Pricing for Self Pay in Health Care Marketplace

“Dad, I’m at the emergency room.”

Oh, great. Send your daughter off to college—across the country, for heaven’s sake—and one thing you notice right away: You have REALLY lost control. Unless you own a Lear or a nice $20m Gulfstream, there is no way to get to California quickly in a crisis.

OK, maybe not a crisis. Turned out she was fine—too much caffeine, too little sleep. They put in an IV, did some blood tests, then sent her back to campus.

I wish I could say that there was nothing wrong with ME when I got the bill! Are you sitting down? The hospital sent me a bill for $2,335. If that wasn’t bad enough, I soon got the bill for the “accessories,” like the extras you get with some gadget on a late night infomercial: “But that’s not ALL! Buy the hospital visit today for only $2,335 and get a doctor for ONLY $547! And don’t miss the lab work! Call the toll free number on your screen and get your personalized pathology report (YES, we test YOUR OWN BLOOD) along with your hospital visit WITH the doctor for a mere $354.25! That’s right—the whole emergency room visit for just $3,236.25!!

Many of you have had a similar experience. What’s my point?

First, price and a common sense notion of cost are often very different. In health care, they are rarely even close. If my daughter hadn’t shown up at Foothills Presbyterian that evening, would my favorite emergency room, the wise, kind and caring physician and my personalized pathology lab have avoided more than $3,000 in out-of-pocket expense? Not likely. But the capacity to provide care when needed—having the health professionals standing by with all the gadgets and materials needed—is very expensive indeed. The hospital expects some help paying down the debt it incurred when it built new emergency wing and the doctor is still paying off med school bills. How much of that cost should I be paying? With all deference to the accounting profession, there isn’t a right answer. Accountants are very good at coming up with rules and principles that will create AN answer. But different accountants would apply the same rules and principles and come up with different answers, none of which would seem right to the man-or-woman-on-the-street.

Second, the prices developed in a health care setting don’t even have a lot to do with accounting. Instead, prices are set for purposes of maximizing reimbursement. Only a small share of the population actually expects to write a check to cover the cost of an ER visit. I have health insurance and I expect my friends on Court Street in Rochester to pick up most of the tab. The hospital, then, is setting prices not according to what they expect to get paid but, instead, according to what they think will generate the highest fee AFTER the payer gets done with them. Payment from insurers is typically discounted in some fashion from the sticker price. And the hospital believes (or hopes) that the higher the sticker price, the more money they’ll actually get in the end. (Of course, as insurers are wise to the game, the dance over payment is often more complicated than a simple, “Well, we pay 75% of the sticker price.”)

And I have evidence: The second line on the bill from the hospital read “-$1,624.21 Private Pay Adjustment” leaving a balance of $710.79 (before the doc and the lab, of course). My daughter’s insurance card was lost in her dorm room and the hospital believed initially that she didn’t have health insurance.

As I’ve grumbled before in this column, health care finance is a complete disaster. The payers are endlessly developing new ways to squeeze cost and the providers are endlessly responding with new and creative ways to increase fees. And everyone is convinced that the system is unfair, leading to insidious erosion of the very notion of reasonableness. Like escalating violence between urban gangs or Mafia families, fairness today has more to do with who-did-what-to-whom yesterday.

Which leads me to my final anecdote: My brother called me a few weeks ago, astounded to have learned that public “payers”—mostly Medicare & Medicaid—are responsible for nearly half of all medical expenses in this country. “Kent, we’re halfway to single payer!” Some days I have to wonder.