The Bizarre World Of Health Care Charges

CMS released  data on what hospitals are charging today with many noticing, and questioning, vast differences in charges from one hospital to another. There are a few things you must know to make any sense out of this data.

Charges to Medicare have no bearing on what Medicare will pay. Medicare has a fee schedule for services, and will pay based upon this. Inpatient services are paid under a DRG (Diagnosis Related Group) system where Medicare pays a fixed amount regardless of what individual charges are present. This starts with the diagnosis, but the amount can be adjusted based upon factors such as severity and additional problems as obviously not every case admitted to the hospital for the same diagnosis is exactly the same. A hospital might charge $10 for a Tylenol tablet, but that doesn’t mean Medicare or an insurance company will pay it.

Some insurance companies pay the same way under a DRG system. I don’t know if this is true nation wide, but in Michigan Blue Cross also pays under a DRG system. Other insurers will pay based upon their fee schedule and not approve the full amount charged.  Hospital charges mean very little except for the uninsured. It is people without insurance who wind up being charged these ridiculously high rates. This means two things if you are without insurance and wind up in a hospital. First, it is often better to have a high deductible policy which never pays a cent than no insurance if the hospital has agreed to accept the plan’s rates. That way you will only have to pay what the insurance allows as opposed to the  hospital’s charge, which might be considerably higher. Of course make sure any insurance purchased this way really does have agreements with medical providers to accept their fees. Secondly, if you have a big bill and no insurance, keep in mind that the hospital would not receive the full amount if you had insurance. It is worth trying to negotiate and offering to pay a lower amount closer to what the hospital would expect to receive.

One consequence of this system of each insurance company approving different amounts for different services is that each hospital wants to be certain that they charge at least the maximum amount the best paying insurance company will pay. It is simpler to charge well above this amount to be certain of maximizing income.

This doesn’t necessarily mean they are evil and trying to rip off the system. The system makes this necessary for survival when each insurance company pays differently. While a simplification, imagine that someone is provided services A, B, and C when hospitalized. Some insurance companies might pay a fair amount for all three. Other insurance companies might pay extremely well for A, but poorly for B, and possibly not pay for C at all. Another insurance company might pay for B or C, but not for A. Health care providers must charge high amounts for all three, or risk not receiving enough to cover expenses. This means that the total charged for A, B, and C will be well beyond what they actually receive from any specific payer. Besides covering the actual costs to a particular patient, money must also be received for the tremendous overhead costs of hospitals and other health care facilities.

Yes, the system is screwed up, but it is often the system itself which is at fault, and comparing charges from different hospitals doesn’t provide all that meaningful information–except for the uninsured who will be charged more than Medicare or insurance companies will pay.

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