“Hynden was shocked when he got the second CT scan in January, and the listed price was $8,897 — 33 times what he paid for the first test.
Gulf Coast Medical Center is part of his Cigna insurance plan’s approved network of providers. But even with Cigna’s negotiated discount, Hynden was on the hook for $3,394.49 for the scan. The additional ER costs added $261.76 more to that bill.
The higher price from Gulf Coast and its parent company could be a result of their enormous pricing power in Fort Myers, says Gerard Anderson, a professor of health policy and management at Johns Hopkins University.
Lee Health owns the four major hospitals in the Fort Myers area, as well as a children’s hospital and a rehabilitation hospital, according to its website. It also owns several physician practices in the area. When you drive around Fort Myers, the blue-green Lee Health logo appears on buildings everywhere.
“Anybody who’s in Fort Myers is going to want to get care at these hospitals. So by having a dominant position, they have great bargaining power,” Anderson says. “So they can raise their rates, and they still do OK.”
Anderson says his research shows hospital consolidation has been driving prices higher and higher in recent years. And because more and more people, like Hynden, have high-deductible insurance plans, they’re more likely to be on the hook for huge bills.
So Lee Health and other dominant hospital systems mark up most of their services on their master price lists — the list that prices a CT scan at Lee Health at $8,897. Anderson calls those lists “fairy-tale prices” because almost no one actually pays them.
“Everybody who’s taken a look at it agrees — including the CFO of the organization — that it’s a fairy-tale thing, but it does have relevance,” Anderson says.
The relevance is that insurance companies usually negotiate what they’ll pay at discounted rates from list prices.
So from the master price of $8,897, Cigna negotiated Hynden’s bill down to $5,516.14 — a discount of almost 40 percent. Then Cigna paid $2,864.08, leaving Hynden to pay the rest.”
“Preferred Provider Organization (PPO) A type of health plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers. You pay less if you use providers that belong to the plan’s network.”
Oh really. The BUCA (Blue Cross, United, Cigna, Aetna) payers reimburse out of network hospitals at about 125% of Medicare while clearly reimbursing In-Network hospitals closer to 300% of Medicare on average. Most hospitals now have cash-pay initiatives at a rate of about 135% of Medicare, and Reference Based Reimbursement pays at average levels just above 150% of Medicare.
So, if you desire to pay more for healthcare services, the PPO model is your best option. The PPOs will charge you an access fee of $12 to $20 to have that option too. One last thing, since employers sign the inane PPO agreements they are legally bound to pay the excessive provider fees by contract. No wonder your healthcare expenses are so high.
For anyone still laboring under the myth that insurance carriers are motivated to hold down costs in healthcare OR that health insurance is expensive BECAUSE health-care is expensive OR that insurance helps PROTECT us from high billed charges, consider the following facts and figures presented in this common Gynecologic surgery example.
Let’s compare a not-for-profit hospital-owned facility that has in-network insurance agreements with that of a physician-owned private facility that does NOT have any insurance contracts for payment such as Surgery Center of Oklahoma.
A broker consulted me on cost-containment strategies on behalf of a client/patient who needed a hysterectomy (CPT codes provided). She has a high deductible indemnity plan and a faith-based health share plan. The surgeon’s (Gyn physician) fee was $7,000. The hospital facility charge for O/R suite was estimated at $30,000 and they required $15,000 payment upfront.
Based on analysis of claims payment, it would be reasonable to assume the reimbursement would be around 60% of billed charges (+/- 10%). So the final payout could easily be between $18K – 26K. That total does NOT include anesthesia and may not include surgeon’s fee. What a fantastic discount! In some markets, we see hysterectomy reimbursement as high as $54K.
The all-inclusive fee at SCO is $8,000 and includes an over-night stay if needed. That price includes everything needed to perform the surgery, including professional fees.
All of the effort, time and resources at SCO go to medical care; not buying practices or employing physicians or 7 figure CEO salaries! And no fake discounts designed to foster dependence on the same products that keeps prices higher than they need to be.
These names are, in many ways, synonymous with the current free market movement, and for good reason. These men are the mavericks of healthcare. When Dr. Smith and Mr. Kempton were introduced in 2011 by a mutual friend and client, they had no way of knowing that their partnership would become what it is today and create an entire movement in the healthcare space.
Jay Kempton: When you understand how this business really works, you can see the effect of the dysfunction which I just described; but when you learn more about the cause, you can see that the patients’ actual financial concern is not even on the radar of so many entities that are part of big healthcare.Hospitals really do not understand that the gouging of pricing that they do trickles down into basically wage stagnation to employees. They say, “We’re raising our prices, but it only hurts the big insurance companies.”No, that’s never the way it works.It eventually makes it way as an increased cost to the employer. They can’t afford to just absorb the increase, so how do they offset that?By lowering or decreasing the increase of wages or they reduce the benefits, or both.
