New business models in healthcare
In no way do I claim to be an expert on business or even the healthcare system, but the more experience I get with the U.S. healthcare business model the more I realize there simply is no business model. We can all agree the system is broken. There is no shortage of statistics or personal anecdotes supporting that statement. The more you dig though, the more you realize just how crazy it is.
How is it that two hospitals in the same city receive different payments for the same procedure? The difference in cost is in no way tied to quality or convenience like one would expect outside of the healthcare bubble. If one digs long enough, at best you find a jumbled, nonsensical list of criteria that the Centers for Medicare and Medicaid Services (CMS) “take into account” when deciding reimbursement rates.
Private insurance companies develop individual contracts with hospitals. Call me crazy, but I doubt that there is any reason an arthroscopy costs 0 more if the patient is insured by United Healthcare instead of Aetna. Costs for some procedures can vary 10 times or more from hospital to hospital. From a billing and reimbursement standpoint, this sounds like nothing short of a nightmare.
Each hospital easily has hundreds of contracts with different payment schedules, and insurance companies are dealing with an astronomical number of providers and procedures. No wonder administrative healthcare costs are so expensive in the U.S! Data on private insurers is very difficult to find as the contracts are not made public, and hospitals tend to guard their billing data closely. Below is a small sample of data of payments from a single private insurer to various NJ hospitals from the New Jersey Commission for Rationalizing Health Care Resources.
To make matters worse, Medicare/Medicaid payments often do not cover the hospitals cost, so private insurers are over-billed to reconcile the losses. Individuals who are not insured are sometimes given lower rates depending on their financial situation, but at times pay more than the private insurer rates because they do not have bargaining power.