Why hospital bills are outrageous and impossible to understand

The hospital bill for Lisa Zamosky’s birth in 1969 was just $US235.65, or about $US1,500 in 2015 dollars.

The Los Angeles Times reporter shares that fact in an article bemoaning the much higher costs and greater complexity of hospital bills today.

The bill for giving birth can now reach up to $US37,000 for an uncomplicated delivery or almost double that for a Cesarean section, found one study of California hospitals.

And while the bill from her own birth, Zamosky writes, looked “more like a receipt you’d get from a hardware store,” hospital patients today are routinely faced with folders full of incomprehensible paperwork.

To try to figure out exactly what’s happened to hospital bills in the intervening years, Zamosky takes us back to the 1980s, when the government and private insurance companies just paid whatever bills hospitals sent them.

“Charges kept going up and up. During that period, charges became almost entirely divorced from costs,” Tomas Getzen, executive director of the International Health Economics Association told Zamosky.

In 1983, Medicare tried to put a lid on costs by no longer reimbursing hospitals for every line item on the bill. “Instead of reimbursing hospitals for individual line items,” Zamosky writes, “it paid predetermined flat fees for groups of services and procedures, such as treating heart failure.”

That cost-control plan backfired. Once Medicare and private health insurance companies adopted this payment practice, hospitals had to indicate which treatments and procedures they were billing for with specified codes. To bill for the highest amount, hospitals would list as many codes as they could justify on bills.

Today, hospital bills are so hard for patients to understand because they’re not written for patients — they’re written for the insurance companies that pay 97% of them. Insurance companies and programs like Medicare are set up to analyse and process that sea of codes while for the most part, individual patients cannot begin to understand them.

“The charges have no rhyme or reason at all,” Gerard Anderson, director of the Center for Hospital Finance and Management at Johns Hopkins Bloomberg School of Public Health, told The New York Times.

But Zamosky points to a few emerging trends that may keep hospital bills from growing so much in the future, including:

  • paying for medical care based on quality not quantity,
  • charging for something like a knee replacement as a bundle, not an itemized list, and
  • shifting more of the cost burden to consumers via high-deductible plans.

As Leah Binder, chief executive of the Leapfrog Group told Zamosky: “It’s creating a new customer in healthcare that hospitals didn’t actually know. It’s called the patient.”

Read Lisa Zamosky’s whole story in the LA Times.

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