Hospital Bill Explains What's Wrong With Healthcare in the U.S.

November 2nd 2016

When Brooklyn journalist Owen Davis went to a local emergency room to get stitches for a cut, he was hit with an obscenely high medical bill. And yet, his out of pocket pay was negligible, according to his tweets.

An image Davis posted encapsulates everything wrong with the costs of health care in America.

Davis was billed $14,000 for a simple procedure – yet his bill lists the amount his plan paid at about $4,500.

What happened to the rest of it? What did Davis’ finger injury actually cost to repair? And what does it mean for the rest of us?

In the last three decades, hospital bills have gone from fairly straightforward documents to incomprehensible lists of complex terms, arcane codes, and columns full of money owed. Even simple items like aspirin or gauze pads can be marked up by thousands of a percent. This means that routine stays wind up looking like they cost five or six figures. Yet the patient gets a bill showing that while insurance paid only a fraction of that number, they owe only their co-pay or co-insurance amount. And if they've hit their out-of-pocket maximum, they may owe nothing at all.

Who pays the rest of it?

The answer in most cases is that nobody does, because it wasn’t real. The final number is so high because it doesn’t matter what the number is – the hospital doesn't expect all of it to be paid. Unless you don’t have insurance, then the hospital expects you to pay every nickel. The huge amount left over after insurance pays their percentage never existed, and the hospital has to charge much more than the actual cost of a service to be compensated fairly.

Insurance will pay the hospital a certain amount of what they’re charged, usually a fixed percentage that varies between companies. Then the patient pays their co-pay or co-insurance. The rest is charged off, and is usually listed with an Orwellian term like “adjusted” or “patient savings.” So a simple stitching that costs virtually nothing has to be billed at a much higher rate – because the hospital is only going to get 10 to 15 percent of what it actually charges.

The result of this arrangement is that nobody knows what anything actually costs. So the numbers on hospital bills just keep going higher — because health care has gotten more expensive, but reimbursement rates haven’t gone up accordingly. And none of these numbers are consistent to any insurance company or hospital. They’re based on the hospital's complex formulas on documents called “chargemaster lists.”

Beyond the overcharging, bills can be loaded up with mistakes. Patients are sometimes billed for procedures they never had. Davis himself complains about this in a subsequent tweet, that he was charged for a tendon repair he never had.

Meanwhile, premiums skyrocket, customers are confused, hospitals look greedy, and worst of all, those without insurance are stuck paying the non-adjusted amount. This is why medical bills are the leading cause of bankruptcy in America.

Is there a solution to skyrocketing medical bills? One obvious one would be for the arrangements between hospitals and insurance companies to be drastically simplified so that hospitals charge what things actually cost, and insurance pays the full amount. But could simply give hospitals a reason to overcharge, and insurance to underpay.

The Obama administration took steps to make chargemaster lists more transparent — making public the costs for procedures at thousands of hospitals.

Beyond that, you can fight. If you were charged for something you didn’t have done, talk to the hospital billing department. And if you can’t pay the inflated costs because of a lack of insurance or coverage at a particular hospital, most places will negotiate, preferring to get something rather than nothing.

As for Owen Davis, his “$14,000” finger injury cost him nothing out of pocket.

What did it actually cost the hospital to stitch up his cut? We may never know.

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