MSNBC's recent September 18, 2009 article "Cost of surgery? Secret prices confound patients: Price tag for procedures varies by region, kind of coverage " http://www.msnbc.msn.com/id/32916970/ is an example of how reporters are just as confused as the general public about how health care pricing works. The following explanation of pricing is true for hospitals as well as physician pricing. It is meant to give an overview of the system,and is certainly not comprehensive. Our health care system has doctors and hospitals navigating multiple sources of payment for their services - which isn't necessarily a bad thing. But over the years as technology has improved, medical training has advanced, the insurance industry has mushroomed, consumer attitudes towards medicine have changed,and with the introduction of DRG's (see previous entry), payment and pricing have become more convoluted and confusing to the patient, not to mention doctors themselves. So here is an attempt to at least shed a bit of light on what has remained in the dark for a very long time, or at least until one is personally faced with a medical crisis.
1. CPT (Coding Procedure Terminology) codes are used by Medicare and all insurance companies to define individual medical services you receive from your doctor. Doctors must code the service they render based on these definitions and guidelines in order to be paid by Medicare and all insurance plans.
2. Every physician has a fee schedule which is a listing of all the specific medical services and procedures he/she performs, it's corresponding CPT code, and the amount he/she charges, or what is known as the fee for the service. (Example: Office Visit 99213 $50 )
3. Every doctors office has their own pricing or fee schedule. The majority of physician's will use the government's Medicare rate of payment as a base from which to calculate their fee schedule. On average a physician's fee schedule will range from 140 - 175% of Medicare rates. For example, take a physician who has a fee schedule that is 140% of Medicare's rate of payment, known as the "allowable" or allowed payment for a particular service. If Medicare pays, or allows, $100 for a tonsillectomy, then the doctors charge or fee for a tonsillectomy will be listed on his fee schedule as $140 ($100 x 1.40). The physician is required to bill Medicare the $140, even though he knows he will only be paid $100. No matter what his fee or charge is, ( 175% of Medicare, or $175, or 200% of Medicare, or $200) he will still be paid only $100 for the tonsillectomy by Medicare. Private insurance pays doctors typically 110 - 130% of Medicare. The same payment rules apply with insurance.
QUESTION: Who pays the difference between what the doctor's charge is and what it shows that my insurance or Medicare pays?
ANSWER: NO ONE. The difference between what Medicare or your insurance pays is written off by the doctor. The difference is not your responsibility, and it is not billed to the government or to any other entity. It also cannot be used as a tax write off for the doctor's business. It is simply noncollectable.
QUESTION: If the doctor is charging so much more than what he is paid by Medicare or insurance companies, and they are writing off the difference, why do they charge so much more than they get paid?
ANSWER: FOR THE FOLLOWING REASONS....
4. The insurance industry long ago imposed a legal mandate that doctors may have only ONE fee schedule for all patients, regardless of whether the patient has Medicare, private insurance or is uninsured. This has grown into a huge convoluted system because.....
5. There are many insurance companies: Blue Cross, Anthem, United, Cigna, plus a huge assortment of smaller plans, known as " third-party administrated plans". Each plan pays their doctors differently even for the same services. For example, Blue Cross may pay one doctor in their plan $150 for a tonsillectomy, and another doctor in their plan $140 for the same tonsillectomy. Anthem may pay $160 to one doctor in their plan for a tonsillectomy, and $130 to a different physician in their plan for the same tonsillectomy, and so on.
6. It is illegal for physicians to discuss pricing with other doctors. Doctors do not know what other doctors in their same specialty of care (unless they are part of a group of doctor's practicing together) are receiving from any private insurance plan. When a physician "negotiates" a contract with an insurance company, the doctor is required to submit their ONE fee schedule to the insurance company. If the doctor's fee schedule reflects a $100 charge for a tonsillectomy, and the insurance company has determined it would be willing to pay $140 to a doctor for a tonsillectomy, the insurance company will agree to pay the $100, since the doctor is willing (per his fee schedule) to take that amount for that procedure.
