Jerry Mitchell opens his bill from a Baptist Medical Center clinic and sees a shocking number: The price of six blood tests is $3,076.
Under that total, he sees, “Insurance Payments/Adjustments: $2,682.07.”
When he looks at it, “I think insurance has paid $2,600,” he says.
How To Fix Medical Billing Mistakes
But that’s not a payment, it’s the discount his insurer, Blue Cross & Blue Shield, has negotiated with the provider. Mitchell, a Clarion Ledger reporter, is left with the remaining $393.93, which he pays, even while lacking an understanding of how they arrived at that amount.
One of the labs, an anti-SSA antibody test, demonstrates the extreme markup in health care pricing.
While the test costs just $4.95 — according to a direct primary care physician who charges his patients at-cost for labs — Baptist charged $92. The most Blue Cross would allow was $11.78, still over twice the cost.
That’s the game: Baptist receives a marked-up price and Blue Cross gets to brag to Mitchell about how much it saved him through its big discount.
Over the last four months, the Clarion Ledger has been gathering and examining the medical bills of patients in Mississippi — mostly from hospitals — in an effort to make sense of the numbers and cut through the smoke and mirrors.
The results shed light on the personal impacts of the most expensive health care system in the world.
Hospital costs have risen faster in the U.S. than other areas of health care — nearly three times the rate of physician costs, for example.
Medical expenses are among the greatest financial concerns of Americans and nearly two-in-five Mississippians had past-due medical debt in 2015, one of the highest rates in the nation.
In the course of the Clarion Ledger’s reporting, the University of Mississippi Medical Center changed its scoring criteria for how it prices emergency room visits; North Mississippi Medical Center wiped away one man’s $3,878 bill for a CT scan; and St. Dominic’s reversed a decision not to cover its employee’s $42,000 cancer medication.
The Clarion Ledger exposed the prevalence of balance billing, a prohibited practice where a provider bills a patient for the difference between the initial charge and the amount insurance allowed. House Insurance Chairman Gary Chism has since promised to introduce legislation next year to strengthen the 2013 anti-balance billing law to compel providers to obey.
The newspaper also uncovered increases in local ER fees of up to 175 percent in the last three years. The bills the Clarion Ledger published show hospitals charge private insurers up to 13 times the amount Medicare, the government-run health insurance program for the elderly, would pay for the same service.
Depending on which insurance carrier a patient uses and which hospital they visit, the out-of-pocket bill could differ by several thousands of dollars for the exact same service, the Clarion Ledger found.
How did we get here?
In “An American Sickness,” former physician-turned-journalist Elizabeth Rosenthal explains the evolution of insurance companies and hospitals, both initially designed as nonprofit or charity groups.
In 1994, Blue Cross & Blue Shield, the country’s original health insurer, officially became a for-profit plan, partly to remain competitive with other for-profit insurers that had cropped up in the 1970s and 1980s.
“Their primary motivation was not to charge patients more, but to gain access to the stock market to raise some quick cash to erase deficits. This was the final nail in the coffin of old-fashioned noble-minded health insurance,” Rosenthal writes.
At the same time, hospitals adjusted to the new financial incentives, and “the money chase was on,” she added.
Health care providers and insurance companies have a complicated relationship and it is that relationship — not the cost of providing health care — that dictates what patients will pay for any given service.
Through each entity’s constant attempts to gain leverage over each other, patients were left mostly unprotected and powerless.
The recently resolved network contract debate between University of Mississippi Medical Center, the state’s only academic medical center, and Blue Cross & Blue Shield of Mississippi, the largest insurer in the state, is just one illustration of how each side purports to be the victim.
There’s one of two stories. Either the insurance companies are ruthless money-grubbers denying claims and putting hospitals at financial risk. Or the hospitals are swindlers that wouldn’t think twice about putting patients into bankruptcy if it weren’t for the checks and balances insurers provide.
