I recently saw a patient who received a bill for an outpatient procedure for $333. The Medicare allowable reimbursement for the procedure was $180. I have seen other medical bills where the healthcare provider was charging patients 10 times the amount they expected to receive from Medicare and all their contracting insurance companies.
Another one of my patients recently had an unexpected medical complication which necessitated a visit to an emergency room. He received a huge bill for the services provided. When I saw him in my office (for poorly controlled diabetes) he told me he could not schedule future office visits because he had so many outstanding medical bills and could not risk incurring any additional medical expenses. While I offered to see him at no cost, he declined, stating the financial risk was too high.
A patient is required to pay the entire medical bill if they have:
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- no insurance
- poor quality insurance
- a bureaucratic “referral problem”
- received care from an “out-of-network” provider, i.e. there is no pre-existing contractural relationship between the patient and the healthcare provider/institution.
Hospitals, physicians and other healthcare providers usually do not know what they are going to get paid for any given service as they contract with many insurance companies, each of which has a different contracted payment rate. Healthcare providers and institutions typically set their fee schedule at a multiple of what they expect to get paid from the most lucrative payer, which will guarantee that they will capture all the potential revenue. In the process, they create an egregious fee schedule which is neither reflective of a competitive marketplace nor derived from the actual cost of the services provided.
In the situation where the provider of the healthcare services has a pre-existing contractual relationship with the patient’s insurance company, after the insurance company pays the contractually agreed fee to the healthcare provider, the provider “writes-off” the unpaid balance of their egregious bill as their contract with the insurance company usually prohibits them from “balance billing” the patient.
If the healthcare provider does not have a contract with the patient’s insurance company, they are deemed an “out-of-network” provider and may legally charge the patient any fee they wish. It is the patients who can least afford to incur medical bills (the uninsured) and those who experience an acute and unexpected medical event who are most likely to be required to obtain services from an out-of-network provider. These patients are legally responsible to pay the entire egregious medical bill, regardless of the absurdity of the charge.
A commercial insurance company which “pays well” would be expected to have a fee schedule that is set at about 150% – 200% of Medicare’s fee schedule. As shown in this CBO analysis, the only time a patient is charged in excess of 3 time Medicare rates is when they are seen by an out-of-network provider.
If healthcare providers and institutions were prohibited from setting their fee schedule in excess of 250% of Medicare’s fee schedule, it would protect patients from incurring a medical bill which is both exorbitant and economically irrational. From the perspective of the healthcare providers and healthcare institutions, a cap on the providers’ fee schedule at 250% of the Medicare fee schedule would not cause the vast majority of healthcare providers/institutions to experience a significant loss of income.
Clearly, an objective assessment of the risk/benefits of capping healthcare provider’s fee schedule at 250% of Medicare rates, when viewed from a societal perspective, would conclude that this proposal would be a net benefit to society.
Patients, physicians, hospitals, pharmacists, businesses, government payors, insurance companies, literally everyone who interacts with the healthcare system agrees the current US healthcare system is not meeting the needs of our society. We need to try some new solutions. Capping healthcare providers’ fee schedule at 250% of Medicare rates would be a win for vulnerable patients and would not cause significant financial injury to the vast majority of our healthcare billing entities.
If we hope to create a healthcare system that is sustainable and meets the needs of all members of our society, everyone who works in our healthcare system must be willing to give a little.
Hayward Zwerling, M.D.
1/14/2020
A version of this posting appeared on The Health Care Blog.