THE TAKE AWAY:
I. A DOCTOR'S FEE for any service he performs MUST BE HIGHER THAN THE HIGHEST AMOUNT ANY INSURANCE COMPANY WOULD PAY FOR THAT PROCEDURE. If it is not, the doctor is simply adding to the insurance company's profit margins by under-pricing his services.
II. INSURANCE COMPANIES DO NOT REVEAL WHAT THEY PAY OTHER PHYSICIANS, OR WHAT THEY ARE WILLING TO PAY.
III. SINCE EVERY INSURANCE COMPANY IS WILLING TO PAY A DIFFERENT AMOUNT, THE DIFFERENCE BETWEEN THE DOCTOR'S FEE SCHEDULE AND WHAT ANY PARTICULAR INSURANCE COMPANY PAYS VARIES WIDELY.
Finally, a few commonly asked questions about the current pricing system....
Question: Is there any benefit for a Doctor to charge so much over Medicare?
Answer: Sometimes. Typically between 1 - 3% of a physicians practice (more in some practices depending on the area) will have "commercial payers" that pay what the doctor's fee schedule actually charges. These payers include: Workmen's Comp policies, auto insurance claim policies, and payment for medical bills from legal settlements.
Question: Do uninsured patients have to pay from the doctor's one fee schedule? Isn't this a gross unfairness to those patients who don't have insurance?
Answer: Yes, and this is just what the insurance industry wants to propagate - the idea that health care is unaffordable without insurance. If you are uninsured, make sure you understand the next two and final points.......
7. By law, your doctor is not allowed to subjectively discount or reduce prices for his uninsured patients. Insurance companies prohibit physicians from having a different fee schedule to offer uninsured patients, or any other entity. Doing so is illegal. HOWEVER,....
8. If you do not have insurance, hospitals and medical practices will often offer what is termed "Cash Discount" pricing. If you are an uninsured patient, make sure you always ask for the "Cash Discount" price This is typically 110 - 120% of the Medicare allowable price. Depending on your doctor's individual fee schedule, this can be a significant savings.
.
Friday, November 27, 2009
Saturday, November 21, 2009
Insurance Lobby vs Law Lobby: Who's Winning?
The current Health Care Reform Bill passed today, a move that now allows it to be debated on the Senate floor. Since opposing sides have characterized the others position as either cow -towing to the insurance lobby or the law lobby, the question of who is "winning" at this stage begs to be asked. But the more telling question is who is losing. And the answer is consumers of health care, otherwise known as patients, and doctors. And the reason is because the impact of this particular legislation is continuing to take health care down a road that will now become a super highway. Although this will be touted as a progressive, more efficient, and more cost effective way to deliver health care due to it's ability to handle more people in the system, the reality is that it also ushers out an era of medical decision making that has made us the envy of the world. What we as patients lose is also what physicians lose - the autonomy that our doctors have had to do the right thing, for the right reason, at the right time.
Doctors are already currently experiencing this within their practices in the form of insurance denials for particular tests that are used to diagnosis by way of exclusion. For example, there is not a specific test to diagnosis Meneire's disease, (a debilitating disease involving the inner ear). Doctors will order an MRI to rule out other diagnoses (i.e. acoustic neuroma or multiple sclerosis), whose symtoms present similarly. These tests are now being routinely denied where in the recent past the test could be used to diagnosis by exclusion ("if it isn't this, then it must be that"). But what happens when a doctors request for an MRI is denied, and subsequently a more developed acoustic neuroma is discovered resulting in a more difficult and complicated surgery with increased risks of permanent hearing loss or facial nerve paralysis for the patient? The patient sues. And it is not the insurance company that is sued, it is the doctor.
So the answer to the question I started with - "Who is winning - the insurance lobby or the law lobby" is unquestionable. BOTH.
