Rising Medical Costs - Does It Have to be This Way?

Sunday, November 21, 2004 | 0

Do You Know What it Costs, Or Only What Youve Been Charged?

For most consumer services, the assumption is that charges should be based on cost plus a reasonable profit. Many current health care charges, however, bear no resemblance to the cost of delivery. Why?

Why, for example, should the facility fee for an epidural injection which cost $114 in 1995 cost $10,000 in 2004?

Medical charges are often not questioned or properly examined. If no one questions or can determine charges that far exceed a reasonable profit, it is no wonder that charges continue to soar.

What is driving charge inflation? Of the $1.67 trillion Americans spend annually on health care, 42 percent are hospital charges. The latest figures from the National Health Statistics Group show that from 1999 to 2002, prices for inpatient hospital services increased by 20 percent. For outpatient hospital services, the increase was 24 percent. Higher facility and specialist fees; higher prescription drug charges; higher administrative fees, fraud and abusive billing practices all contribute to skyrocketing health care charges in the United States.

These escalating charges are having a devastating effect on American business. The Bureau of Labor Statistics reports that private-sector employers saw a 24 percent increase in employee benefit spending over the past four years-primarily because of rising health care premiums, which far outstrip actual inflation. Increases in health care charges are increasingly out-of-proportion to the actual cost of providing services.

Is there a solution?

Many believe that medical charge inflation is a necessary evil, despite evidence that shows no correlation between cost and quality of care. Payers of health care fear that questioning bills will bring backlash from the providers. Over the last decade, instead of trying to halt hyperinflation, many payers have simply paid what was billed and raised premiums to offset rising charges. The result: businesses are overwhelmed by costs and forced to transfer more of the burden to employees; some companies are failing under the weight of rising premiums and the number of uninsured Americans increases annually.

To halt charge inflation, employers and patients must become informed consumers, and payers must be willing to question and challenge charges. Payers must ask:

* Are all items on the bill appropriate to the service provided?
* Are charges fair and reasonable and in line with what other providers have accepted as payment in the same geographic region?
* Have charges been "unbundled" in order to charge multiple-line items for related components of a single procedure?
* Did the hospital upcode the actual services in an effort to charge more under cost outliers? To qualify for outlier payments, some medical facilities are "upcoding" or overstating the complications of cases and the services required and, as a result, receiving excessive payments for outlier cases.

When determining the validity and appropriateness of charges, examination and audit methods are critical. Charge validation and correction processes employed by many payers are not based on careful examination of items appearing on each bill. Typically, payers negotiate discounts with providers and simply take a percentage off charged amounts. The result is a vicious cycle of charge hyperinflation. Knowing that payers will take a discount, providers are encouraged to inflate charges to offset the effect of the negotiated discount, driving charges ever higher.

Fortunately, systems and services to accurately and thoroughly examine medical charges exist today. Technologically driven charge validation and correction services using decision software can help determine acceptable reimbursement based on reliable data of fair and reasonable costs. Effective analysis of paid data nationwide can serve as the basis for establishing fair reimbursement for each geographic location. Technology makes it practical to conduct detailed examinations of every bill and to validate all bills based on reliable data nationwide. The detection of fraud, abuse and inappropriate billing is possible even for payers addressing hundreds of thousands of bills per month. Here are some real life examples:

West Coast Hospital Bill

A woman injured her back and had surgery for a displaced lumbar disc. Fusion was not performed and no implantable hardware was used. She was in the hospital for six days.

The bill was reviewed based on reasonable, usual and customary rates for this service. The charges were $23,747.72 in excess of reasonable, usual and customary.

The most significant overage was for the room and equipment used for the surgery. The hospital charged $16,316.40 for the use of the room/equipment, as opposed to the $3,865.76 that more closely resembled its costs, plus a reasonable profit.

The total original charges were $35,811.95; the recommended reimbursement was $12,064.23. The original bill was nearly three times higher than the final payment.

Southern Ambulatory Surgery Center Bill

A man injured his shoulder, probably through a repetitive motion necessitated by his job, and went for treatment.

At the ambulatory surgery center, the surgeon began with an arthroscopy, a process that uses a scope to diagnose and make minor repairs. When it became clear that the surgeon could not complete the necessary repairs through the arthroscopic process, an incision was made and a complete shoulder rotator cuff repair was performed.

Because this was one surgical experience, the allowance for the rotator cuff repair included the costs of the arthroscopy, as well as any equipment, supplies, tools, anesthesia, etc., required during the surgery. When the bill arrived, however, the arthroscopy, supplies, anesthesia and pharmaceutical supplies were listed separately and billed additionally-over and above the allowance for the shoulder reconstruction.

This unbundling-a commonly used method for increasing charges-has the effect of double dipping. When the bill was reviewed, full payment was allowed for the rotator cuff reconstructive surgery. The unbundled charges that were already accounted for within the allowance for the rotator cuff reconstruction were disallowed. The charge for implants used in the procedure was also reduced to the reasonable, usual and customary amount.

The result was that the $9,385.05 bill was reduced by $6,712.85 to $2,672.20 for this outpatient surgery. This means that the original bill was 3.5-times higher than the accepted payment.

By harnessing the potential of readily available decision-making technology, coupled with electronic data interchanges, we can work toward slowing and changing the trend of ever-rising charge inflation in the 21st century of consumer-driven health care. Technology can make the process of determining fair and reasonable charges efficient and cost-effective, reducing costs to payers, reducing costs to consumers and enabling more consumers to access all valuable health care services.

by Todd McLean, Vice President, Qmedtrix. Todd can be reached at 503-963-3324.

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