Charges and costs aren’t the same thing

I once participated in a discussion about a research study that was drawing data from charges submitted to Medicare and patient outcomes. The head of the project was referring to the financial data as costs, and I simply asked, “Isn’t this really charges, what Medicare is being charged by the hospital?” The response was a sort of non-answer, and then the person concluded, “It probably doesn’t really matter whether we call them charges or costs.” Other physicians in the room nodded knowingly.

And — that’s the problem with our health care system. At the heart of it, pharmaceutical companies and health care entities (referring to large hospital networks and medical centers as entities) are both trying to achieve the same thing: they are trying to maximize the amount that they can charge while minimizing their own internal costs. Insurance companies and payers (Medicaid and Medicare) are trying to minimize the amount of charges that they pay out on while minimizing their own internal costs.

Physicians are at the core of the problem because they are the driver, either directly or indirectly, of those charges. As the advocate for the patients, the physicians are on the hook for being the gatekeeper to prevent these runaway charges from consuming and destroying our health care system. However, there’s a catch. I would say the vast overwhelming majority of physicians have absolutely no clue what the other half — the costs — are. Unless a physician is in a purely administrative role (in which case they’re probably not submitting much in the way of charges), there’s virtually no way any physician can base any decision on a charges-to-costs ratio in a way that is either most beneficial for the patient and/or the health care system.

You might say, “It doesn’t matter. They have access to the charges, and that’s what’s driving the problem.” However, this point ignores two simple facts: 1) Physicians are trained specifically to be payor-blind. 2) Physicians are conditioned to fear missing a crucial diagnosis and, subsequently, litigation. Let’s say you have symptom X from a patient, and the physician can get to the answer most of the time by ordering tests A, B and C. If the physician does not order tests E and F also, which are super expensive but can miss a rare but concerning outcome that might also be treatable, then the physician may have delay in diagnosis in a small percentage of cases. What do you think happens in real life? Tests E and F get ordered, and, in addition, there are multiple places to send either of those tests with a wide range in what the patient’s insurance gets charged. Are most physicians spending the time researching what is charged for sending E or F to eight different places? Of course not — the last question was rhetorical.

It would seem that we’re talking about costs all the time. It’s everywhere. However, the subtle thing of saying, “Hey, those are charges we’re really talking about!” No one is talking about that. It’s important because as long as the powers that be are equating the terms charges and costs, then they don’t have to have the conversation about what their costs actually are … “opening the books,” as one might say. All will deny it (that they’re avoiding that conversation). Health care systems will talk about the mission statements and their commitments to providing outstanding patient care.

Meanwhile, a study by Johns Hopkins showed that the so-called nonprofit hospitals are making money hand over fist. The pharmaceutical companies will tolerate a few examples of outrageous charges for medications because they’re hiding the fact that it’s quite literally occurring across the entire industry. I once asked a pharmaceutical representative to give me information on the costs of the production of a multiple sclerosis drug, meaning what it costs the company to manufacture it. He’s still laughing (I asked him about six weeks ago). Another outstanding article showed how pharmaceutical companies can inflate their charges.

What’s at the core of these two examples? If the system can be gamed for profit, it will be gamed for profit. Things will always be moved around to inflate the charges and minimize the internal costs to maximize that ratio and insurers will move to minimize those same charges.

Of course, even if the books were opened, who would police and enforce it? The American populace has been conditioned for generations to not pay attention to health care charges and costs and to rely on the all-powerful insurance. Even getting an actual itemized bill from a hospital stay is a Herculean endeavor.

The goal of medicine is altruistic, perfect strangers helping to prevent or offset acute and chronic diseases to prolong life. If the physician is not equipped, the patient does not have access to the information and the other players are trying to maximize profit, who’s policing what’s fair and just in these ever increasing charges?

One thing physicians can do, as the currency of many physicians is the science, i.e. the publications, is to have a requirement that publications submitted also submit information on the charges for each test and/or treatment and the cost (the internal cost for the institution or lab for, let’s say, a CBC) for the same things. Then it would be out in the open, for scrutiny and digestion.

Until then, have fun talking about your health savings accounts, trying to get the Medicaid reimbursement rates changed or the next ineffectual carrot or stick law that claims it will get “costs under control.” Until we have a very real, frank conversation on how we decouple charges and costs, and that information becomes widely available, nothing will change.

Allen DeSena is a physician.

Image credit: Shutterstock.com

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