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By Michelle Fortune

Healthcare Umbrella

Since recently completing my annual healthcare check-ups, I’m reminded of how confusing medical bills can be for patients. As we continue to explore the escalating costs of healthcare, hospitals are working diligently to control costs while simultaneously striving to improve quality of care.

More than once in my nearly 30 years of healthcare experience, I have had a family member, friend or patient say to me, “My hospital bill is so confusing and way too expensive.” While I don’t have enough space to explain everything about healthcare billing in this single column, over time, I hope to provide better awareness of how the process works.

Healthcare billing is made more challenging by the fragmented healthcare system available in the US. Millions of Americans are not able to afford the healthcare they so desperately need. Meanwhile, hospitals must serve the community 24 hours a day, seven days a week and deliver emergency care regardless of a patient’s ability to pay. In our country, there are more than 1,500 insurers, and each has multiple plans along with their own requirements for hospital billing and payments. To say this is a complicated situation is a great understatement. Healthcare providers are highly regulated, and the equipment they purchase is very expensive due to those regulations and also because of the level of advanced technology required.

For example, it would cost a small hospital over $350,000 to replace the standard nurse call light system. Additionally, to purchase a 3D Mammography unit is half a million dollars. Add in costs for IV pumps, wheelchairs, patient stretchers and all the other things you see at a hospital, and you have a recipe for a complex and very expensive story.

I would like to discuss the concept of hospital billing that addresses charges versus payments. It is important to understand that what a hospital charges on your bill is rarely what they get paid. For Medicare and Medicaid patients, the rate that will be paid (or the allowable amount), regardless of what a hospital charges, is set by the government at the federal and state levels respectively. At St. Luke’s Hospital, between 70 to 75 percent of the care we provide typically falls under one of these plans. Private insurance companies negotiate payment rates with hospitals directly. Remember what I said about the number of insurers? There are many of them, and even a small hospital like St. Luke’s has hundreds of insurance contracts with rates that vary significantly. Larger insurance companies, you may be familiar with, often demand large discounts on care as they cover the highest collective number of insured lives. To be “in network” with them may require a steep discount from the hospital to meet contract terms.

This is a concept that could be compared to a discount on a standard rate at a hotel. The list price of the hotel may be $500 nightly, but companies negotiate lower rates if they use the hotel often. If you are a company that uses the hotel weekly, your discounted rate may be much lower than a company who uses the hotel a few times per year. The hotel might barely cover costs with the deeply discounted rate, but it may be better to have a full hotel and make a margin on some of the rooms than have it two-thirds empty with only standard room rates paid.

It is important to understand that Medicare and Medicaid often do not pay enough to cover the actual costs incurred by the hospital. The American Hospital Association reports that in 2016 two-thirds of America’s hospitals lost money on the care they provided to Medicare and Medicaid patients. When this occurs, a balancing act must occur to ensure total payments received for all care exceeds total costs of providing all care.

So, hospitals often depend on making a positive margin on the care they provide to privately insured patients to “make up the difference” on the loss from Medicare and Medicaid. For hospitals who have small volumes of Medicare and Medicaid patients and a large number of privately insured patients, it is an easier journey to achieve that balance than for those who have large volumes of Medicare and Medicaid covered patients. Small hospitals, like St. Luke’s, must carefully manage all expenses to ensure they can remain open and available to patients while maintaining reasonable pricing for everyone.

In closing, the next time you receive a healthcare bill, look not only at the charge for the service provided, but also at the allowable amount. That $5,000 charge might actually be an allowable of $1,225. Next, think about the cost of the care provided by the hospital, which in many cases, may be near or above the allowable amount that will be paid in total by the insurer and patient.

Over time, I will share additional information on hospital billing and finance, and if you have specific questions, please reach out to me. Be sure to follow us on Facebook, Twitter and LinkedIn or visit our website at SaintLukesHospital.com. We are eager to hear from you, connect with you and serve you.

Michelle Fortune can be contacted at Michelle.Fortune@slhnc.org.