Doctors are already currently experiencing this within their practices in the form of insurance denials for particular tests that are used to diagnosis by way of exclusion. For example, there is not a specific test to diagnosis Meneire's disease, (a debilitating disease involving the inner ear). Doctors will order an MRI to rule out other diagnoses (i.e. acoustic neuroma or multiple sclerosis), whose symtoms present similarly. These tests are now being routinely denied where in the recent past the test could be used to diagnosis by exclusion ("if it isn't this, then it must be that"). But what happens when a doctors request for an MRI is denied, and subsequently a more developed acoustic neuroma is discovered resulting in a more difficult and complicated surgery with increased risks of permanent hearing loss or facial nerve paralysis for the patient? The patient sues. And it is not the insurance company that is sued, it is the doctor.
So the answer to the question I started with - "Who is winning - the insurance lobby or the law lobby" is unquestionable. BOTH.
Thursday, November 19, 2009
MEDICARE ABUSE: RAC TO THE RESCUE!
If you haven't heard of RAC, you will. RAC (the Medicare Recovery Audit Contractor) is coming soon to your neighborhood hospital and physicians offices, if it isn't already there. Certainly the news we're getting about the billions lost to Medicare Fraud is enough to infuriate any American taxpayer. The reporting on this has stated that there is a 40% increase in overcharging by physicians to Medicare. The assumption is that doctors are abusing the system by engaging in fraudulent activity by overbilling Medicare to keep their bottom line in tact. We should be outraged! Hence the reasoning behind independant contractors (RAC) hired by Medicare to hunt down the perpetuators of this fraud. There is no oversight for these independently contracted consulting firms. They are paid by a percentage of how much they recover for the government from the physicians or hospitals they audit. A great incentive to 'recover' as many dollars as possible. Hospitals and physicians are quivering in their labcoats. And it is no wonder. RAC can extrapolate overpayment by applying percentages to overall patient numbers. The dollar amounts could be devastating. And since there is no oversight of RAC, the appeal process for the hospital or doctor is questionable.
But wait, could there be more to this story? This 40% increase in so called Medicare fraud can be linked to the changes in documentation requirements implemented by Medicare over the past couple of years. So the "overcharging" has nothing to do with a change in the behavior or activity of the physicians or hospitals, but rather with a different set of algorithms and documentation requirements being applied to their activity. In other words, their behavior or activities haven't changed, but the rules have changed. And you need a computer with sophisticated software to figure out how to code appropriately for Medicare nowadays! AHA - perhaps that is also part of the 'agenda'.
But wait, could there be more to this story? This 40% increase in so called Medicare fraud can be linked to the changes in documentation requirements implemented by Medicare over the past couple of years. So the "overcharging" has nothing to do with a change in the behavior or activity of the physicians or hospitals, but rather with a different set of algorithms and documentation requirements being applied to their activity. In other words, their behavior or activities haven't changed, but the rules have changed. And you need a computer with sophisticated software to figure out how to code appropriately for Medicare nowadays! AHA - perhaps that is also part of the 'agenda'.
Saturday, November 14, 2009
What's Medicare Got To Do With It? Part II
Following up from the last entry, you now understand how much doctors and hospitals get paid from insurance companies. To summarize, it is Medicare that sets the rate from which doctors are paid. If you are insured and if you are like most people, all you care about is that you, or your employer, can afford your monthly premium, and your plan has affordable co-pay and deductible amounts (the dollars you pay directly to your doctor or hospital). But it is crucial to become more consumer savvy about what actual health care, not just insurance, costs. Insurance companies and our politicians don't want you to know. And Medicare is driving the bus so to speak. So let's take a very brief walk down memory lane with respect to Medicare....
DRG's The Key to the Castle...
From 1964 to 1985, Medicare paid for procedures and office visits based on what was actually done. The activity was described, billed, and doctors and hospitals were paid accordingly. Insurance companies at that time used all kinds of resources to calculate payments to physicians: St. Paul's Medical Reimbursement Fee Schedule (1987), Resource Based Relative Value Scale (RBRVS) which is a standard methdology based on the principle that payments for physician services should correspond with the resource costs for providing those services. Commercial insurance at that time did not unilaterally tie their wagon to the Medicare rate, or what has been termed the "allowable" amount of payment. But in 1985, the implementation of DRG's (Diagnostic Related Groups), which uses diagnosis codes to link with a procedure, changed the landscape of how and what is paid for medical services.
