Anymore, it seems for most of us every medical bill has a surprise when we first open the envelope!
How does a provider (doctor, hospital, laboratory, imaging center) decide how much healthcare costs? It’s a pretty closely guarded secret, and it’s not uniform across providers. But suffice it to say, it definitely requires some serious accounting that is largely invisible to consumers. Coined the “chargemaster” by Time author Stephen Brill, providers establish a base price for each and every service they provide. This is the price that they bill insurers and patients without insurance for services. It includes their overhead costs (staff, facilities, billing), and is essentially the base price for services. Understandably it’s higher for hospitals who have more significant overhead costs and lower for office based providers. Consider this “retail” pricing.
Recent efforts at improved transparency show that these retail charges can vary pretty significantly from provider to provider in a market. But as consumers, frequently the first time we see that retail price will be when we get an Explanation of Benefits from our insurer. It’s listed as the “Billed Charge.” And those prices can be shocking if you’ve not been actively involved in the healthcare system.
The chargemaster or billed charges are used to negotiate prices (also known as “allowed charges”) with payers. This means that as long as the provider is in-network having insurance is essentially what generates a discount off the chargemaster. Consider this “wholesale” pricing.
It’s this contracted amount, not the billed amount that accumulates toward our deductible. But even with this “discount” there can still be an enormous amount of sticker shock at what health care costs. There’s a reason that medical bills account for about 40% of all bankruptcies filed.
Much as the shift in the late ‘70’s from employer-sponsored pensions to 401k savings began driving more responsibility for retirement savings to individuals, some big changes in health care insurance over the last several years have resulted in a lot more sticker shock regarding the costs of health care. Whether you get your insurance through an employer, through Healthcare.gov, or individually through a broker, deductibles have gone up, sometimes up to thousands of dollar a year. Consumers are being required to shoulder increasing amounts of the front-end costs. Given that we don’t always choose when to access medical care, many of us aren’t prepared financially for a major “invisible-until-incurred” big expense.
Do you have options? Yes, you do.
- Know your annual deductible and if at all possible, try to have that amount in the bank at the beginning of your plan year.
- Be aware of the hierarchy of the healthcare cost structure. Generally, hospitals, both in patient and outpatient care are the most expensive place to seek care. Urgent care clinics are typically less expensive and out-patient offices are the lowest cost. In-network care is your best value. More on out-of-network care in an upcoming post. It’s hard to tell sometimes though whether a provider is billing as a hospital or an outpatient center. Ask.
- Many insurance companies offer great tools to help identify manage the cost of care. In an urgent but non-emergency situation, nurse lines can help identify the most appropriate and best value for where to seek care. Online tools can point to lowest cost, in-network providers for testing, especially imaging (Xrays, CT scans, and MRIs).
- There are some consumer tools, Health Care Blue Book and FAIR Health that help consumers get a ballpark idea of what an insurance company would pay providers for a service in their area. To use these tools, ask for the diagnosis and procedures codes for each test or procedure that’s been ordered for you. Many insurance websites also have cost look up tools on their sites.
In January this year, Blue Cross Blue Shield of North Carolina instituted a revolutionary move in cost transparency on their website that received a lot of attention. They share their “wholesale” pricing, on line, to anyone, whether they are covered by Blue Cross Blue Shield of North Carolina or not, for all of their contracted providers. If it spreads to other insurers, this kind of transparency will go a long way to helping consumers better anticipate their health care costs and shop for providers with cost included as a decision-making factor.
- In non-emergency situations, make sure you know all the options and impact of all recommendations for your care, which, by the way, may also include doing nothing. An approach called shared decision making helps patients evaluate treatment options with their physicians for both health implications and cost and can help you make the right treatment decision for you.
- If you get caught with an “OMG” medical bill, and you know you can’t pay it in a lump sum, don’t wait to contact the provider. Many providers will establish a payment plan without interest if you don’t delay payment.
Private patient advocates can be an important resource to help you understand, reconcile, and negotiate medical bills. Call us if you need help.
Watch for our next two posts to learn more about navigating out of network providers, and billing mistakes.