Calculating the charge of today’s medicine

Published May 25 2013

A fact, well known for decades, recently made headlines: Hospital charges across the nation, state, and even the same county are all over the map and always very high.

Actually, the same is true with physician charge.

Medicare used to pay the hospitals depending on “cost basis.” The hospitals got reimbursed based on whatever their cost was for buildings, equipment, expenses and other overhead. Kudos to the power of lobbying industry.

Then came DRGs — diagnostic related groups — in the 1980s to control the escalating health care costs. The payment is fixed depending on the patient’s diagnosis. The more sick the patient was made to appear or the less the hospital spent on the patient, the more it got to keep.

To assure proper medical care, the government came up with the concept of punishment for poor outcomes. Finally, a bright idea, pay for performance.

Most of the private insurers started paying physicians a certain prenegotiated percentage of what Medicare pays. Similarly. they make fixed and more generous contracts with the hospitals.

Why do hospitals and physicians charge excessively and erratically, when they know before hand what they get paid? Because they are looking to the future.

In the past, whenever Medicare increased reimbursements for physicians, the new payment would be the lesser of three considerations: the amount the physician billed for that service before the increase; the current increased reimbursement rate or a physician’s current charge. It forced even the most decent physicians to keep the charges artificially high to prepare for the future.

Also private insurers, without pre-existing contracts with a particular physician or hospital, will pay a certain percentage of the original charge, high or low. Hospitals and physicians keep the charges artificially high for everybody, which also meets certain legal requirements. They simply write off a portion of the bill not allowed by the government or private contracts.

In most cases, the charge on the original bill is nothing more than a scary high number, aggravating enough to send the patient back to the hospital, this time with a heart attack.

What happens to the uninsured poor? Hospitals typically write off a certain percentage of the bill, if they do not qualify for Medicaid. Therein lies the problem. Forty percent of the higher original charge is always going to be considerably more than 40 percent of a reasonable charge (what Medicare would allow) or 40 percent of the real cost.

Trying to collect more from the very poor that cannot afford it is most definitely not a fair deal or morally responsible behavior.

Only time will tell how much the new affordable care act helps.

Stay healthy. Prevention, whenever possible, is still the least expensive option.

This article was originally published in the Tampa Bay Times:

Rao Musunuru, M.D. Mini Bio

Dr. Rao Musunuru, who has called Pasco County his home since 1981, was instrumental in transforming a 50-bed rural hospital into a 290-bed Heart Institute at Bayonet Point/Hudson Regional Medical Center. He has received numerous awards and continually serves the community at large through education and philanthropy.