a nightmare.
Each hospital easily has hundreds of contracts with different payment schedules, and insurance companies are dealing with an astronomical number of providers and procedures. No wonder administrative healthcare costs are so expensive in the U.S! Data on private insurers is very difficult to find as the contracts are not made public, and hospitals tend to guard their billing data closely. Below is a small sample of data of payments from a single private insurer to various NJ hospitals from the New Jersey Commission for Rationalizing Health Care Resources.
To make matters worse, Medicare/Medicaid payments often do not cover the hospitals cost, so private insurers are over-billed to reconcile the losses. Individuals who are not insured are sometimes given lower rates depending on their financial situation, but at times pay more than the private insurer rates because they do not have bargaining power.
I have thought about what would happen if some of the practices that occur in the healthcare sector occurred elsewhere. Since I am a medical student let’s talk about this in the context of my favorite substance on the planet: coffee. If I walk into a coffee shop and overhear the person in front of me order a medium latte and watch them pay $3.50, I expect to pay the same amount if I purchase the same drink. If I order my latte and then get charged $10, I would not be a happy camper.
Just because I have a different job than the person in front of me, doesn’t mean that my latte is worth more or requires more work. If you will allow me to grossly oversimplify, the cost of a medical procedure is based on where you work and how good of a negotiator the hospital is. Actual cost of the procedure really has very little to do with anything.
Hospitals therefore have an immense pressure to fill every bed they can, and run as many procedures on privately insured patients as possible. It is common practice at many hospitals to give the majority of patients who walk in the emergency department (ED) electrocardiograms (ECGs). This has little to do with patient care and everything to do with making ends meet.
Many of the patients that come to these EDs are uninsured and are using the hospital as their primary care provider. Because ECG’s get reimbursed at a high rate in comparison to the amount that the technician gets paid and the equipment, it is a great way to make up the deficit incurred by treating the uninsured. Is this wrong? Absolutely. However, it is a whole heck of a lot better than your city’s public hospital going out of business.
Physicians are paid very little for talking to patients or making diagnoses. In contrast, performing procedures is reimbursed at a surprisingly high rate. General practitioners often do procedures in their offices (sometimes whether they are essential to patient care or not) to be able to spend time talking to their patients. Again, is this right? It sure doesn’t seem right to me. That said, it is because of practices like this that you get five minutes with your internist instead of two minutes. And it is the reason that most family practice doctors can keep their doors open.
If you were the physician or the hospital, wouldn’t you do the same thing?
Outside the world of healthcare, imagine someone proposing this business model to their boss or CEO. I think the response would be swift and would go something like this:
No matter where you stand on healthcare reform, I think we can all agree that some sort of business model needs to be implemented. At this point, I won’t be picky which model we go with as long as we are following a system that wouldn’t be laughed at in any other sector. I feel dizzy (no, not because of caffeine withdrawal) anytime I start to think about the way we do things now.
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