In 2007, author Rick Mayes described DRGs as: "..Rather than simply reimbursing hospitals whatever costs they charged to treat Medicare patients, the new model paid hospitals a predetermined, set rate based on the patient's diagnosis.The most significant change in health policy since Medicare and Medicaid's passage in 1965 went virtually unnoticed by the general public. Nevertheless, the change was nothing short of revolutionary. For the first time, the federal government gained the upper hand in its financial relationship with the hospital industry. Medicare's new prospective payment system with DRGs triggered a shift in the balance of political and economic power between the providers of medical care (hospitals and physicians) and those who paid for it - power that providers had successfully accumulated for more than half a century."
When doctors did a surgery prior to the use of DRG's for the purposes of payment, he was paid 100% of the Medicare "allowable" rate listed for each procedure done. For example, complete sinus surgery requires multiple individual 'procedures' that can be performed at the same time. The surgeon, prior to DRG's, was paid 100% of each Medicare allowable or insurance listed price for every procedure associated with the sinus surgery. With the implementation of DRG's, however, the surgeon is paid 100% of the Medicare allowable (or insurance plan rate)for the first of the procedures, 50% of the rate for the second, and 25% of the rate for the third and subsequent procedures. This dramatically reduced what was then being paid out for procedures. For purposes of illustration only, see the table below:
A Sinus Surgery: Multiple Procedures
Septoplasty First Procedure...
Medicare Allowable payment $1500
Before DRGs 100% or 1500
After DRGs 100% or $1500
Nasal ethmoidectomy Second Procedure
Medicare Allowable $1200
Before DRGs 100% or $1200
After DRGs 50% or $600
Turbinate reduction Third Procedure
Medicare Allowable $500
Before DRGs $500
After DRGs 25% or $125
Total Paid to Surgeon
Before DRGs $3200
After DGRGs $2225
**It would be much easier to read if I could insert a table or chart, but the formatting of this blog site won't allow it. Sorry for the inconvenience.
Commercial insurance pay the same way as Medicare, applying the 100%, 50%, 25% reductions to multiple surgical services performed on the same day.
When you hear politicians say that reform is needed "because doctors get paid for how many procedures they do - the more they do, they more they are paid", it is important to understand how they are paid. With the introduction of DRG's back in the 80's, the more physicians do, the less they are paid.
With most businesses, the more you do (services) or the more you sell (products) the more you are paid. The philosophical argument that is embodied in the current health care reform debate is that medical services, or more specifically your doctor and or hospital, should not be paid based on how many patients or procedures he/she is willing to see or treat. Their base of payment should not be driven by quantity. They should be salaried and their payment based on quality standards. But the inherent problem is what will be required from physicians to practice the art and science of medicine in that type of environment - when quality measurements for the practice of medicine are being managed and implemented by the government.
DRG's The Key to the Castle...
From 1964 to 1985, Medicare paid for procedures and office visits based on what was actually done. The activity was described, billed, and doctors and hospitals were paid accordingly. Insurance companies at that time used all kinds of resources to calculate payments to physicians: St. Paul's Medical Reimbursement Fee Schedule (1987), Resource Based Relative Value Scale (RBRVS) which is a standard methdology based on the principle that payments for physician services should correspond with the resource costs for providing those services. Commercial insurance at that time did not unilaterally tie their wagon to the Medicare rate, or what has been termed the "allowable" amount of payment. But in 1985, the implementation of DRG's (Diagnostic Related Groups), which uses diagnosis codes to link with a procedure, changed the landscape of how and what is paid for medical services.
In 2007, author Rick Mayes described DRGs as: "..Rather than simply reimbursing hospitals whatever costs they charged to treat Medicare patients, the new model paid hospitals a predetermined, set rate based on the patient's diagnosis.The most significant change in health policy since Medicare and Medicaid's passage in 1965 went virtually unnoticed by the general public. Nevertheless, the change was nothing short of revolutionary. For the first time, the federal government gained the upper hand in its financial relationship with the hospital industry. Medicare's new prospective payment system with DRGs triggered a shift in the balance of political and economic power between the providers of medical care (hospitals and physicians) and those who paid for it - power that providers had successfully accumulated for more than half a century."