“I understand insurance companies have a business model and I’m not begrudging them. Providers are where the care is given. We’re who provides the care and in many instances, we’re at risk for the cost of care and the clinical outcomes,” said UMMC CEO Kevin Cook. “I don’t have an earnings per share. I don’t have a balance sheet — I’m not sitting on several times my reserves of what are needed.”
“(Insurance) networks are good for them (consumers) because they’re the only entity that can keep costs down for health care,” Mississippi Insurance Commissioner Mike Chaney said. “The health care providers are gigging a lot of folks.”
Those same undertones permeated the 2018 legislative session, during which lawmakers passed a multibillion-dollar Medicaid technical amendments bill after considering amendments from the two opposing interests.
You wouldn’t know, based on this rhetoric, that both are benefiting enormously from a broken system that incentivizes, or at least permits, behavior that wouldn’t slide in nearly any other industry.
“Everyone is looking for a villain. I don’t think private insurance companies are the problem, no more so than the providers. Providers have a lot of market power. Hospitals act like for-profit companies. Everybody is behaving this way,” said Ashish Jha, K.T. Li professor of global health at Harvard Chan School and director of the Harvard Global Health Institute. “They’re just trying to maximize their profit and they’re paid to do so.”
Health care prices disconnected from the cost
This dance — especially the secretly negotiated reimbursement rates for services — gives both entities an advantage while keeping patients in the dark.
Take the story the Clarion Ledger reported about Amy McIntosh’s bill from Batson Children’s Hospital, operated by UMMC. McIntosh was charged a $4,328 facility fee for her daughter’s ER visit, which amounted to a checkup for a previously diagnosed ear infection.
This facility fee is an enormous, fairytale number pulled off the hospital’s “chargemaster” and which UMMC almost never intends to recoup. Blue Cross & Blue Shield of Mississippi, for example, negotiates an 88 percent discount off this price for the state employee’s health plan.
But UnitedHealthcare, McIntosh’s insurer, hasn’t negotiated any discount for this service.
Why would United bow and pay the total fee, which had inexplicably increased by $2,584 in just three years?
“They (insurance companies) are being complicit in some cases simply because it’s easier to pay the claim and increase their rates (on consumers) than to fight it,” Chaney told the newspaper at the time.
UMMC gets the entire bloated price for the ER visit and United passes any additional costs on to the patient through premiums, accordingly.
Because insurers are required under the Affordable Care Act to spend 80 to 85 percent of premium dollars on patient care, there’s actually an unintended incentive for insurers to pay out larger claims to increase the amount they are able to spend on executive salaries.
If the entire spending pie is bigger, the 15 percent administrative chunk will be bigger, too, Rosenthal explains in her book.
The U.S. spends two to three times more on health care administration compared to other wealthy countries, Jha found in his recent research, one of the most comprehensive studies of American health care costs, published in March.
UMMC officials said because it is a partially taxpayer-funded entity, it does not have to publicly publish a 990. The hospital would not provide the Clarion Ledger its administrative salaries, claiming an exemption under the Mississippi Public Records Act, but in 2016, Cook was making $800,400. He would not say whether his salary has changed.
Blue Cross & Blue Shield of Mississippi has assets of $962 million, with more than $627 million sitting in reserves.
It’s hard to single out this administrative expense because, compared to other countries, the U.S. spends substantially more in nearly every area of health care: hospital fees, physician fees, diagnostics, MRIs, and of course, drugs.
Four St. Dominic’s physicians, for example, have salaries between $1 million and $1.52 million each. The highest paid physician at North Mississippi Medical Center makes $735,802 and others make between $300,000 and $445,000.
“It’s pretty much everywhere you look,” Jha said.
Some peripheral health care services are especially egregious. Private air ambulance companies can charge anywhere from $25,000 to $50,000 for one ride with little recourse for unwitting patients hit with those large bills.
Despite spending much more, the U.S. has worse population health outcomes and worse access to care.
Price is the primary factor — not higher utilization of services or a greater number of specialty doctors versus primary care doctors — that sets the U.S. health care system apart, Jha found.
“It’s not like Germany is using some 1980s technology,” Jha said. “They’re using the exact same MRI machine used in Jackson, Mississippi, or Boston, Massachusetts. Then the question is, ‘Why is it so much more expensive?'”
