Part II. What I Learned from Sis.

In Part I, I discussed this New York Times article which described the irrational and discriminatory pricing system that exists between health care providers, patients and health insurance companies. There are reasons why this system exists, and this weekend, I got an interesting perspective on that.

I discussed this irrational payment billing system with someone who used to design and oversee payment/billing systems for doctors, clinics and hospitals in different states. This expert, who I’ll only identify as "my sister," created and managed billing systems for over 15 years, until she became so disgusted and (literally) sickened by America’s health provider/health insurance system that she just walked away.

Here’s just one of Sis’s representative examples:

Suppose a doctor or hospital performs a medical procedure for which it defines a price of $400. That’s not its cost, nor the price the provider agrees to accept from insurance company A with which the doctor’s network is affiliated. It’s a calculated price that I’ll explain further. Insurance company A only pays its network providers $250 for that procedure, and Medicare/Medicaid pay even less. So here’s what happens (ignoring co-pays, deductibles):

1. If you’re insured by Insurance Company A, the doctor bills for $400 but agrees to accept $250 from Company A, as payment in full. The doctor has agreed with Insurance Company A not to come back to you for the missing $150.

2. If you are covered by Medicare, Medicare only pays $180, not $400 or $250. The doctor bills Medicare for $400, Medicare says no, delays, then eventually pays only $180. The law prevents the doctors from coming back to you for the missing $220.

3. If you are covered by Medicaid, Medicaid may pay even less than $180. See 2.

4. If you are not insured, the doctor charges you $400. You are responsible for the full $400.

5. If you are indigent, or somehow can’t pay the $400, the doctor charges you $400, but since you can’t pay, the doctor’s billing agent and/or collection agency will try to get whatever they can from you, such as $10 per month as long as it takes, or as long as it’s worth their while to continue the effort.

6. If you’re insured by Insurance Company B, but your doctor is out-of-network for Company B, the doctor bills Company B for the $400, but Company B declines, and may not even pay the $250 it would pay for in-network providers. It may agree to pay something less, and whatever the insurer doesn’t pay, you are responsible for the balance, and the doctor’s collection agency will come after you.

Think about what’s happening here. State/federal regulations require the doctor to bill everyone the same $400, but the doctor knows it won’t get $400 from everyone. Instead, it will get $400 from the uninsured (if they can pay); zero to something from the indigent; $250 from Company A (in-network); less from Company B (out-of-network); $180 from Medicare; and probably less than $180 from Medicaid.

So knowing this, what would a rational doctor/hospital do? Well, it would track how many of its patients for that particular medical procedure were insured (in-network), how many were Medicare or Medicaid patients, how many uninsured and how many indigent. Then she’d do some 8th grade algebra, multiple the expected payments from each category, times the number of patients in each category, and match that against the revenues the doctor needed/wanted to receive for providing that procedure for that many patients, and from that calculation set the nominal "price" for that procedure, knowing that actual payments for that service would almost never equal that "price."

So the next time someone argues for letting the "free market" work in the health care industry, just laugh at them. It’s a fantasy.

Now I know why Sis was so misrable and got literally sick doing her job and why she quit a well-paying position/career to do "anything else." "The whole system is totally corrupt."

I asked Sis what she’d recommend to fix this mess; where would she start? "Blow it up," she said. "Blow it all up and start over."

She’s probably right.