Today’s WSJ has a fascinating story about a man given a $1.2 million hospital bill that contains a huge amount of “bill padding”. The article points out much of what’s wrong with the health care system in the United States.
Hospitals have three types of patients: Medicare/Medicaid, Private Insurance, and un-insured. Typically, the hospital will bill Medicare or the private insurance company an amount far in excess of what they actually expect to get paid.
As an example, I recently reviewed a hospital bill sent to my grandfather from Suburban Hospital in Maryland. The hospital charged Medicare $30,000 but Medicare only “allowed” a charge of $10,000 for the specific services provided. So $10,000 is what the hospital got paid. For patients with private insurance, the process works in much the same manner because insurance companies negotiate with hospitals. People who are uninsured get screwed because hospitals have no incentive to negotiate prices with them.
The reason the bills are so high in the first place is because of “bill padding”, a perfectly legal practice that almost all hospitals use to allocate their operating costs to patient bills. From the WSJ article:
Another issue is the widespread practice of bill padding by hospitals and other health providers. While hospitals say bill padding is their only defense against the aggressive cost-reduction efforts of insurers and government programs, the end result is that individuals can, with little warning, be left stuck with wildly inflated medical bills.
For instance, CPMC charged Mr. Dawson $791 for stockings designed to improve blood circulation. The same pair can be purchased on the Internet for as little as $12.
Allan Pont, CPMC’s chief medical officer, acknowledges that the charges on Mr. Dawson’s bill are “Disneyland numbers” that health insurers and government programs like Medicare and Medicaid never pay. But he says they reflect the hospital’s operating costs, such as paying for doctors, nurses and medical equipment, as well as markups to compensate for the fact that CPMC collects only a fraction of what it bills every year.
Charging a patient $791 for $12 socks cannot be justified under any circumstance. The fact that inflated bills such as this one can force patients into bankruptcy is absurd!
This anecdote is not at all unusual in the US, and it is a great case in point about why our healthcare system needs a complete overhaul. Healthcare is a major issue in the 2008 election but so far I have not heard many constructive ideas set forth by the candidates.
In the end, we’ll either end up with a socialist system like that of Canada or England, or a market-based solution. I am strongly in favor of the market based solution and I plan to detail my ideas in an upcoming post.