When doctors did a surgery prior to the use of DRG's for the purposes of payment, he was paid 100% of the Medicare "allowable" rate listed for each procedure done. For example, complete sinus surgery requires multiple individual 'procedures' that can be performed at the same time. The surgeon, prior to DRG's, was paid 100% of each Medicare allowable or insurance listed price for every procedure associated with the sinus surgery. With the implementation of DRG's, however, the surgeon is paid 100% of the Medicare allowable (or insurance plan rate)for the first of the procedures, 50% of the rate for the second, and 25% of the rate for the third and subsequent procedures. This dramatically reduced what was then being paid out for procedures. For purposes of illustration only, see the table below:
A Sinus Surgery: Multiple Procedures
Septoplasty First Procedure...
Medicare Allowable payment $1500
Before DRGs 100% or 1500
After DRGs 100% or $1500
Nasal ethmoidectomy Second Procedure
Medicare Allowable $1200
Before DRGs 100% or $1200
After DRGs 50% or $600
Turbinate reduction Third Procedure
Medicare Allowable $500
Before DRGs $500
After DRGs 25% or $125
Total Paid to Surgeon
Before DRGs $3200
After DGRGs $2225
**It would be much easier to read if I could insert a table or chart, but the formatting of this blog site won't allow it. Sorry for the inconvenience.
Commercial insurance pay the same way as Medicare, applying the 100%, 50%, 25% reductions to multiple surgical services performed on the same day.
When you hear politicians say that reform is needed "because doctors get paid for how many procedures they do - the more they do, they more they are paid", it is important to understand how they are paid. With the introduction of DRG's back in the 80's, the more physicians do, the less they are paid.
With most businesses, the more you do (services) or the more you sell (products) the more you are paid. The philosophical argument that is embodied in the current health care reform debate is that medical services, or more specifically your doctor and or hospital, should not be paid based on how many patients or procedures he/she is willing to see or treat. Their base of payment should not be driven by quantity. They should be salaried and their payment based on quality standards. But the inherent problem is what will be required from physicians to practice the art and science of medicine in that type of environment - when quality measurements for the practice of medicine are being managed and implemented by the government.
Tuesday, November 10, 2009
What's Medicare Got To Do With It? Part I
Everything. Health care reform and Medicare are inextricable as our legislators attempt to construct or deconstruct how we as a nation are going to afford health care in the coming decades. Even if you are too young for Medicare benefits and currently have insurance, and yes, even if you don't have insurance at all, Medicare is key. It is key for a number of reasons, the most important being it is the pay schedule that private insurance companies use to tie what it pays to doctors and hospitals. Forget everything you have been told about private insurance 'negotiating' with doctors and hospitals about what to pay them. Commercial or private insurance has been using Medicare as a basis for payment for years. Typically they will pay 20 to 30% over current Medicare rates. I have currently seen this rate drop to 15% over Medicare. But never more than 30%. This is the range of 'negotiation', and unless there is a compelling reason given why an insurance company should pay a particular doctor or hospital more than what they are offering, they state the % of Medicare they are willing to pay and that is the end of the conversation. That 'compelling reason' may be that there is only one physician offering a particular service. That may get the doctor a percentage or two more than what was initially offered. But the take away is that doctors and hospitals aren't 'driving the bus' so to speak, on what they get paid - Medicare is.
As a government social program, Medicare has always been, as it should be, the lowest payor for health services. Most physicians regarded accepting Medicare patients as their responsibility to care for our country's aging population. The doctor's patients who had private insurance made up for the low payments of Medicare. But Medicare has been been reducing what they pay doctors and hosptials for the past twenty five years. Private or commercial insurance companies wised up, and tied their their wagon to Medicare. Subsequently, insurance companies have been able to steadily reduce their payments to doctors and hospitals over the past fifteen years.
