I'm always reading stories on how much health care costs are spiraling out of control, and how hospital charges are astronomical. I'm not necessarily going to debate this one, but I am going to briefly justify why hospitals might charge as they do, and what usually happens.

my mother in the hospital

Most hospitals in the country are losing money; those are the facts. Hospitals lose money for two main reasons. One, possible mismanagement; two, because of lousy reimbursements from insurance companies.

Mismanagement can take on many factors, from bad budgeting to not keeping up with what's going on in today's world to bad charging practices to paying too much in expenses and physicians and nurses and unions and whatever, etc.

When it comes to getting paid by insurance companies, most hospitals rely on the reimbursements from very few payers (sometimes spelled as "payors") for the bulk of their cash. Those insurance companies are Medicare, Medicaid, Blue Cross, and whatever the largest HMOs are in that particular area. Most of these folks pay on what's known as a fee schedule, which means that they've somehow predetermined how much they're going to pay the hospital for the service that's being provided. Some of these insurance companies will pay the hospital a percentage of what the hospital charges.

Hospitals have a few ways of setting their charges, but the main intention is to make sure they cover their costs, and hopefully make a bit of profit on top of that. Just for clarification, you have for profit and non profit hospitals. Each is trying to make a profit, but the difference is that non profits put the profit back into the facility, whereas for profits put the money into the pockets of its investors.

In either case, hospitals almost never get paid what they bill out; sometimes, what they get back is as little as 25% of what they bill out. We all read about people without insurance and how they bare the brunt of hospital charging, and to a degree it's true, because they don't get the upfront discounts that insurance companies get.

However, every person has the opportunity to apply for some kind of hospital charity care, which many do and receive, and in at least 50% of the cases people get discounts that drastically reduce what they have to pay, and in some cases they get the entire claim written off. Every hospital has postings that tell people how to try to obtain charity care, and hospitals write off millions each year.

So, if hospitals are writing off so much, they have only a few ways to try to recoup some cash. Prices will often rise so that they can maximize how much cash they'll get from those insurance companies they've contracted with to pay a percentage rate. Insurance companies that don't have contracts with hospitals end up paying more, or passing more of the costs on to their subscribers. Unless the patient qualifies for a nice discount, which many patients who have some kind of insurance don't usually do, the hospital will end up getting more money from this combination than any other combination of hospital billing.

Let me give you the quick down and dirty of hospital billing issues; this isn't comprehensive, otherwise I'd have to write a book!

First, no hospital gets paid what they bill from any insurance companies, only from patients who come in as self pay. If they qualify for some kind of charity care, they'll only get a percentage and have to write off the rest of the amount. Most states have an opportunity to get some kind of reimbursement from the state, but it's not close to even 40% of what they write off.

Second, Almost all hospitals have to charge more than what their services and supplies cost so they can get paid what's allowed from the highest insurance company's payment. For instance, if Blue Cross says they'll pay $100 for a procedure and the hospital bills $100, Blue Cross won't actually pay $100; they're going to pay only a percentage of that and pass the rest off to the patient. The same goes for Medicare, Medicaid, and pretty much every other insurance company the hospital is contracted with.

Third, hospitals have to bill for a lot of things they're never getting paid for. Think about inpatient billing: the hospital has to indicate all sorts of things insurance companies aren't going to pay for, as they're paying based on the patient's diagnosis. If a patient needs more services and supplies, sometimes the pharmaceuticals and extra tests, the hospital has to foot the cost. That's one of the reasons patients get sent home earlier; recuperation at home isn't all that much different than recuperating in the hospital for most procedures, and is cost efficient for all parties.

Fourth, everyone gets the same treatment, but not all insurances pay close to the same thing. Medicaid is usually the lowest payer; compensation is close. Medicare is the fastest payer; every other insurance company is a crap shoot. Blue Cross negotiates with hospitals or hospital groups how much they're going to pay for services; Medicare pays everyone within a certain area the same amount based on the diagnosis and procedure codes. No fault is dicey; it depends on the patient's policy coverage.

Fifth, the last thing I'm covering in this article, are the costs. Licenses, liability coverage, paying a lot of employees, paying a lot for computers, training, non-billable supplies, housekeeping, maintenance, cafeteria, counseling, compliance, certain types of physicians as staff, charity care allowances, budgeting for all sorts of things that can be almost anything out of the hospital's control... that's just scratching the surface!

Is it fair? Well, probably not. Then again, hospitals are expensive propositions. Physicians don't come cheap, and who'd want to go to a cheap doctor? Malpractice rates are skyrocketing because of all the lawsuits, some deserved, some frivolous. Expenses are growing, and technology is better, but more costly. Did anyone mention the cost of pharmaceuticals?

If you're interested in more information and think you can handle it; check out this video I did a couple of months ago:

Gone are the days when hospitals were making mega profits (which actually never happened), no matter what the thoughts of the many might be. Oh, the stories I could tell! But that'll be for another day.

© May
Mitch's Blog