Put another way, why did North Mississippi Medical Center’s West Point clinic charge Jimmie Taggart $5,171 — and negotiate with Aetna a payment rate of $3,878 — for a CT scan that an outpatient diagnostic facility in the next town over would provide for $338?
One answer is that health care prices — or what Americans pay for services — has been largely disconnected from the cost.
How is uncompensated and under-compensated care calculated?
Hospitals will say their large prices are partly a result of cost-sharing: They must recoup more from privately insured patients to make up for the patients they see who are uninsured or on Medicare or Medicaid.
Medicare’s reimbursement rates are set by the federal government based on the cost of providing services and Medicaid pays a small percentage less than that.
“The resources we expend in caring for that (Medicare) patient are not completely covered by the revenues we get. I think that’s demonstrated in the fact that our budget last year was a break-even budget. Our goal is to get to some level set zero,” Cook said.
But can that justify a price increase for some services of over 1,000 percent?
Plus, hospitals who serve a large low-income population get federal dollars through programs like the Disproportionate Share Hospitals payments to make up for any losses. Medicare also reimburses some rural hospitals, called Critical Access Hospitals, at higher rates for services.
Here’s something else to consider: When a hospital calculates its “losses” or the amount of uncompensated care it provides, which number does it use? If a hospital provides a free CT scan to an uninsured patient, how much money did it lose?
To say the hospital ate a large, inflated chargemaster rate of $5,171 would be disingenuous.
Carl Schuessler of Georgia-based health care consulting firm Mitigate Partners said, even though most care is discounted by 30 to 90 percent off the chargemaster rate, some hospitals use those made-up prices to tout the large amounts of uncompensated care they provide. They also get to write off the difference they aren’t paid.
“They benefit both ways on the fictitious, egregious, arbitrary sticker pricing that has no relationship to cost whatsoever, in that they collect much more money than the procedure costs and write off what they didn’t collect — double dipping — and then cry wolf that they can’t survive on Medicare reimbursement,” Schuessler said.
(UMMC said it calculates uncompensated care based on the cost of the services, not the price).
When the Clarion Ledger tried to find out why UMMC charged Heather Waddell $7,892 for roughly 30 minutes of operating room time to remove an earring back from her 6-year-old’s earlobe, hospital officials could not say how much the service cost.
“You would be surprised how little hospitals know about their actual underlying costs,” Jha said. “This is a real problem with hospitals.”
Jha said the “relatively made-up” chargemaster rates are generally three to four times the cost to perform the service.
Cook also explained, in a Clarion Ledger story about UMMC’s contract dispute with Blue Cross & Blue Shield, that hospitals have to hike up their chargemaster prices to get even small increases from insurers who negotiate very low reimbursement rates.
The chargemaster can be mind-boggling — and Jha recommends doing away with it as one solution to the country’s health care conundrum — but it usually doesn’t have much bearing on what a customer pays.
Instead, insurers negotiate discounts off the hospital prices in exchange for placing the provider in its plan’s network. Many insurers use Medicare as a baseline from which to negotiate up, as opposed to negotiating a percentage discount off the chargemaster price.
These rates — sometimes called “allowed amounts” — and how each entity arrives at them, are entirely secret.
The agreements are somewhat of a long game. Where United pays the full price for an ER visit, it’s likely the insurer gets a better deal somewhere else, surgeries, for example.
Reimbursement rates may be all over the board for one service from insurer to insurer, but it matters more that the cumulative payments are sustainable to the hospital’s overall ecosystem.
That doesn’t always look fair for the individual consumer, as in McIntosh’s case.
“When you consider all the things that are packed into that cost, the overhead of this place, that’s where it’s going. It’s to cover the overall infrastructure that we provide to the state of Mississippi … all of these unique services we provide,” Cook said. “Many of those services, the economics as a stand-alone entity don’t make sense, but when you spread those costs over the whole, then it does make sense. The hard part is explaining the bill that some patients get because of that.”
