Recently, in celebration of my mom’s birthday, my dad took her to a newly opened upscale restaurant near their Florida home.
On the menu, they noticed something quite unusual, indeed unprecedented: none of the offerings were priced. Instead, a note appeared on the back of the menu indicating that all items were to be served a la carte and would be charged at the “prevailing rate” which would be revealed only after the meal was served.
Because it was a special occasion, and not wanting to embarrass my mom, my dad insisted that they stay and enjoy the meal despite the open-ended cost. Following a hearty four-course meal the waiter handed my dad the check, which came to $7,854.11–before the tip. After the initial shock wore off, my dad confronted the restaurant manager, vehemently protesting the outrageous charges. “That’s how we operate,” explained the manager. “The menu stated that you would be charged prevailing rates. Well, those are our prevailing rates. Will you be paying by cash or credit card?”
Of course, the above scenario is fictitious. No rational person would frequent any establishment whose costs are hidden until after the goods and services have been irrevocably tendered. No restaurant–no business for that matter–could possibly operate on that basis. Right? Well, not exactly. There is one business–and a massive one at that–comprising one-sixth of the world’s largest economy that functions precisely in that manner.
Before being admitted to a medical facility, all non-Medicare and non-Medicaid patients must agree in writing that they and/or their insurance carrier will reimburse the hospital for their cost of treatment. And how are costs to be determined? Well, it’s pretty much whatever the hospital decides to charge, even more than $25 thousand for a 45-minute outpatient surgical procedure resulting in an eight-hour stay (one of my mom’s friends was recently charged that. I guess it adds up when each Tylenol pill is billed at $87 and use of the operating room commands an hourly rate of $3,500).
Unlike the restaurant example, this happens each and every day, thousands of times; patients are egregiously over-billed. Of course, in most instances, it is the patient’s insurance carrier that is the primary payer, inevitably resulting in rising insurance premiums.
Seeing as America’s best and brightest minds have spent over a year on a health care reform proposal contained within the pages of a 2,500 page bill that has been debated ad-nausea for many months, one can confidently assume that the bill adequately addresses and proposes credible solutions for the need to rein in health care costs.
Well, not exactly. For that matter, not even close. And that is why the health care legislation about to come up for a final vote in Congress should be defeated. It does scandalously little to address, let alone remedy, the Achilles’ heel of our health care system. While the bill determines to attack Medicare fraud and reduce Medicare reimbursement by nearly $400 billion over 10 years, it falls woefully short when it comes to taming out-of-control medical costs. Without credibly doing so, no so-called health care reform bill can possibly achieve its stated purpose: meaningful reform.
To effectively rein in costs would require two adjustments in how medical services are charged. First, the approximate cost of treatment must be divulged up front; not a precise estimate, which would not be possible, but at least enumerated charges for treatment and services. Second, there must be a rational nexus between costs and charges. The Tylenol bill that costs the hospital or clinic barely a nickel should not be marked up 1,500 times.
This would require a dramatic shift from the health care industry’s current business model into one that has been standard operating procedure for practically all other businesses. And that cannot come soon enough.
Cost containment being achieved, most other pieces of the health care puzzle would readily fall into place. Lower medical costs would translate into lower insurance premiums, which would enable millions who are currently uninsured to purchase affordable health insurance without the need for a government subsidy. By establishing a credible protocol of cost containment, many of the bill’s objectives which, as now proposed, would only be achieved through government subsidies, could instead be attained without the need for taxpayers to foot the bill.
There is, however, an additional ingredient that must be present for the public to reap the benefits of meaningful cost control: requiring insurance carriers to pass along the savings to their customers in the form of lower premiums rather than simply garnering windfall profits. Without such a provision, the benefits of cost containment would not be realized.
How do we insure that this happens? See next week’s column.
Nathan Mitzner is a junior risk management insurance major. He can be reached for comment at [email protected].
