5 Things About Hospital Charges
If you watch TV news, or read newspapers or magazines, you probably have an opinion of hospitals
and their billing practices when it comes to the high cost of charges. I'm here to tell you that
most of the time it has nothing to do with the billing department. I'm also here to tell you that
none of what most hospitals is doing is all that evil, just not all that well thought out sometimes.
There are some standard business practices they follow, and some that don't quite work as well as with
other businesses. Health care is a much different animal than other businesses across the board.:
Here are 5 things you should know about hospital charges; get ready to blow your mind.
1. Billing departments aren't responsible for hospital charges. There isn't a single billing
department in the world responsible for charges. People in billing see very few bills these days,
as everything is electronic. There are a few insurance companies that will only accept claims on
paper, especially compensation and no fault carriers, and in those cases a billing person will see
those bills. If they alter the charges on those bills, they're almost always making them lower,
bringing the amounts down to what the insurance companies are going to pay for those services.
If you call a hospital about the cost of your hospital charges and you talk to the billing department,
you're basically increasing the amount of time it's going to take for you to get the information you
want. Billing departments don't have that information readily available all the time. Sure, they
can tell you how much something is, but they don't know what the services are that you had, or the
supplies are that you were charged for. If you want real satisfaction, you should ask to speak to
the department director where you had your services done, as they'll not only have direct access
to their rates, but can look back at the requisitions to make sure you were charged properly for
what you had done.
2. Hospital departments are responsible for hospital charges. This is true, but only for
the charges themselves, not as often for prices.
Almost no hospital department directors actually put the dollar amounts on a service, though some do get to recommend a figure.
How do they recommend prices? There really are only 3 ways most of them do it, and a fourth if applicable. Those are:
- Starting with a fee schedule of some type from one of the insurance companies they participate with and marking up
services based on that figure. For supplies, invoices are used.
- Checking around the area to see what others are charging and basing the fees off that.
- Guessing what they believe services should cost without any basis in reality; this is really scary sometimes.
- Actually calculating the costs for providing the services. This is comprehensive and takes a lot
of information, and very few hospitals, let alone directors, will go through this process.
3. Hospital charges aren't all over-excessive. Like every other business, hospitals mark up
their charges. Unlike other businesses, hospitals almost never get paid what they charge for.
Marking some services up 300% or so aren't evil at all; even marking something up 1,000% isn't evil,
though it depends on what's being marked up. It depends on what's being marked up and when that creates issues.
Do you think if you go to Sears to buy that washer and dryer that they're charging you wholesale?
Some of those items are marked up 50% to 100%, which is relatively low for an expensive item. But
based on the brand name, some items are marked up 300% or more; is a LG really that much better than
a Whirlpool or General Electric model?
What about low priced items like HDMI cables? Yes, I'm saying low priced, even though one will cost
you almost $35 for a 6' foot cable at Best Buy, you can get one for 10' online through some companies
for as little as $7. Trust me, that's how I buy mine. Mark ups are sometimes about supply and demand.
What most people don't like about hospital charges is that when they need services, often they're
not able to really shop around for better prices because no one expects to need medical services,
though we all do. Every hospital has pricing policies; some are convoluted based on not understanding
how mark ups should work, but that doesn't mean they're evil, just that they're missing the retail
piece of charging properly so that not only can they properly show whether they're profitable or not,
but so as not to shock patients when they get their bills.
4. Hospitals don't intentionally charge people for services and supplies they didn't receive.
At least 99.99% of all hospitals are doing the best they can. Sometimes they don't get it right,
which is what allows people like me to have a consulting career. If you saw some of the processes
for capturing charges you'd understand why sometimes it's difficult for people who aren't adept at
financial processes to get it right.
Here's a reality that many hospitals would probably rather you not know. Most people who capture
charges aren't properly trained to do it. Directors will say they are, but when you talk to the
people themselves, they'll tell you that someone, not even the director, told them that when they
do 'this' they're supposed to charge for 'this', and that's as far as it goes. Often the
descriptions they select aren't close to the descriptions of what the charges are actually supposed
to do. And it can get even more complicated when people are supposed to select supplies like
catheters, where there are literally hundreds of different types and sizes with names that might
be similar yet serve different functions. Even worse, if someone else is picking the charges later
on that had nothing to do with the patient to begin with, there will be more problems.
So, the charge capture process isn't always as smooth and efficient as we'd all like it to be.
But when it comes down to it, would you rather know that the people taking care of you are
concentrating more on making sure you're going to be healthy and well than selecting charges
properly? I know, you want both, but what if you had to choose one or the other?
5. Hospital charges have nothing to do with hospital profitability. Once again, this
is where things differ between hospitals and other businesses. Since hospitals don't really
get paid by almost anyone for what they actually charge for services, hospitals rely more on
activity numbers than anything else. A profitable hospital will reach its inpatient and
surgery numbers each year; the charge amounts just help to quantify things in some manner.
For instance, if the amount of the charges was enough to determine hospital profitability,
then all a hospital would have to do is charge $10,000 for every single surgery performed
there for the year at a minimum, no matter what it was, and life would be sweet if insurance
companies paid them in full. However, life doesn't work like that. Fee schedules of some type
determine how much is paid per procedure. Other types of fee schedules determine how much is
paid for inpatient stays based on diagnosis, no matter what the procedures are. For each,
hospitals track what's occurred before and budget based off those figures. They then charge
based on the contracts with different insurance companies to try to maximize how much they're
going to get paid, realizing that at best they're only going to get a percentage of whatever
they charge, and sometimes it's capped at a certain amount, no matter what the charge is.
Of course, for each of these items I could go into way more detail. But this is a
general overview of how the process works.