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Healthcare Billing Process – The Cost of Doing Business

It has been well-documented that healthcare in this country is much too expensive. United States per capita healthcare spending is more than two times the average of other developed countries. Prices, not utilizaton, explain high healthcare spending in our country. Yet, America’s health outcomes are generally no better than those of our peers, and in some cases, worse. But wait until you learn about the estimated time and cost it takes to perform billing and insurance-related activities. Could this be similar to the Department of Defense purchase of a $15 hammer for $600?

The Institute of Medicine indicates that at least 30 percent of total healthcare spending goes to unnecessary, ineffective, overpriced and wasteful services. Based on this estimate, with annual U.S. healthcare costs currently around $3.2 trillion, we are paying through taxes, health premiums and out-of-pocket, approximately $1 trillion with no benefit our health, let alone our pocketbooks.

To put the amount of this waste into some perspective, in 2015, the total discretionary federal spending for military, education, housing & community, international affairs, energy & environment, transportation and other services was $1.1 trillion. We spend just as much in healthcare WASTE than we do in many of the necessary national investments to keep this country functioning. WOW!

But what commonly goes unnoticed is that a good portion of the medical cost is NOT related to actual patient care, but rather, the cost it takes of collecting payments from the time a patient makes an appointment until the time the health provider receives payment for the services.

Researchers from Duke University and Harvard recently published a report in the Journal of the American Medical Association (JAMA) to determine administrative costs associated with billing and insurance-related activities at a large academic medical center using a certified electronic health record (EHR) system. Through numerous interviews with people involved at various points of the billing process – in addition to 34 doctors – they analyzed five types of “patient encounters” to calculate salary and overhead costs when developing billing costs to third-party payers and patients. The results are both interesting and troubling.

In just one year, researchers found the academic health system incurred a cost of $99,000 a year in billing and insurance-related activities just to collect payments for a SINGLE primary care doctor! Despite having a ‘certified’ EHR system, it appears the economies of scale in this large medical center are somewhat limited, as associated costs for all payer sources (Medicare, Medicaid, numerous health insurance carriers and individuals) provide challenging nuances on claim adjudication requirements.

Here are the specific results for each of the five patient encounters analyzed:

  1. Primary care visit – To get paid for a typical visit, it took 13 minutes of billing processing time and cost $20.49.
  2. Emergency room – For each typical ER visit, it took 32 minutes of billing processing time at a cost of $61.54.
  3. Hospital stay – For a typical hospital stay, it took 73 minutes of billing processing time and cost $124.26.
  4. Outpatient Surgery – For a typical outpatient surgical procedure, it took 75 minutes of billing processing time and cost $170.40.
  5. Hospitalization with surgery – For a typical hospitalization that required surgery, it took 100 minutes of billing processing time and cost $215.10.

Put another way, the authors estimated the costs associated with physician-billing activities, as a proportion of professional revenue, was 14.5 percent for primary care visits, 25.2 percent for emergency department visits, 8.0 percent for general medicine inpatient stays, 13.4 percent for ambulatory surgical procedures, and 3.1 percent for inpatient surgical procedures.

Here’s the kicker. The authors of this research believe that the true costs of billing are most likely higher than their findings, primarily because the life cycle of a bill excludes the cost of negotiating prices with insurance companies, the cost of training doctors to handle billing-related tasks, not to mention the cost to ensure that ALL potentially reimbursable services are added to the bill and eligible for payment.

Still not convinced that waste in healthcare billing is not significant? According to an editorial in JAMA that accompanied the above findings, authors Dr. Vivian S. Lee and Bonnie Blanchfield write: “While non-health care industries typically might employ 100 full-time equivalents to collect payment for $1 billion in services, health care employs an astounding 770 full-time-equivalents per $1 billion of physician services.” The authors suggest that “the process of moving money from payer to hospitals and physicians in the United States consumes an estimated $500 billion per year, and 80% of that amount may be waste.” The medical center in the study employs the equivalent of 1,500 full-time employees to handle the billing process. It is no wonder that healthcare has become the largest employer sector in the U.S. David Cutler of Harvard recently wrote an insightful piece about the pros and cons affiliated with growing healthcare employment in our country.

Simplifying the healthcare payment ‘system’ can be a good first-step in eliminating sizeable waste in the largest U.S. sector. Employing jobs for the sake of combatting complexity and inefficiency is not a smart long-term national strategy. A lack of standardized contracts and price schedules across payor markets might go a long way on explaining why administrative costs in the U.S. are grotesquely higher than those in other countries.

