This article was originally published in The Litchfield County Times on August 18, 2000.
In his recent article on this page, Sharon Hospital's Dr. Jerome K. Roth commented on the need to educate our community about the pressures of insurance reimbursement. As someone who has worked for a large insurance company (Prudential), a small hospital (Sharon Hospital) and a primary care physician practice (Dutchess Medical), I have spent a career struggling with those pressures and their effects on real people. I would like to take a stab at elucidating them.
Consider a pricing model that we all understand: supermarkets. When you go into a supermarket, prices are clearly marked. They are not negotiable. If you want to buy something, you have to pay for it before you walk out the door.
None of this is true in health care. In health care you never know what you have purchased until after you have bought it. Let's say you're sick and go to see your doctor. The doctor does whatever he feels is necessary to diagnose and treat you. After having seen you, the doctor decides whether to code your visit as a Level One, Two, Three, Four or Five, depending on what he did, how long it took and how complex your medical situation is.
The service you have purchased and the charge depend on how the doctor codes your visit. Even for the same level of service, the charge will vary depending on whether you are a new or an established patient. And the doctor's charge may be the least expensive part. The total bill for your encounter with the medical system will also include charges for tests the doctor ordered or medicines the doctor prescribed.
The same thing happens in a hospital, only the dollars are higher.
When I was billing manager for Sharon Hospital, we would occasionally get inquiries from patients who wanted to know before having surgery how much a certain procedure would cost. We were never able to answer the question to a patient's satisfaction. We could say, "We have identified the last 10 patients who had this procedure, and their total hospital bills ranged from $9,000 to $14,000. If the procedure goes smoothly and you recover quickly, your bill might be at the low end of the range. If it does not go well or you develop post-operative complications, it could be much, much higher. There is no guarantee, and no upper limit."
A second peculiarity of health-care pricing is that while everyone is charged the same price, different customers end up settling their bills at different discount levels. Generally speaking, the rich pay the least and the poor pay the most.
Say again? In the United States, health-care providers are required by law to charge the same amount of money to any patient to whom they provide a specific service. Let's say a primary-care doctor sees an established patient who is sick and codes the visit as a "99213" - a Level Three sick visit. The doctor charges the standard fee for this service: for example, $67.
Now, a self-pay (uninsured) patient will be charged $67 and will probably pay $67. If the patient has managed-care insurance, then the doctor will be paid the fee he agreed to accept in his managed-care contract - probably $50 to $55 - $10 from the patient's co-pay and the rest from the H.M.O. If the patient has Medicare or Medicaid, then the doctor gets the Government-determined amount for that service in that county. The last time I looked, and it happened to be in Dutchess County, N.Y., Medicare paid $43.62 for a Level Three sick visit, and Medicaid paid $11 for the same service.
Why do doctors and hospitals accept such low payment rates from insurance companies and from Government programs? Most feel they have no choice, lest they lose patients. And if Dr. Doe tried to band together with other doctors to negotiate higher rates, then the managed-care companies might sue them for anti-trust violations. Also, for all the brouhaha about low H.M.O. payments, many doctors find that the managed-care programs are their highest institutional payers. H.M.O.'s subsidize doctors' ability to treat Medicaid patients and offer free care.
A third phenomenon in health care is that it take too much time to get paid. In a supermarket or any other retail business,you pay before you walk out with your purchase. Doctors and hospitals produce their bills after the service has been provided and then send it to the responsible party for payment. Though Medicare pays within 45 days, and sometimes faster, managed-care companies are often erratic in their payments, and Medicaid may take a year or longer to pay.
Finally, health-care billing has appalling administrative costs and legal risks. Take Medicare. In an interview in The Litchfield County Times, Hud Connery, whose company proposes to buy Sharon Hospital, referred to Medicare's "45,000 pages of regulations." Among those regulations, Medicare has something called the 72-hour rule. If a Medicare patient receives a hospital service within 72 hours before an admission, the charge for that service must be included - bundled - with the charge for the inpatient stay. So, if a Medicare patient who is scheduled for surgery comes to the hospital beforehand for an unrelated emergency room visit, the hospital must be certain to identify that situation and bundle the outpatient charges with the inpatient charges. What happens if it slips up? Medicare can fine the hospital an amount equal to three times the charge for the outpatient service plus $10,000 per violation.
A few years ago, every hospital in the country, including Sharon Hospital, was audited for compliance with the 72-hour rule. I can't remember how many violations were found in Sharon Hospital's audit. It was a very small number as a percentage of cases, but the fines - at $10,000 per violation - ran into the hundreds of thousands of dollars. Was Sharon Hospital intentionally "fraudulent and abusive," as the form letter from Medicare said? Absolutely, positively not. That Medicare audit had nothing to do with fraud and abuse, and everything to do with raising revenue.
When you put all those factors together, it adds up to an extraordinary set of pressures for the providers and the patients. Hospitals struggle and small hospitals have special issues. For instance, Sharon Hospital struggles daily to have the right number of nurses on hand as the patient census fluctuates. Having too many nurses means costs are too high. Having too few nurses hurts staff morale and patents' care.
Sharon Hospital and its doctors and staff are struggling with the same problems facing hospitals and doctors throughout the country. The problem is, the health-care system that has evolved no longer meets our national heal care needs. In the absence of a national political solution, we are being re-engineered to a new system in the capitalist way, by the market, with pain.
If you were to wave a wand and create a health care system that was both cost-efficient and responsive to the nation's needs, it would look very different from the system we have today. At a guess, we would probably have a lot fewer doctors and a lot more nurse practitioners and physician assistants. We would have fewer R.N.'s and more L.P.N.'s and medical assistants. We would have many fewer hospitals.
What can we do in the Northwest Corner? We can't wait for a national political solution, or even for a local one. The state allowed Winsted Hospital to close. Do you believe the state will rescue Sharon Hospital? The cavalry would have been here by now.
I accept as simple truth that if we do nothing, Sharon Hospital will go bankrupt and shut its doors. I also believe hospital management when they say they have approached everyone who might want to dance at the prom.
From what I know of it, I support the Essent Healthcare Inc. deal. If for some reason that deal falls apart, then the community should consider shutting Sharon Hospital in an orderly way and using the remaining endowment funds to establish a community trust that would finance a different kind of health care infrastructure for our area. That would be a last resort, preferable only to the option of dissipating the endowment to finance a slow bankruptcy.
Let me close with a plea to those elusive rich folks in the region whom some people view as potential saviors of Sharon Hospital.
If you are out there and willing to give some money to improve health care in the Northwest Corner, what about donating money to expand the Primary Care Network? Or establishing a fund for people who cannot afford their prescription medicines? Or somehow incubating more affordable insurance programs for the self-employed?