18 July 2007

The Shell Game

Let's say that you are going merrily about your business, mowing your lawn or what-not, and you suddenly experience severe, crushing chest pain. Alarmed, you come in to the ER, quite appropriately. The handsome and compassionate ER doctor performs a detailed history and examines you. He reads an ECG, does an x-ray and some blood tests, and consults with a specialist. Ultimately you are admitted to the hospital and since we're playing hypotheticals, let's just say you make a full recovery.

It's most likely that your ER visit will be coded as:
768.5 Unspecified Chest Pain (ICD-9 Diagnosis Code)
99285 Emergency Department Evaluation/Management, Level 5 (CPT Code)

The current 'value' of the 99285 code is 4.74 RVUs (Relative Value Units).

The doctor who took care of you likely uses a fee schedule in which charges are set by multiplying the RVUs of a service by some monetary conversion factor. The conversion factors range between $90-$150/RVU. Let's use $100, for convenience. So your bill will be:
4.74 RVU x $100/RVU = $474

Now there are many things about the billing system which defy any reasonable concept of fairness. But this is a fee which actually strikes me as fair and reasonable. It's a high-stakes game, and if the handsome ER doctor sends you home in error, you may well die. Of every 20 patients presenting to the ER with chest pain, maybe one is the real deal. Picking out the one is not easy and is very risky. So I will defend a $500 fee as just compensation for a difficult and important service.

But that's not what the handsome ER doctor will get paid. The doctor's fees are honored more in the breach than the observance. The doctor will get paid depending on the payor class of the patient:

Bill Gates (cash customer): $474
Commercial insurance: variable from $220-400
Medicare: $161
Medicaid: $90
Typical "cash customer" (aka uninsured) $25

Now a typical ER will see about 15-20% of its patients as uninsured, another 20% Medicaid, and maybe 20-25% Medicare patients. So that's 60% of the patients who are in the lowest reimbursement categories (more if you count Tricare, the military insurance program, Worker's comp, etc). The weighted reimbursement for these patients -- two-thirds of all comers -- is probably about $90. Figure the doctor will pay 10% to a billing company, 10% to the malpractice carrier, and 5% in administrative overhead, leaving take-home pay of about $70 for evaluation of chest pain in the ER.

I pay more than that to have a plumber unclog my toilet.

But, clever and astute reader that you are, you notice that I exclude the other 30% of patients, who are insured. How much insurance companies will reimburse is strongly influenced by state regulations and how good the practice manager is at negotiating contracts. When I go in to negotiate with the insurers in our state, I am very up front with them: we need a high level of reimbursement from their patients to offset the poorly- and un-reimbursed care provided to the government- and un-funded patients in the ED. They don't like hearing that, but they do know the reality. Cost-shifting is the reality of the day, as health care financing in this country slowly implodes. While the insurance companies aren't exactly going to give away the farm, they can be induced to agree to higher rates to offset the uncompensated care.

Why should you care?

Because if you, like me, are employed and pay premiums for health care, you have probably noticed those premiums spiking. Our group's premiums have increased by 10-15% per year for the last seven years, and our experience has been typical of or better than the national average. How long can you keep paying 15% increases? How long is your employer willing to? How long till your employer drops the company-funded health plan and you get to join the 20% of my patients without insurance?

Yet some people think that a universal health plan would be a bad thing. Some people think it would be too expensive. Some people think that the 'market' will come up with a solution. Of course, these are by and large the same folks who thought invading Iraq would be a great idea.


  1. For what it's worth, here's my misinformed take on the situation:

    The muddled middle is the hard part. Imagine a system where people are either insured or pay their bills--no more offsetting fees, no more spiking premiums. In this system, if you don't pay, you don't get care. Call it the libertarian ideal. It would contain costs and work very well except for those who die because they can't afford the (albeit lower) costs. Since we have decided that we can't let people die for lack of access to care, we have started charging the insured more to cover the costs. This raises costs and premiums, resulting in more people falling into the uninsured category and ultimately destabilizing the system. We are in the muddled middle. The other extreme, socialized medicine, would be stable, but we are unlikely to get there because we are such a huge heterogenous population, with many people reluctant to knowingly finance healthcare for others through much higher taxes. So I suspect we will be stuck in the muddled middle for some time. We may experiment with single payor, but to make it work, you'd have to essentially outlaw private insurance, and that's unlikely in this country. And if private insurance continues in some form--i.e. a two-tiered model--you would essentially continue to privatize profits and socialize risks.

