How Much Will My Visit or Surgery Cost? Part II on Medical Pricing

Most patients (consumers of health care) are frustrated by the fact that they can't get anyone to answer the question "How much it will cost?" (See www.msnbc.msn.com/id/32916970/ )when they are considering elective surgery (i.e. a tonsillectomy) or even a visit to a specialist. I say most and not all because the fact is that the majority of patients up to this point have only cared about the portion of the monthly premium that comes out of their paycheck to pay for their health insurance coverage. And most people don't even know, or care, what their employer pays for their insurance. This disconnect from what is actually being paid TO the PROVIDERS of our health care is one of the major reasons insurance companies and government have been able to dominate and distract the public about the issue of cost and price for health care services. The following is applicable whether you have insurance or not. If you do not have insurance, make sure you read the previous blog titled "The Nitty Gritty...." as you will be able to determine what your discounted amount will be using the following. So here is Part II on how all this works.....

1. Billing and payment for any medical service you receive occurs AFTER the service is completed. Your visit is coded by the doctor and billed AFTER you see the doctor or have the procedure because..

a. Medical decision making is dependant on the the findings of the physician during the visit as well as during surgery. This may be different from what was initially assumed or planned. Human beings are not made of sheet metal, and therefore the science and art of medicine is not always predictable. For this reason, billing for what is done medically has always occurred after the service has been performed, when documentation for medical decision making can be reviewed by the government/health insurance company in order to support payment to the doctor/hospital.

b.This is how the health insurance industry (both private and government directed, such as Medicare or the VA system) has structured how doctors and hospitals are paid.


2. A doctor's office, as well as the hospital, has one fee schedule.Their fee schedule will not be the price that you as an insured patient will be charged. (see "Nitty Gritty Facts About Doctor's Prices").

Question: Why can't I just call my insurance company and find out how much it costs to see the specialist or have a tonsillectomy?

Answer: Insurance companies will only give pricing information to the doctors office doing the procedure because of the differences of payment for the same service to different doctors under their plan. Insurance companies keep their payment schedules to doctors confidential for this reason. This is, as the MSNBC article suggested, the root of the "secrecy" that underpins the pricing of medicine. If you tried to call your insurance company to get the pricing of your procedure, they would not give be able to give you that information. (See "Nitty Gritty" post to explain why there is not ONE pricing formula applied to medical services.)

Here is a step by step process to get a range of pricing for your medical service BEFORE it is done. Remember, every surgical procedure will have three components to it's cost: the surgeon's fee, the anesthesiologists fee, and the facility fee (hospital or out patient surgery center). The following steps can be applied to any surgery:

1. If you have insurance, call customer service and ask these questions:
What is the remainder of my deductible that needs to be paid? What are my surgical benefits? If you don't know how your deductible 'works', now is the time to ask.

2. You will then have three calls to make: the doctors office, the anesthesolgists office, and the Business Office of the Hospital.

3. What you should know before you call: Your doctors office and the hospital will be verifying the benefits per your insurance plan before the surgery to get a prior authorization if required. This is not a guarantee of payment, since payment is dependant upon:

* whether the insurance company deems it medically necessary,
* the documentation supports what was done,
*or whether they consider the procedure experiemental or not.

None of this is verified ahead of time except for certain triggers that have to be met to approve the surgery.

Remember, each of the providers - doctor, anesthesiologist, and facility - will be paid separately. In other words, you will be responsible for each provider's bill individually. You and/or the insurance company will issue separate checks to each.

4. Call the doctor's surgical scheduling nurse and ask: "I am scheduled to have a _____. What is the CPT code? Who will be doing my anesthesia? Do you have the number to their business office?

The CPT code is needed to determine what payment is associated with the service performed. Remember, an exact amount is not possible until after the service is completed. What you are looking for is a reasonable range of cost.

Once you have the CPT code, ask to speak to the doctor's billing department. "I am having a scheduled to have a tonsillectomy. The CPT code is ________, can you tell me how much you expect my insurance company to pay for this procedure?" If they can't (or won't), then ask for the amount Medicare reimburses for the procedure, and don't take no for an answer.

Once you have the Medicare allowable, multiply that amount by 1.20 (120%) This will give you an approximate amount that the doctor will be paid (and you will be responsible for) give or take 10 - 20%. (For example, if Medicare pays $250 to the doctor for a tonsillectomy, you can expect your insurance company to pay between 110 and 140% of this rate to the doctor. By calculating the amount using the 120% firgure, the doctor would be paid $300 ($250 X 1.20).

5. Next, call the business office of the anesthesiolgist group. "Your group is administering anesthesiology for my surgery on (the date). The CPT code is _______. Can you tell me how much you expect my insurance company to pay for this procedure?" Again, if that fails, ask for the Medicare amount and calculate it yourself (multiplying the amount by 1.2)

6. Next, call the business office of the hospital. Ask what the anticipated payment from your insurance plan would be for the procedure (CPT code) you are having. Follow the same as above. (This will be the biggest challenge in the process!)

7. Add all three of these together and you will have the total cost of your surgery. Depending on whether you have met your deductible,( the amount required by your plan that you pay before any of your benefits kick in) will determine how much of the portion you will owe out-of-pocket. (For example, if you have a $5,000 deductible, and so far have only had $150 in medical expenses, you still have $4,850 to meet your deductible and will have to pay for services directly to the providers. If your tonsillectomy costs a total of $2,500, you will have to budget to pay all of it out of pocket with none of your insurance plan benefits kicking in.) Knowing what your deductible is and how much is left to be met is crucial. That and how much you can reasonably expect the cost to be ahead of time is absolutely requisite and a first step (albeit a baby step!) towards health care reform for the consumer in it's most practical form.

About Your Doctor's Fees - The Nitty Gritty Facts

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.


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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.