It is for this reason I don't really understand how the public option will work in increasing competition among the private insurance industry, as our politicians so emphatically posture . Perhaps commercial insurance companies will have to lower what they are charging businesses/individuals for their plans since they will be competing with the public option. I understand that. But that is what we pay for insurance, not what is paid to our health care providers. There is no competition driving what is actually paid out for our health care services, ie what we pay the doctors. For medical practices struggling to stay in business, their payments from private insurance will continue to plummet because, as explained, they will continue to be paid based on Medicare and/or the so called public option. Because private medical offices, or self employed physicians have no control over what they are paid (no negotiating with the insurance companies) and their costs of doing business (rent, staff, technology, medical malpractice premiums) continue to rise, they will not be able to stay in business. Private medical offices, or self employed physicans will cease to exist and a single payor system will emerge. Insurance companies win in either scenario.
As a government social program, Medicare has always been, as it should be, the lowest payor for health services. Most physicians regarded accepting Medicare patients as their responsibility to care for our country's aging population. The doctor's patients who had private insurance made up for the low payments of Medicare. But Medicare has been been reducing what they pay doctors and hosptials for the past twenty five years. Private or commercial insurance companies wised up, and tied their their wagon to Medicare. Subsequently, insurance companies have been able to steadily reduce their payments to doctors and hospitals over the past fifteen years.
It is for this reason I don't really understand how the public option will work in increasing competition among the private insurance industry, as our politicians so emphatically posture . Perhaps commercial insurance companies will have to lower what they are charging businesses/individuals for their plans since they will be competing with the public option. I understand that. But that is what we pay for insurance, not what is paid to our health care providers. There is no competition driving what is actually paid out for our health care services, ie what we pay the doctors. For medical practices struggling to stay in business, their payments from private insurance will continue to plummet because, as explained, they will continue to be paid based on Medicare and/or the so called public option. Because private medical offices, or self employed physicians have no control over what they are paid (no negotiating with the insurance companies) and their costs of doing business (rent, staff, technology, medical malpractice premiums) continue to rise, they will not be able to stay in business. Private medical offices, or self employed physicans will cease to exist and a single payor system will emerge. Insurance companies win in either scenario.
Monday, November 2, 2009
End of Life Legislation - The Crux of the Matter
We have been hearing a lot about a particular component to the healthcare legislation being crafted and that is the End of Life Counseling that will be required for all patients. At one point, the Republicans deemed it a "Government Death Panel" which the Democratics quickly denounced as simply untrue and another political scare tactic. The reality is that End of Life Counseling between patients, their familys and their doctors has been a part of medical care for many years. In the 80's, Eastern Virginia Medical School was one of the first to have a program dealing extensively with end of life issues, dealing with the myriad of ethical and legal dilemmas that are associated with the topic. It was part of the curriculum and training of their students, future doctors, to have these types of conversations with their future patients. This curriculum became a model for other medical schools around the country. I don't know the percentage as a fact to quote, but I suspect that most medical schools have this type of program in place in the 21st century. In addition, most hospitals (and again, I do not have the statistics to say whether 75, 80 or 90 percent) have Ethic Committees where teams of doctors discuss individual cases and address the complex questions end of life issues bring to the table, their commitment to the patient being their number one priority.
And here is the concern: by legislating "end of life counseling", it is a slippery slope to government legislating other aspects of medical care. Many physicans believe there will be no turning back once we allow this foot in the door for direction by the government in this area. It is a point of no return in the fight for physicians to be directing the care of their patients. What we now consider to be a sacred and private relationship between physician and patient will be redefined. It will be you, the government, and your physician. For most private practioners, the doctors in your community, this is the number one issue causing them concern.
And here is the concern: by legislating "end of life counseling", it is a slippery slope to government legislating other aspects of medical care. Many physicans believe there will be no turning back once we allow this foot in the door for direction by the government in this area. It is a point of no return in the fight for physicians to be directing the care of their patients. What we now consider to be a sacred and private relationship between physician and patient will be redefined. It will be you, the government, and your physician. For most private practioners, the doctors in your community, this is the number one issue causing them concern.
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