    As an aside, how much do you think the government would reimburse you for that chest pain case under a single payor system? (History would suggest not much).

  2. And house whisperer states the most common misperception about "universal" health care. It doesn't have to be single payer -- Germany's isn't -- and it doesn't have to be a government program -- again, Germany's isn't.

    Their system isn't perfect, but it appears to be less broken than ours. If we keep screwing around, we'll end up with socialized medicine and I don't think anyone really wants that.

  3. Why have health insurance premiums gone up recently? Is it from carrying malpractice insurance (we know it is not from paying judgments, but it could be from carrying the insurance)? Is it from the stock market dropping (seems unlikely because the stock market has been very hot recently, no?)? Is someone getting rich from the system? Is it for medical research?

    I should probably go see Sicko; I bet it tells me.

  4. Well, that's the $64,000 (more like $640 million) question, isn't it, Jimii? I think a lot of things go into it - malpractice premiums and defensive medicine, oversupply of specialists, increasing availability of technology and exotic pharmaceuticals, insurance administrative costs, lengthening lifespans, socioeconomic problems, you name it. There isn't going to be one solution.

    My question has always been: why don't we drop the pretense that "health insurance" is any kind of insurance? It's more like joining a health club, really, and produces weird incentives for providers and users. Why not get rid of insurance for everything except the catastrophic, and go fee-for-service? Imagine life without insurance companies and all their tatty little rules about who can go where and get what service.

  5. Judy, I'm sorry my post confused you. I said we are unlikely to go to socialized medicine, but we may experiment with single payor. I didn't confuse the two. I happen to think they would both be a small improvement over the current system. I also think they are both unlikely--but that single payor is less unlikely.

  6. Isles, your proposal takes us closer to the libertarian ideal. I might have worked in the past, but we are beyond that point now, with most people believing "someone else" should be paying for little medical expenses as well as the catastrophes. At some point, we will probably achieve universal care with all the advantages and disadvantages therein.

  7. HW - I would almost think, albeit without any kind of data to point to, that the insurance co-pays most people are now having to fork over come close to what they'd have to pay in a fee-for-service system, so maybe we've gone around the bend of being used to having someone else pay and ended up right back at self-pay.

  8. That's an interesting point isles. I believe #1 Dinosaur or Angry Doc had a post about that recently concerning prescription drugs and how sometimes they are cheaper to pay cash than the co-pay.

    I recently had an experience concerning this too. I had a physical at the beginning of the year and paid my insurance co-pay of $30. In July I needed to get another physical for school and insurance only covers one per year. I went back, figuring I'd just suck it up and pay out of pocket. The out of pocket cost of the physical? $25. WTF? I saved money paying out of pocket, my insurance actually made 5 dollars off me the last time.

    Point is, primary care is pretty inexpensive. I think it would be a shame to waste time and taxes socializing it. I have realized lately that there's little point in getting insurance for primary care. Now I just get cheaper insurance that covers catastrophic incidents. It has worked well for me, especially being younger and generally healthy. If everyone could take such an active and educated role in their own healthcare it might become a bit of a non-issue.

  9. Do we need to bifucate things into ordinary and catestrophic care? Pay your own ordinary care but only take advantage of some sort of cost sharing (private or public) for catestrophic care.

    Question: How valuable is it to provide insentives for people to get preventative medicine? Valuable in the sense of reducing the overall cost of healthcare.

  10. Dear Dr. Shadowfax,

    I am confused. You just explained, lucidly and cogently, that idiots like yours truly subsidise the Medicare and Medicaid patients, not to mention the uninsured, so that you can earn enough money in a shift to have a plumber unclog your commode at home.

    And then you go on to say, why, Medicaid is so wonderful, let's have more of this?

    I am so confused -- it's as if you were channeling Paul Krugman, who is arguably as far from rationality as one can get (which, in a soft science like economics is pretty far to start with). Surely you know the old joke:

    "Ben, you are making a loss on every single item you sell. How will you survive?" -- "Well, I'll just have to make it up with volume."

