Consumer Focused Health

The focus on insurance as a solution to rising medical costs is somewhat inane. Its the costs, stupid.
Are we getting good value for what we’re paying. And, as this article in the WSJ highlights, the answer is clearly no, and everyone knows it.

One day in late July, Jim Dawson happily returned home. He had spent the previous five months in the hospital battling an infection that nearly killed him. The phone rang shortly after Mr. Dawson and his wife, Loretta, entered their house.

It was the hospital. California Pacific Medical Center was calling to remind the Dawsons that they owed it $1.2 million.

So how exactly does an individual with health insurance rack up $1.2M? The bill looks pretty similar to the DoD’s $12,000 toilets and $900 nails:

While hospitals say bill padding is their only defense against the aggressive cost-reduction efforts of insurers and government programs, the end result is that individuals can, with little warning, be left stuck with wildly inflated medical bills.

For instance, CPMC charged Mr. Dawson $791 for stockings designed to improve blood circulation. The same pair can be purchased on the Internet for as little as $12.

Mrs. Dawson asked to see an itemized bill from CPMC. When she received it, she was shocked by how much the hospital had marked up inexpensive items like the stockings. CPMC charged Mr. Dawson between $2,225 and $6,675 a night for an oxygen mask to help him breathe while he slept. After he was discharged from the hospital, the Dawsons rented one from a medical-supply store for $250 a month. Mrs. Dawson resolved to try to negotiate the bill drastically down.

In her quest to know exactly what she was being billed for, Mrs. Dawson also asked the hospital for copies of all her husband’s medical records. A copy service used by the hospital called to say the copies would cost $1,030. Mrs. Dawson was outraged. Further angering her, a letter from CPMC’s foundation soliciting a donation came in the mail.

So the basic premise under insurance is that the hospital’s poor ability to negotiate insurance reimbursement and collect from other patients drives up rates drastically from those that it can actually collect from. In other words, if you actually try to pay, you’ll get screwed because you’re paying for all the other people that didn’t want to pay.

Despite our supposedly free-market healthcare system (which the socialists complain about incessantly), the financial system appears to be rather socialistic– take from the rich (or anyone who tries to pay) to pay for the poor (or anyone who doesn’t want to or can’t pay).

“I do not deny that our charges look insane,” says Dr. Pont, CPMC’s chief medical officer. But all hospitals operate the same way, he says. “It’s the reality of the industry.”

Once its operating costs are factored into an item’s charge price, Dr. Pont says the hospital marks up that price by threefold to account for the fact that it only collects on average a third of what it bills in any given year. Although the nonprofit hospital reported $123.7 million in operating income last year, Dr. Pont says the money goes to charity care, cutting-edge medical equipment and new facilities to comply with the state’s stringent earthquake-safety guidelines. CPMC says it dispensed $5 million in charity care last year and gave another $6 million to community clinics and health centers.

The really surprising thing is that all these bills are realistically 1/3 of what is charged if we had appropriate payment approaches (e.g., government and insurance companies paid a realistic list price instead of starting with fictitious MSRPs). The people currently paying list price are at the poorest end of the spectrum– and the ones who most need the realistic sticker price over list.

Managing ways to get these individual items down is do-able if you start out at a price that people may be able to pay. Starting with fantasyland numbers and shifting costs all over the place in a way that no-one can unravel is tooth-fairy management: I have a mess on my hands but I’m trying hard so someone needs to pay me.

Sunlight is a great disinfectant– I’m looking forward to seeing it spread through medical billing.

Addendum: Health Care Renewal has a great post on Medicare’s paying super high prices for simple supplies (but they do keep administrative cost low)