Hospital Reimbursement -- Through the Looking Glass

When we orient new hospital board members, all of whom are bright, capable individuals, often with lots of business experience, they are usually amazed at the complexity of hospital reimbursement or payment systems. They are accustomed to the way the majority of businesses operate: goods or services are provided; a bill is generated reflecting certain fixed prices; the customer then pays as invoiced. That’s what most of us experience on a daily basis. I go to the grocery store to buy bananas, the checkout clerk weighs them and translates the price per pound into a price for the bunch, and I pay that amount. I should also mention that if I have forgotten my wallet, I can’t take home the bananas. The store has no obligation to meet my need for bananas, and even though I go to the same local grocery store all the time, they haven’t chosen to extend me credit.

Contrast the transaction that takes places for my purchase of bananas to what happens during a visit to the Emergency Department at South County Hospital or virtually any hospital in the country. The patient arrives and receives a medical assessment before there is any discussion of the ability to pay for services. Our obligation, consistent with our mission, is to address the patient’s chief complaint and ask questions about how he or she will pay for the service later. At some point during the stay there is a conversation about whether the patient has insurance. If so, we immediately extend “credit” even though we aren’t sure the insurer is obligated to pay and, in many cases, we don’t even know how much the hospital will be paid for the service. If we know the patient’s insurance requires a co-pay (a fixed amount the patient is obligated to pay for a given service), we attempt to collect it at the end of the visit. If the person has forgotten to bring cash, checkbook, or credit card, we agree to send a bill. (We hope they agree to pay us.)

At this point the process gets kind of complicated. The patient’s visit can involve a myriad of services in addition to the doctor’s assessment and treatment plan. Depending on the complexity of the presenting problem, a dozen laboratory tests, one or two imaging exams (X-ray, CT, MRI), and the administration of intravenous drugs. The charges (prices) for all those services is entered into the hospital’s billing system. The charges, however, have little or no bearing on what the hospital will eventually be paid for the emergency visit. In most cases, they don’t even relate to how much the service cost us to deliver. Nonetheless, the hospital is required to assign a unique code or identifier to each service, used by most insurers—the federal government for Medicare and the state government for Medicaid. (One of the challenges is meeting the specific requirements of each insurer or government payer. Sometimes it feels like they’ve made it complicated so they can find an excuse to delay payment…)

Once all the charges are assembled, the hospital submits a claim to the insurer or government payer. For people without insurance, a traditional bill is sent with each of the itemized charges, similar to your grocery receipt but usually more difficult to understand. The commercial insurers, assuming the claim is properly completed and the patient’s coverage is verified, then pays the “allowable amount” less whatever the patient is obligated to pay. The allowable amount can be anywhere from 10 to 70 percent of the charge and is based on what each hospital negotiates with each insurer. It is not unusual to have very different payment rates for the same service from different insurers. Also, rates of payment vary significantly from one hospital to another for the same service. A few years ago, the Boston Globe published a series of articles that showed some hospitals receiving 100 percent more than others from an insurance company for the exact same procedure or diagnostic imaging exam. Most insurers prohibit hospitals from disclosing what they are paid for a given service. The insurers have defended the lack of transparency whenever hospitals have protested; they do not want to be pressured to reimburse all hospitals at the highest rate for any given service. The government payers start with the same basic rate for all services, but adjust their payment to each hospital based on whether the hospital is involved in graduate medical education and the relative wages in a given geographic area. These adjustments have been under perpetual study ever since Medicare’s inception in 1965.

Does all of this sound confusing? It should. Hospitals employ reimbursement specialists to negotiate better rates and to maximize payment from insurers and government agencies. Insurers employ adjusters to find problems with claims, which often delays payment. The government employs contractors who audit hospital payments and are paid a percentage of the amount they are able to take back from hospitals because they didn’t comply with the ever-changing rules. The whole process is expensive and clearly does not add value to patient care. I often marvel that I can go anywhere in the world and pay for something with my American Express card, but a medical insurance card doesn’t even have a magnetic strip to provide our hospital system with demographic information. I’m hoping this system of payment for healthcare can be simplified during my lifetime. I look forward to your comments. --Lou Giancola