    And that is what all those universal-healthcare proposals come down to: Not enough of anything left and right. If only the proponents of these fraudulent schemes were honest enough to say upfront that cancer patients can forget about the newer drugs (hey, methotrexate was good enough for my grandpa), my knee injury from running doesn't need fixing -- I can always start fly fishing for a hobby, and so on. (And that last bit of advice will require a six-month wait for an appointment, cf. Canada.)

    Just a little honesty, please? You are running a group of ER physicians. The work you do is the very definition of a limited resource that has been stretched beyond what is sustainable. How can you advocate making things worse?

    Thank you,

  11. great post. Could not agree more with the last 2 paragraphs.

  12. A personal experience:
    Went to the ER with back pain -- couldn't sleep for two days.

    ER doc took about a 5 minute history, did about a 5 minute or less exam. Ordered one test, a urinalysis, which was negative. He wrote a Rx for some pain meds, I was on my way.

    His bill for that was $250. Frankly I would be embarrassed to bill that much for that little work. $250 in this case also matched my deductible, so I paid the bill in cash, in full -- I generally don't play the professional courtesy card.

    I think there is something wrong with justifying billing by arguing that others don't pay or don't pay much. That is the part of medicine that I see needs fixing.

  13. Being in the same field and playing the same shell game, I am all to familiar with how the game is played. It is grossly unfair for the middle-class, employed, insured family paying $400-600 monthly for insurance. Fuggetabout those with pre-existing chronic illnesses (DM, HTN, Asthma) that need more constant care, as the premiums may exceed $700+ monthly for that same family. There is no impetus for people to continue to pay these rates when they could buy a nice Mercedes for the same costs, and then go to the ER for healthcare. EMTALA guarantees they will be seen, regardless of ability to pay.

    Surely, on the surface, having a universal, single-payor health insurance would seem the panacaea for this problem, right? Low-cost, government-offered insurance for the same family, and it's affordable. All you have to do is sign up for it.

    Now let's look at the real truths behind the panacaea. The statistics are that approximately 8 million of our un-insured do qualify for government-cheese insurance. They simply don't sign up for it, for whatever reason. There are yet another group of individuals that don't qualify for insurance, don't qualify for social security numbers either! Again, we are there for them 24/7/365 and given that there is no provision to disband the Trial Lawyers Association, I don't see defensive medicine going away any time too soon. So now, we are left with a system that will only re-imburse you for your hard work at 18% (your calculation)for EVERYONE, and yet, somehow, you haven't really eliminated the self-pay/no-pay groups. EMTALA still crowds your ER, and you will still order that head CT "just in case".

    This shell game is gettin' more and more fun everyday!

  14. Greg P, your doctor didn't just treat your back pain. His history and physical ruled out abdominal aortic aneurysm, epidural abscess, risk stratified you with regard to metastatic prostate cancer; the urinalysis combined with judgment about your history ruled out kidney stones and urinary infections. His brief neurologic exam ensured that your distal spinal fibers were entact, ensured that you will continue to be able to poop and walk without difficulty. And, to top it off, he was willing to face the possibility of millions of dollars of malpractice payouts if he was wrong. Finally, he spent an additional 20 minutes reviewing past records, calling the lab, and dictating your history and physical. I understand you felt your encounter was brief, but a lot more goes into an ED visit than you can see. Considerable skill is required to separate those with muskuloskeletal back pain from those with potentially disabling or life-threatening conditions. If you didn't feel your condition was potentially disabling, then you might consider waiting to talk to your doctor about it in the morning. If you did consider your condition potentially disabling, then $250 seems like a small price to pay for reassurance. I always obtain a complete review of systems for back pain, because it is such a high-risk complaint (i.e. there are so many potentially devastating causes of back pain).

  15. House,

    Thanks for that perspective - I couldn't agree more. Additionally, the doctor apparently prescribed narcotics, which carries an attendant amount of risk.


  16. 786.5 is what you meant.

    768.5 is "severe brith asphyxia", which would probably have gotten denied, seeing as how he's a male.

  17. Ok, so when I sliced the end of my thumb through the nail, went to the ER, had them clean and bandage it, and received a bill for $180 because I was uninsured, where does that fall in? Because it was really really really clear that if I didn't pay the $180, they'd send it to collections, even though I was unemployed (after a layoff) and uninsured.

    Something never sounds right about all this.


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