Let’s close the loop on this PPO repricing mess then leave this topic for awhile. This is an important part of understanding why health care is so expensive and is therefore important to go over. Up to this point the concept of why health insurance companies are motivated to seek out the highest priced care has been discussed. If the insurance company’s agreement with the insured group or employer provides the insurance company a commission-like incentive to ratchet down the bill from the original billed amount (the commission paid as a percentage of the extent to which the bill is reduced), it is not hard to see how the insurance company benefits from an extremely large initial bill from the hospital.
Connect the dots now. Why would the big hospitals play this game? Two reasons. First, in return for this “gift” to the insurance companies, many insurance companies will shut out competitors to these big hospitals, in effect, protecting them from lower priced, higher quality competitors (..if you are thinking Surgery Center of Oklahoma go to the head of the class!). Second, the hospitals actually make money to the extent that the insurance company underpays them. WHAT?! Remember that if a hospital is paid $5 for an aspirin for which they charged $100, they claim to have lost $95. It doesn’t matter that they paid 1 cent for the aspirin. This $95 loss is necessary for the hospitals to maintain the fiction of their not-for-profit status. But there’s more. This $95 is uncompensated care. This number is plugged into a complicated formula and the next year’s Medicare/Medicaid payments (your money) are bumped up through a program called “disproportionate share.” Get it? YOU pay them part of the $95 which they claim to have lost, which, of course, they didn’t lose at all.
None of this is possible without incredibly effective and well-funded lobbyists in D.C., one of which is our own former Senator, Don Nickels. Wait until some brave legislator proposes a bill that requires posting of prices by hospitals and medical facilities. Money will flow into D.C. to crush this like no one has maybe ever seen before.
G. Keith Smith, M.D.
