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I’m currently in Charlotte, NC, working as a document review attorney. My current case involves hospitals and insurance companies, and my job is to look through thousands of emails in the inboxes of various executive and operational officers. There’s the confidential information that pertains to the case (which obviously I won’t be talking about), the day-to-day minutia of running any business (“So and so is training their replacement because while diligent and hard working, they are not a model of change-friendly leadership” is a masterful bit of corporate-speak), and the personal correspondence that probably shouldn’t have been sent from one’s work email (“My real estate agent is so lazy and lacking initiative he should be a government bureaucrat!”). But there’s also plenty of non-confidential information, from Wall Street Journal articles to slides of public presentations, and that information paints a picture of the medical industry today that I found fascinating, and I think Ricochet will too.
First and foremost, hospitals are well aware that health-care is too expensive, too hard to get, opaque in its pricing, and often wasteful in its execution. Further, they recognize that their options are either to improve themselves or be replaced by more consumer-friendly options. Chief among these ideas is the idea of moving away from “fee-for-service” models, where they are paid the services performed, to a “fee-for-value” model, where they are paid for improving the patient’s situation. Part of this is by reducing complications, a trend that Medicare is pushing by penalizing hospitals that have too many hospital-caused complications.
For example, vaporator-acquired pneumonia effects ~2 percent of inpatients, and it can be completely eliminated by following proper procedures, like leaving the patient’s head elevated at 30 percent. Unfortunately for the patients, it’s a complication that is accepted as “just one of those things that happens” in far too many hospitals. One hospital solved the problem by educating every single person who dealt with patients on vaporators — not just the doctors and nurses — on how to prevent the infection, and it literally took a department proving that a zero percent infection rate could be achieved before the rest of the hospital believed it was possible. They say that science improves one funeral at a time, but it’s supposed to be the out of date scientists — not their patients — who do the dying.
Another way of providing “fee for value” instead of “fee for service” is through the use of bundling. Say that your mechanic worked like a hospital. When you got an oil change, you’d pay one bill for the shop, another for the engine mechanic, and perhaps another for the oil specialist. Bundling is the radical idea of selling the $35 oil change as one service with a fixed, up-front fee, and increasingly, insurance companies are insisting on bundling healthcare services, leaving the hospital with the risk of the cost of the procedure going out of control (which makes sense, as they’re the ones with the greatest ability to keep prices from spiraling out of control).
Of course, that brings us to another radical idea in the health-care industry: activity-based costing. Ask your hospital how much anything costs and they don’t know. There’s a “chargemaster” program that spits out numbers, but the secret is that no one pays that price, and the logic used to set it often revolves around doubling or tripling the price in order to negotiate it down. To use the oil change example, if the mechanic billed like a hospital, the chargemaster would take the $25 it cost ten years ago, multiply it by 2 percent for inflation, quadruple that to have a list price of $100, knock it down to $50-70 for the insurance companies (depending on how well they could negotiate), and if I walked in and told them I was paying cash, they’d give me a discount and charge me $40. (To finish the analogy, the profit they made on the insurance companies would make up for the losses they take when Medicare only pays them $20 and Medicaid only pays $12.) Activity-based costing is the crazy idea of figuring out how much things actually cost. This can literally mean getting guys with stopwatches to observe how long each person spends working on the procedure and how many supplies they use. And it’s completely necessary due to yet another development in the health care industry: Consumers actually paying attention to costs.
Obamacare means that many people have much, much higher deductibles than they used to, and thus they’re paying a lot more attention to the costs of procedures. This has hospitals worried. You see, some routine items of care, such as medical imaging, have traditionally been a hospital’s “profit centers” — a fancy name for charging too much in order to make up for losses elsewhere. Unfortunately for the hospitals, many of these are things that can be done in free-standing outpatient units, and the most innovative of those units are putting their bundled prices online so consumers can comparison shop. After all, who wouldn’t skip the $1000 ultrasound at the hospital when a medical imaging center can do it for $750. Because it’s not an emergency, you do that comparison shopping at home. The Expedia.com model is coming to healthcare, and it will kill the inefficient hospitals as thoroughly as it did airlines.
Now, I sort of knew most of this from my parents: an ultrasound tech and a nurse. But actually seeing how the sausage gets made has been extremely cool, and I hope y’all have enjoyed this peek into the world of healthcare.Published in