All of a sudden, that $600 hammer purchased by the Department of Defense appears to be a comparative ‘bargain.’

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Psst…Bezos, Dimon and Buffett: Let’s Lift the Veil on Medical Prices

This past week, we learned of a bombshell joint announcement from three significant U.S. business leaders on fixing our healthcare system: Jeff Bezos (Amazon), Jamie Dimon (JPMorgan Chase) and Warren Buffett (Berkshire Hathaway). These three individuals and organizations plan to form a new independent healthcare company for their 1.1 million employees in the U.S.  In the past, many other large business organizations have attempted to transform this healthcare system that is ripe for disruption and widely considered wasteful and inefficient. To date, however, such activity has met limited success. Conventional wisdom suggests these three behemoth companies do not have critical market power to make inroads on transforming an industry intent on gobbling up more of the U.S. economy.

So, what is different with this latest announcement? Based on this rather skinny declaration, we know very little and only time will tell.

We do know, however, this ‘new’ approach cannot happen soon enough. David Cutler, a Harvard health economist, calculated that administration accounts for nearly a quarter of the total healthcare cost in the U.S. – double the rate in the next bloated country. Karl Vick wrote quite succinctly in TIME magazine: “The U.S. healthcare system is the antithesis of Silicon Valley. Grossly inefficient and user-unfriendly, it may be the least transparent enterprise outside of the Kremlin – and just as awash in money.”

Is it possible this new coalition may propel other employers (and other payers) to band together and look for local alternatives to drive transparency in an industry that is notorious for obfuscation? The common word that is often used to change a particular industry is ‘disruption.’ Harvard professor Clayton Christensen started the Christensen Institute to address how industries can be changed (disrupted), usually through technological innovation.

The ‘pricing’ veil – A personal experience

This past December, after experiencing dizziness and double-vision, coupled with a slightly slower speech pattern, a family member was taken to an urgent care center in Mankato, MN. After undergoing a few initial tests, it was recommended the patient be transferred by ambulance to a hospital two miles away – presumably for more in-depth testing that was not available at the urgent care facility. Needless to say, this sudden turn of events was loaded with confusion over the cause of the medical problem and the impending worry.

As a patient or a family member of a patient, we seldom are prepared for what issues and challenges we face when seeking care due to a sudden medical ‘episode’ or ‘emergency.’ In fact, we typically fly by the seat of our pants when we enter the unknown world of healthcare. Even the well-intentioned medical staff are sometimes bewildered by the symptoms and possible causes of those symptoms.

Confusion reigns further when, in our case, the hospital’s electronic medical records don’t communicate with the tests previously performed at the urgent care center just 30 minutes earlier – even though both facilities are part of the same medical system! Because of this, identical tests (EKGs, blood work-up, etc.) were replicated at the hospital – unnecessary charges equating to additional costs for the payers – and increased revenue for the provider(s). I’m still working on that issue, by the way.

Thankfully, my brother and his wife were with us, which was both comforting and beneficial while attempting to discern the next course of action relating to tests and treatments. By default, we quickly assumed the role of being the ‘patient advocate’ – a daunting task.

Gratefully, the bank of medical tests found no cause for the aforementioned symptoms, although not knowing the cause remains a concern. As many of you know, the shock does not end when the patient is discharged following a litany of medical tests that occurred during a two-night stay. The second shock wave arrived a few weeks later in the form of an ambulance invoice in the snail mail and a host of ‘explanation of benefits’ found on our carrier’s website for all the other charges that occurred at the urgent care center and hospital.

The invoice for a two-mile ambulance joyride was only $1,887.79, while the urgent care facility chimed in at about $5,744.* The hospital invoice for tests and a two-night stay represented the price of a brand spanking new mid-level automobile – $24,579.40. All told, the total charges were $32,211.19, while the carrier applied their ‘network savings’ of $2,779.35.

In their recent article, “Why the U.S. Spends So Much More Than Other Nations on Health Care,” authors Austin Frakt and Aaron Carroll make the case, using a recent study in JAMA along with other research, that higher prices are the real culprit, more so than higher utilization of services by Americans when compared to residents of other countries. Yes, despite the increase in population size and the aging of U.S. citizens, health spending greatly outpaced the spending found in other countries, even after adjusting for other factors. Ashish Jha, a physician with the Harvard T.H. Chan School of Public Health is quoted in the Frakt/Carroll piece saying, “The U.S. just isn’t that different from other developed countries in how much healthcare we use. It is very different in how much we pay for it.

