StepsTo Solving The Hospital Services Pricing Problem
Stanley Feld M.D.,FACP,MACE
The $2.1 billion is at the low end of a 1000 bed hospital’s total revenue. Bed fees are even higher than the $12,000/day average for cardiac patients with complications. This is called DRG creep. The hospitals have also managed to get the patients out of the hospital under the DRG cap. If not, they seem to find a way to extend the DRG cap. The cap means that certain illnesses are paid a flat fee and given number of hospital days. Let us say a DRG for an illness payment is $24,000 ($6,000/day for 4 day hospital stay). If the patient is in the hospital for six days the hospital gets the same $24,000. If the patient is in for three days they get $24,000. You can see why the hospital’s motto is get them out fast.
We are unable to know the hospital’s actual overhead. If we did, we could to find out what the hospital’s actual costs are. We could then calculate the hospital’s profit. These numbers are totally opaque.
Most hospitals are non profit hospitals. They can not post a profit at the end of the year? Therefore, they have to pour the extra money into something. Executive salaries and capital expenditures are a prime avenue for getting rid of their profit. A key question is how is the hospital’s overhead calculated? Maybe reducing costs to the consumer would be a good idea?
If a hospital makes capital expenditures with the capital they have to spend each year they receive added cash incentives. If a hospital has a house staff or nursing school there is sizable bonus received from Medicare for the professional training programs.
I received this comment from a knowledgeable follower of my blog
“Stan
Too few ever wonder much about why the medical centers have grown so over the years. Once you do, you will want to look at the incentives for capital improvements granted to large referral centers, especially those with professional training programs. These incentives were mandated by Congress, just as were the DRGs. I believe the capital incentive programs leave the DRGs in the dust for the advantage for profit/income generation for those institutions.
Richard Dickey M.D. ,FACE”
If you would suddenly became ill and have to go to an emergency room, because you need help immediately, you can not shop for a hospital on the internet. You are stuck. Shouldn’t there be some rules that reflect the cost and value of the hospital service? If your life is saved, the fee charged is priceless if you had some way of paying for it.
The solution is not price controls or a single party payer. The solution is price transparency, and the creation of a price competitive environment among hospitals.
President Bush’s approval rating is at an all time low because of the Iraq war. However, his medical advisors understand the healthcare systems problems. He has called for price transparency. Congress, under the influence of vested interests, stopped him. He called for DRG reform on the basis of hospitals’ cost and not charges. Again congressional outcry influenced by vested interest stopped the process. I have a feeling Mark McClellan M.D., Director of CMS, quit because of the delay in DRG reform.
President Bush has been able to get through some insurance reform. The deductible limit on a Health Savings Accounts have been raised for an individual is now $5250 and 10,500 for a family. However, the HSAs are constructed in favor of the insurance industry and not the patient. They still do not have a community rating system in place. The insurance industry fought with 4 years of lobbying to stop a Medical Saving Account in favor of the patient.
This year President Bush proposed tax deduction of up to $15,000 per family to by insurance. Yesterday he told hospitals not to press their luck about prices and charges.
I know the President and his people know all the issues necessary for true reform and the repair of the healthcare system. They simply can not accomplish true reform piecemeal. The piecemeal approach to the entire needs for effective healthcare reform to occur is inot understandable to the goal of reform to the public, media or congress. Piecemeal reform will also get distorted by the vested interests (facilitator stakeholders) during the legislative delays.
Medicare has not hesitated to reduce physician fees. They will be reduced 5% again this year. Medicare is presently regulating the price it is paying the physicians. The government’s tactic seems to be to beat up the guy you can beat up the easiest.
Congressman Pete Stark has said all physicians game the system. They have to be stopped. Congressman Stark’s view is far from correct. However, if you instinctively know you have a product or service that is needed, and other stakeholders are taking undo advantage of a dysfunctional system, some feel they might as well try to get their share.
However, when Mark McCellan M.D. discovered that 90% of the healthcare dollar was spent on the complications of chronic disease. His goal was to improve chronic disease management to reduce complications.
The government declared in the Federal Register it was going to reduce the payment for Bone Mineral Density by 70% over the next four years. The medical profession made a feeble attempt to stop the reduction. A Bone Mineral Density can diagnose early osteoporosis. Early treatment can prevent future osteoporotic fractures.
When the government tried to change the DRG system to reflect the actual hospital cost of service as opposed to charges, Congressman came out the woodwork to delay and stop the process.
How come? The political system has nothing to do with common sense and logic. It is driven by the most effective vested interests.
Who should have the most important vested interests? We are supposed to have a government run by the people for the people and not the best lobbying group. People need to step up and speak out!! Eventually, the wisdom of the democratic process and the peoples’ interest will prevail. We do not have the time to wait. We must speak up now!
earl • July 20, 2008
You are dead on!! I have been screaming this message for the last four years. One need only to read the books, THE FAIR TAX BOOK and REDEFINING HEALTH CARE which helps us couple the connection between income taxation (which includes Medicaid and Medicare–i.e. DRG system) and health insurance (we cannot afford) and contrast that to the TRUE COST of health care (which we can afford)vs payroll deductions plus the embedded costs of health insurance and income taxation (found withint the RETAIL PRICE of everything we buy)you begin to recognize the tremendous damage being done to this nation’s economy (GM and Ford closures, Airlines, Food Cost escalation etc) because we are paying a price with our souls to live in the name of health care. However, there is another model of that we can look at that delivers a fantastic priceless product but at a price we all can afford… WATER. If we can afford clean water then why can we not afford a doctor/hospital… because hospitals are being run by people who have little or no regard for the damage they are doing to our national economy by pricing health care as if it were a luxury car instead as a life or death necessity.
earl • July 20, 2008
You are dead on!! I have been screaming this message for the last four years. One need only to read the books, THE FAIR TAX BOOK and REDEFINING HEALTH CARE which helps us couple the connection between income taxation (which includes Medicaid and Medicare–i.e. DRG system) and health insurance (we cannot afford) and contrast that to the TRUE COST of health care (which we can afford)vs payroll deductions plus the embedded costs of health insurance and income taxation (found withint the RETAIL PRICE of everything we buy)you begin to recognize the tremendous damage being done to this nation’s economy (GM and Ford closures, Airlines, Food Cost escalation etc) because we are paying a price with our souls to live in the name of health care. However, there is another model of that we can look at that delivers a fantastic priceless product but at a price we all can afford… WATER. If we can afford clean water then why can we not afford a doctor/hospital… because hospitals are being run by people who have little or no regard for the damage they are doing to our national economy by pricing health care as if it were a luxury car instead as a life or death necessity.
Sowders Horst • June 25, 2014
Healthcare pricing reform is a need for this matter. There should be specific hospital pricing transparency to avoid chaos between the clienteles and the management of the hospital.