5 Things About Hospital Charges

As a health care revenue cycle consultant, I don’t consider myself a hospital advocate, a patient advocate, or even a health care advocate. I take on each of those roles from time to time, but I actually consider myself an information advocate. I try to remain fair and balanced while giving out information that’s true (or at least should be), no matter which way it goes.

There are lots of stories on TV and in newspapers and magazines that paint this picture of evil hospitals and their billing practices. I’m here to tell you that most of the time it has nothing to do with billing, so get that one out of your mind. These practices that are considered evil are nothing of the sort; most of the time anyway. They follow standard business practices, and I say some because, unfortunately, health care is a much different animal than other businesses.

Here are 5 things you should know about hospital charges. They’re relatively short explanations; I’ll get into more detail in other articles on this site. The point of this article is to quickly let you know what revenue cycle is and isn’t, based on most people’s beliefs.

1. Billing departments aren’t responsible for hospital charges.

There isn’t a single billing department in the country responsible for charges. People in billing see very few bills these days, as almost everything is electronic.

Who’s responsible for charges? Believe it or not, that part is dicey. Adding charges onto a bill is the duty of the department providing the service. Verifying prices of services… that one’s up in the air. Since most hospitals don’t have what’s called a “charge master coordinator”, the belief is that each department or the person in charge of billing should be handling it.

This piece is messy, as it’s dangerous for a hospital not to have someone responsible for this on at least a yearly basis; that’s why I mainly consult in this area. However, for this particular point, all you need to know is it’s not the responsibility of the billing people; don’t take it out on them.

2. Hospital departments are responsible for hospital charges.

As I mentioned above, this is true but only for selecting the services they perform. Almost no hospital department director actually puts dollar amounts on a service, though some do get to recommend a figure.

Unfortunately, pricing isn’t the only thing that comes under the purview of hospital charges. There’s descriptions, different types of codes, charge creation and deletion, and a host of other things that someone needs to be doing. This includes oversight on departments weighed down with nonbillable supplies that try to create packages that they can bill to patients because they think price is what’s important rather than if the items in those packages are “important”. I’ll mention more about this at point #4.

3. Hospital charges aren’t all over-excessive.

Like every other business, hospitals mark up their charges. Also like other businesses, costs have a lot to do with how things are priced. For instance, the costs of services in New York City are going to be way more than the cost of services in Oswego, NY, or pretty much most cities across the United States. The costs for larger hospitals are always going to be more than the cost of services in smaller hospitals; that’s just the way things go.

Unlike other business, the markup amounts are usually random rather than actually based on the cost of delivered services. Also, unlike other businesses, hospitals almost never get paid what they charge for. With negotiated services along with Medicare and Medicaid, sometimes hospitals actually get paid less than 50% of negotiated rates (or mandatory rates for Medicare and Medicaid), regardless of the costs and prices of a service. The same goes for large payors like Blue Cross, though they’ll pay more than the other two above… sometimes.

If you hear someone offering the narrative about hospitals being greedy and overcharging people for services, you need to know that most hospitals lose money across the country because there are some services they have to provide that they’re not totally in control of, such as emergency room services.

For the overwhelming majority of services, hospitals provide services before being paid, without the guarantee that they’ll get paid by anyone, insurance or patient. Yet, they can only pass so much of their losses onto patients, unlike other businesses. If your patient is self pay, they might be in a bit of a jam, but luckily they can request a payment plan and possibly qualify for a discount off the amount they owe.

4. Hospitals don’t intentionally charge people for services and supplies they didn’t receive.

At least 99.99% of all hospitals are doing the best they can. Sometimes they don’t get it right, which is what allows people like me to have a consulting career. If you saw some of the processes for capturing charges you’d understand why sometimes it’s difficult for people who aren’t adept at financial processes to get it right.

Remember the thing I mentioned above regarding nonbillable supplies? This, along with pharmaceuticals, are the areas of most concern for patients and people like me.

Nonbillable supplies are those items that are bought in bulk because they can be used for a lot of patients, inpatient and outpatient, instead of being specialty items, or coded items. Their costs are supposed to be built into procedures, which means they shouldn’t be charged independently. Most of the time this information is unknown or hasn’t been thought of properly by the departments using these items.

So, some departments will put a bunch of things together, call it a set or bundle or package, sometimes mis-code the item (unintentionally… I hope…) and charge it to consumers and insurance companies. It could be considered billing fraud because the expectation would be that the facility should know that these types of charges aren’t billable, and the OIG inspectors don’t respond positively to “we didn’t know that”.

The same type of thing goes for pharmaceuticals. Not the expensive things, but things like aspirin and Tylenol, anything that’s considered as an over the counter drug. They’re actually unbillable, but if coded properly they can be added to a bill that goes to the insurance company and indicates the facility knows it’s not billable, but accurate; they shouldn’t bother but some private hospitals do it anyway. I believe they shouldn’t because an insurance company might know better and ignore it, but self pay patients won’t and if the price is exaggerated some of them are calling the news people to complain about it.

The price they come up with for these items is usually based on the crate or box they came in and not the specific item. That’s why you’ll sometimes see aspirin on a bill for hundreds of dollars instead of a dollar or less. No one’s trying to take advantage of patient; they just don’t understand the math all that well.

These days medical charts and charge sheets are scrutinized better to make sure people aren’t being charged for services they didn’t receive. Nobody’s perfect though, so it’s possible to get a bill with something on it that a patient didn’t actually have.

5. Hospital charges have nothing to do with hospital profitability.

Once again, this is where things differ between hospitals and other businesses. Since hospitals don’t get paid in full by almost anyone for what they actually charge for services, hospitals rely more on activity numbers than anything else. A profitable hospital will reach its inpatient and surgery numbers each year; the charge amounts just help to quantify it in some manner.

The smart hospitals are learning how to maximize outpatient services, since more patients are outpatient than inpatient. That’s why we’ve gotten to the place where you can have something like back surgery or a knee replacement and be home by lunch time, as opposed to sitting in a hospital bed for a week. In a weird way, it also explain why hospital charges are so high.

Let me explain that past part. It’s important for hospitals to charge more than they know they’re actually getting paid for services by insurance companies. There are two reasons for this.

The first is that Medicare will often adjust how much they’re going to pay for a service is they’re being charged less than their fee schedule. This means that if the facility bills for $80 and Medicare pays $100 normally, they’ll recalculate their payment based on the $80, break out the 80/20 figure, still subtract the payment percentage they’ve put on the facility and the hospital ends up getting paid less than what they deserve. Not only that, but other than Medicaid, Medicare’s the lowest payor than other other traditional insurance companies, so it’s always best to charge at least a little bit more based on whoever will reimburse the facility more.

Another thing most people don’t know about is there’s not only reimbursement for services, but the possibility of an extra yearly bonus because of something called a “cost report”. Without digging too deep into this, there’s a yearly Medicare cost report (along with one for many of the Blues carriers across the country) where the hospital and Medicare does a comparison between what was billed and what was paid, and most of the time Medicare will pay a bulk amount to the facility for their costs the previous year… though it’s never quite enough. Because fee schedules never count costs into their initial calculations (since they deal with thousands of hospitals), it’s important for hospitals to not only make sure they’ve captured their actual costs into what they’re charging, but not billing for items that shouldn’t be charged.

This is a lot to consider, so I recommend reading it again to get a better understanding before moving on to the next thing.

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