Why is this ‘pricing’ problem happening in the U.S., you might ask? Much of this has to do with fundamental limitations of competition in the American healthcare system. This veil of secrecy has little to no accountability on how prices are determined. Bezos, Dimon and Buffett are looking to blow up this highly-guarded industry standard. The rest of us can no longer afford to play the role of ‘innocent bystanders.’

After discussing the dearth of sensibility in healthcare pricing with a friend who works in the insurance industry, he sent me the following comical YouTube clip that cleverly attempts to address the medical price conundrum.

My recent family experience was yet another reminder that no matter our professional background, seldom are we prepared to confront the shock and confusion of the healthcare we receive…and the bills that result from that care.

The status quo in healthcare must be blown up. If existing players and stakeholders resist being part of real solutions, then the eventual sea change will sweep them into a new reality that may be difficult to survive.

As ‘real’ payers of healthcare, maybe employers can become the change they wish to see in the healthcare industry. After all, sometimes business interests can align with those of humans.

But only time will tell.

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*Some billing discrepancies remain while attempting to discern a number of charges found on Mayo’s list billing with what was paid by my insurance carrier.  The list-billing from Mayo, I’m convinced, was clearly not meant to be a consumer-friendly document.

The Medical Error Problem – Do Employers Have Solutions?

Medical errors do not discriminate. In fact, preventable medical errors occur on an ‘equal-opportunity’ basis to patients, regardless of age, gender, race, political ideology and the type of medical plan you may (or may not) have. This means that employer-sponsored health plans are not exempt from medical mishaps and the associated costs that come with this problem.

Although the cost to employers can be massive – it is opaque and mostly hidden. Leah Binder, president of The Leapfrog Group, a national nonprofit organization whose mission is to address the quality, safety and affordability of American healthcare, has stated the cost associated with this unintended harm that silently creeps into the premiums that employers and employees pay – is a “hidden surcharge.”

This ‘surcharge’ not only includes additional costs to fix the medical problem resulting from the error, but the lost productivity of absenteeism and presenteeism – when employees lose time away from work and the emotional toll it takes when they do show up for work.

Simply put, employers own this problem, whether they know it or not. Relying on your insurance company or vendor to apply leverage on healthcare providers is most likely a delusional strategy in trying to improve this problem.

A 2013 Leapfrog Group white paper calculates that hospitals with a grade of “A” on their Hospital Safety Grade (hospitals who participate in Leapfrog surveys that rate patient safety efforts), will have a hidden surcharge for medical errors of $6,962, while a hospital with a grade of “C” or lower will command a hidden surcharge of $958 higher ($7,920 total). It is quite evident, especially when it comes to safety of medical care, not all hospitals are created equal. This is a fact that both patients and payers alike must acknowledge – and address.

Recently, Leapfrog announced that five states showed the most improvement over the five-year period since the Hospital Safety Grade’s inception. The states are Oregon, Rhode Island, Hawaii, Wisconsin and Idaho. Just as politics is considered to be local, so too is the healthcare that is delivered to patients. Though patient safety is a national problem, the solutions must begin locally, within each of our communities and within state borders. See how Iowa ranks in the most recent Leapfrog rankings.

With this in mind, what can Iowa employers do about patient safety issues? Actually, quite a bit.

What can Iowa Employers do about Patient Safety Issues?

Heartland Health Research Institute recently wrote a fact sheet, “What Employers Can Do About Medical Errors,” that addresses at least six approaches Iowa employers can consider taking to reduce the incidence of medical errors. The approaches include:

  1. Make insurance contracting decision-making process part of the medical error strategy.
  2. Develop a coalition with other like-minded employers and purchasers in your community.
  3. Meet with local hospital(s) and clinic(s) to convey the importance of safety and quality – require they demonstrate ‘cultures of safety’ within their respective organizations.
  4. Actively communicate the importance of safety issues to employees.
  5. Encourage employees to report medical errors when they occur.
  6. Visit with both state and federally-elected officials, trade association groups in which your organization participates, and other local commerce organizations.

It is tough sledding to make policy recommendations that would have a chance of becoming law. Instead, to disrupt healthcare into being delivered more safely, it really must begin with those who actually pay the healthcare bills – the employers and their employees, and yes, the taxpayers who ultimately fund Medicare and Medicaid and other state healthcare programs. In the past, this applied-pressure usually started (and ended) with only the largest of employers. But for this new movement to gain local traction, employers of all sizes and industries must embrace the approach that there is zero-tolerance for preventable medical errors.

Just remember, when we don’t demand safety in our healthcare, they don’t supply it. There’s no better time than now to begin taking action.

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