What is the greatest obstacle that this movement and the FMMA faces?
Dr. Keith Smith:The answer may be counterintuitive.I think the greatest obstacle the FMMA and this movement faces is ourselves. We are so programmed and conditioned to look to outside leaders or to the government for solutions and answers. They are ultimately responsible for all the problems that have led to our current system.The answer is looking to ourselves and having the courage to face the possibility that, in innumerable ways, we have been duped. Admitting that is a very personal and difficult experience for many people—to look in the mirror and acknowledge that they’ve been lied to. Even worse, we have believed these lies and have acted accordingly.People must acknowledge that it is a ground up movement, not one where solutions rain down on us from our rulers or our leaders. They must do their own thinking and not allow those who would like to be protected from innovation to stop us.
Jay Kempton: The obstacle that’s not so benign is how people in the healthcare business get paid.Brokers, consultants, and agents have tremendous influence over employers and patients, and the way that they see healthcare.Many people in the employee benefits business get paid when they make money off the problem. In other words, they’re making a percentage of the healthcare spend.The problem gets bigger, their income goes up.
If you could tell someone just one thing about the free market in healthcare what would it be?
Dr. Keith Smith:The one thing I would tell them is that the free market is not about sellers having their way with consumers.The free market is not about brutalizing the poor, or people who are trying to pay for their own care. The free market is about an exchange between buyers and sellers that is mutually beneficial, where both parties emerge feeling like it was a good exchange. Any time that the media quotes some corporate healthcare exec or politician bemoaning the tough future that one of the sellers might face given some policy that might be enacted should be discounted or ignored. The focus has to be on the consumer, and on whether a consumer’s decision to buy A or B is a value to that person.The one message that I would give is to know that this movement is about servicing consumers. Period. Any concerns or desires that sellers have to be protected from the preferences of consumers must be seen as the source of the problem that we all face in health care today.
Jay Kempton: The free market and healthcare is the only true healthcare reform that has a chance of being sustainable. Anything else is just rearranging the deck chairs on the Titanic.
When we have a situation, as we do in healthcare, where the networks have cornered the market and control the pipeline of patients, along with the magnitude & directional flow of money in the system, that which follows is a de facto CARTEL of very unequal participants; one where the disconnect between the ability of the supply side and demand side to send meaningful price signals to each other is necessarily suppressed by the financial design of the network payment/reimbursement mechanism.
What characterizes the network as a consumer/buyer benefactor by way of “negotiated discounts” for services rendered, in reality ends up suppressing the only forces (price signals) which are capable of determing value and controlling prices. All this being to the detriment of end users and/or first order buyers of healthcare resources.
Since PPOs make their revenues off access fees with absolutely no responsibility to screen claims for accuracy and since their market value is directly tied to the number of physicians and facilities they have inside their networks, employers and their administrative payers’ demands for transparency have gone unmet over the last decade. This has led to the significant movement to eliminate PPO arrangements altogether as they not only provide no real value to the healthcare equation but in many cases promote a negative value. This is the efficient market theory at work, all elements within a market that do not add value to the overall market will eventually be eliminated.
Our Rights come from God, not government. Physician/ Patient/ Survivor/ Wife/ Mother of 4 daughters/ Small biz owner/ Limited Government/ No Socialized Medicine/ Texan/ President www.AAPSonline.org
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Oh really. The BUCA (Blue Cross, United, Cigna, Aetna) payers reimburse out of network hospitals at about 125% of Medicare while clearly reimbursing In-Network hospitals closer to 300% of Medicare on average. Most hospitals now have cash-pay initiatives at a rate of about 135% of Medicare, and Reference Based Reimbursement pays at average levels just above 150% of Medicare.
Jay Kempton: When you understand how this business really works, you can see the effect of the dysfunction which I just described; but when you learn more about the cause, you can see that the patients’ actual financial concern is not even on the radar of so many entities that are part of big healthcare. Hospitals really do not understand that the gouging of pricing that they do trickles down into basically wage stagnation to employees. They say, “We’re raising our prices, but it only hurts the big insurance companies.” No, that’s never the way it works. It eventually makes it way as an increased cost to the employer. They can’t afford to just absorb the increase, so how do they offset that? By lowering or decreasing the increase of wages or they reduce the benefits, or both.
by Robert Nelson, MD