Direct primary care gets away from ‘the bloat’
The Clarion Ledger attempted to get a sample of these rates from at least five entities — private insurance companies, hospitals, independent third-party administrators, the Mississippi Department of Finance and Administration, which oversees the state health plan, and even the owner of the newspaper, which has a self-funded health plan. Each of them didn’t have the information or refused to release it, citing contract confidentiality.
This lack of transparency is, in many ways, the crux of the issue.
Even employers who contract with insurance companies to administer health plans for their employees aren’t privy to these rates.
“If we as a country want to have health care as a function of the market, then we need to make sure things critical to a market’s function, like price transparency, are there, otherwise we’re fooling ourselves that health care can operate as a market,” Jha said.
Doctors aiming to disrupt the existing structures are opening their own direct primary care clinics, which are designed to provide care at a lower cost but do not accept any insurance. Instead, the clinics offer a monthly membership, usually around $50 to $100, in exchange for primary care whenever a patient needs it.
This model does not completely replace the need for health insurance, in the case of large medical emergencies, but some doctors see it as a way to unveil the existing third-party health care system.
Dr. Michael Sanders, owner of Face Value Health, even offers prescriptions at his clinic at cost. His monthly fee is $65, and, because he doesn’t take insurance, he’s bypassed the cumbersome claims process and the need for additional administrative employees.
Sanders said he was among the top physicians at St. Dominic’s before branching off to open his own clinic just months ago.
“Here, I can take control over all those factors and make sure the patient isn’t harmed financially and know they get the care they need,” he said. “The direct primary care model has shown that you can provide primary care very inexpensively, but you’ve got to get away from a lot of the bloat.”
At its core, direct primary care is about letting the patients in on the cost of their care.
Price transparency — and that means publishing the negotiated “allowed amounts,” not just the providers’ chargemaster — is not a panacea, Jha said, but it’s a start.
Jha said Centers for Medicare & Medicaid, the federal agency that runs those insurance programs, has demonstrated support for transparency efforts. It has the ability to require hospitals who accept Medicaid or Medicare to publish these rates, and Jha is optimistic this kind of policy is forthcoming.
Jha also said additional controls are needed to prevent monopolies from emerging as more and more health systems consolidate. Right now, the U.S. Department of Justice is approving nearly all of these deals.
“If you actually want competition and to slow down the consolidation process, we just have to make sure we’re funding anti-trust agencies adequately,” Jha said. “So it’s not some major new policy. We need to use what we already have on the books.”
Governments could also deploy cost-containment measures in health care as it does for public utilities.
Until then, health care experts urge consumer participation. Because of the third-party payer system, patients have been largely shielded from the true cost (or price) of their health care.
Medical bills, such as Mitchell’s, often lack detail and the Explanation of Benefits from an insurer can be confusing and even contain price discrepancies. It can take weeks to get an itemized bill from a hospital.
Communication errors — such as the answer to the question, “Is this service covered?” — can lead to surprise bills. While health care professionals have the most face-to-face contact with patients, they’re not always the best people to answer questions about cost.
Sometimes, surprise bills can arise from no fault of the patient, like when Michelle Mills’ son went to an in-network hospital but was seen by an out-of-network doctor.
A patient can’t necessarily expect a hospital or insurer to look out for his or her wallet. But consumers can research their health plan — co-pay, deductible, co-insurance and covered services — on the front end.
Then, they can use price transparency tools through their insurer or independent online resources like HealthcareBluebook to find the best deal for a service.
For some protections, like Mississippi’s anti-balance billing law, to work, patients have to know about them. Rosenthal recommends patients advocate for themselves, even negotiate their own payment when hospitals try to charge severely marked-up prices.
“Just because the system is complex doesn’t mean we as consumers should throw up our hands and curse the darkness,” said Eugene Starks of Ridgeland-based third-party administrator Benefit Administration Services. “We have a responsibility to be engaged in our health care. Now that doesn’t give a license to hospitals, carriers and providers to do whatever they want or not be as consumer-friendly as possible.”