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.