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There has been a lot of talk about a recent Centers for Medicare & Medicaid Services report that highlights different prices America’s hospitals charge for similar services.
The billing is often frustrating for patients and families, so let me convey an important message to them: Our hospitals hear you and they agree with you.
Some are pointing fingers at island hospitals for the billing system that has evolved. Blaming hospitals for the billing code is like blaming your accountant for the tax code. It is a system that hospitals must abide by in order to continue treating patients.
People are asking why pricing differences exist. They want a straight answer in plain English. It is my intent to provide an overview and shed some light on the challenges:
» Health care is not a mass-produced commodity. Having hip surgery is not like buying a Big Mac. Patients are unique — and their underlying health conditions are unique. A hip replacement for one patient is not the same hip replacement for another. One may have diabetes or complicating health issues, which require additional tests, labs and time in the hospital.
Similarly, broken bones come in all shapes and sizes. One patient may have a clean break, while another has arthritis. Yet another may have been in an accident with accompanying injuries — and emergency surgery costs far more than scheduled surgery. No two bills are alike because no two patients are alike.
Regarding billing, hospitals have three main payment sources: Medicare, Medicaid and commercial insurers (HMOs).
» For government reimbursements, hospitals must follow federally established (Medicare) payment rules, which adjust amounts based on a long list of factors.
These include location (urban vs. rural), status (teaching vs. nonteaching), number of low-income patients served, state-determined (Medicaid) rates, and many others.
Hospitals have little or no control over payments for their Medicare and Medicaid patients. In Hawaii, Medicare pays hospitals an average of 10 percent less than the cost of care. For Medicaid, it’s 20 percent less. This means our local hospitals lose income on approximately 60 percent of the populations they serve. Thankfully, it’s not profit that motivates them, it’s people.
» For commercial reimbursements, insurance companies negotiate rates separately with each hospital. It would create serious antitrust risks for hospitals to share proposed or negotiated rates with each other.
Unlike Medicare or Medicaid, hospitals generally have the option to select which insurance plans they accept. These plans can and do change for various hospitals.
For patients, this means they have to know which insurance the hospital accepts. The plans all have different co-pays, benefits and rules.
As you can imagine, this is not a normal business model. Different customers pay different prices — and some pay nothing at all. The fact is, without charitable donations, local hospitals would have a hard time keeping their doors open. They recoup an average of 10 percent less for their services than their costs. Donations make up the rest.
This poor reimbursement model played a significant role in the closures of Hawaii Medical Centers East and West.
In a perfect world, hospitals would be paid the full cost of their services from all sources, but this is simply not the case. All hospitals in Hawaii are not-for-profit and as such, everyone who needs health care receives it, regardless of their ability to pay.
Even as Hawaii hospitals navigate the complexities of our current billing system, I am confident they will continue to work hard to save and protect the lives of local families. They do that job very well.
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