Tag Archives: fee for service

Ridiculous Healthcare Pricing

All over the country people are commenting on the ridiculous pricing from healthcare facilities and providers.  Here is a recent example I came across:

Lab Bill

You’ll note that the gross price for these lab tests is $837.74 and the person was told their out-of-pocket responsibility could be $109.85.  What is so amazing about this is I have heard of wellness companies that purchased lab services for their programs being charged $21 for a similar series, without the PSA, if the draw was done at a laboratory service center and $65 if the draws were done onsite at the employer.

So lets take out the PSA at $148.48/$19.47 and there you have it, gross pricing for these services is almost 33 times what they sell this service to wellness vendors on a wholesale basis (which obviously has a profit in it), and the person getting these tests could potentially pay four times that amount out of pocket with their PSA portion excluded.

I assume that the insurer, Continue reading


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Ten Ideas That Could Fix Healthcare

I’ve written a fair amount over the years about what is wrong with the American Health Care System from ethics to pricing, structure, incentives etc.  So, what needs to be done to fix it? In the end, is there a better way? Listed below are some of the ideas that I think would have a profound impact on lowering costs and improving quality.  None are new, but taken together they could be very powerful:

  1. Get rid of Fee For Service (FFS) medicine. Yes, its cliche but it needs to be gotten rid of and the best solutions are to move the risk to the providers, through global capitation or other bundled payments. Providers will need to put in the resources and expertise to manage this and work to drive the 30% of waste out of the system, thereby potentially making more profit than before.  This is one of the reasons why it is so important to continue the various bundled and capitated payment programs now being implemented by CMS and others.  Providers need to learn, and learn fast, no more sticking one’s toe in the water, take the dive. Another example of how bundled prices or capitation can save money.  If a hospital has a fixed bundled price for knee replacement, how hard is it to bill that?  You don’t need a bunch of billing clerks and others to be sure every item is on the bill the hospital submits, and on the payer side, they don’t need a bunch of people reviewing the hospital bill to re-price the $75 aspirin or remove the extra band aids that were not provided. Who cares whether the hospital used an additional band aid at that point if the service was appropriate and high quality.
  1. Revise the 80/85% Medical Loss Ratio (MLR) requirement.Let’s say you manufacture cars and sell each one for $10,000. Per the MLR rule, you would have to spend $8,500 (85% of your sale price) per car on all the parts and labor, excluding marketing and management. Your cost for marketing and management would come out of the remaining 15% and then whatever is left over is your profit. In this example assume marketing and administration are $1,000 (10%) leaving your profit at $500 (5%) per car. You as the manufacturer now negotiate lower prices on your supplies and it now costs you $8,000 to make the same car. According to the MLR rule, you can no longer charge $10,000 for your car, but can only charge $9,411.76 because the costs of parts and labor must make up 85% of your total charge; and unless your marketing and management fees were reduced, you now would only legally make $411.76 per car.

So why would you get more efficient?  In healthcare, the question is, why as a health plan would you want to improve the health of your members and seek to prevent illness, thereby reducing the 85% you paid for their medical care; ultimately reducing the 15% for other expenses and profit?  Current health plans want to get 15% of an ever-growing number, they want 15% of $10,500 the next year and on and on. This was a fundamental flaw in the ACA. I understand it was to ensure that health plans do not make money by denying services, but there is an upper and lower range to most quality measures not a fixed point and the same goes for healthcare services. Health Plans or those accepting the risk should have a range that their MLR must fall in and/or some way to benefit when they can show that their efforts improved the health of their members and thereby reduced costs.

  1. Target Medication Pricing and the Supply Chain.  We pay way too much and there are so many people in the middle of this that there are multiple opportunities. Here are two.  The first is to allow importation or other means to get access to cheaper medications.  Want to see prices drop fast, that’ll, do it.  We’ll reach a happy medium somewhere below what we pay now and what we allow developing countries to pay for the same medicines. At the same time, we need a new system of medication purchasing and distribution, an Amazon type system that gets rid of the many middlemen adding a piece of cost/profit at each touch point. Think also beyond the pharmacy:  Imagine a system where you go online and take the order direct from the manufacturer through Amazon with a drone delivering the medications to your door. In healthcare medications are one of the best “onion” examples, it just keeps adding layers to the service and each layer adds costs.  Just the fact that companies often hire consultants to review their PBMs who are supposedly getting them the best rate is all you need to know.  In fact, one major corporate chief medical officer told me verbatim “I’m sick of getting ripped off by my PBM.”
  1. Watch out for Aggregation to increase prices versus lower costs. Hospitals are rapidly embracing this philosophy, driven by the ACA, as they are buying up practices, opening free-standing ERs and the like.  It’s amazing to watch as these efforts more often than not increase admissions and costs.  I was at an American College of Healthcare Executives meeting where the panel topic was how hospitals would survive the move from inpatient to outpatient services. In a stunning show of honesty, two of the three senior hospital executives said they were not going to move to a more outpatient based approach and were in fact doing everything they could to increase admissions. They both claimed to have been so successful at pushing people into their hospitals that their inpatient census continued to rise and were at record levels.

Well at least they were honest (in front of a friendly audience). Going back to number one, if they have a fixed price (capitation) for the person or population, they’ll figure out once and for all that the hospital is a cost center and reducing beds, not building more, while allowing services to occur through the lowest cost point in their network is the key to profitability. And yes, maybe constructing less gorgeous and elaborate facilities might lower costs as well. Here’s another classic hospital aggregation approach to increase costs, acquire the oncology doctors and then stop providing infusion services in the clinic. Why?  Because hospitals can charge 2-4 times as much when the infusion is completed in a hospital outpatient or inpatient facility versus the doctor’s office.

  1. Sell healthcare services on eBay or Amazon.I spoke with eBay years ago about this concept, but they were not interested.  Why they wouldn’t want a piece of the $3.2 trillion healthcare market is beyond me, but hey perhaps Amazon? My dream is to go online and schedule my MRI at 3 am for $150 or $200 because the radiologist has an open slot and I am paying out-of-pocket. Sure, I know, what about quality? Well vet the places, provide real outcomes and quality data and publish it.
  1. Narrow the networks based on quality and price.  Most people say they hate narrow networks, and of course when done based solely on price, I hate them too.  But I experienced a narrow network in action long before they came into the lexicon.  As a child, I was a frequent visitor to the ER, I broke a lot of bones and had a few other stitches and scrapes. My father was a Professor of Medicine.  I can’t tell you how many times he narrowed my network and told the physician who was walking in to see me that they would not be treating me. He knew all the doctors, the good and the bad.  I healed up well, thanks to him.  I also experienced issues with poor quality during his later years with Lewy Body Dementia and other ailments. There were more than a few times I wish I could have thrown the doctors out who were suddenly assigned to treat him because he was now covered by a Hospitalist and some specialist he had never seen. They nearly killed him a few times.  As in any field quality varies.
  1. Allow Medicare and Medicaid the flexibility to send patients outside of the United States.  As an add-on to number 2, why not save billions by flying surgical patients or those with Hepatitis C out of the country to get much cheaper services or drugs?  I’m sure after a few flights, the providers and manufacturers will come running back with lower rates. And while we’re at it, how about the prisons, there are a lot of Hepatitis C patients now incarcerated who should be getting treated.

We need to look at issues like Hep C from the patient side. Because of the high costs of the drugs in the United States, there are hundreds of thousands of people who are not getting access to the treatment. Is that good?

  1. Don’t let Congress be bought. Not sure how to do this except through an election, or changing the rules of lobbying while remaining within constitutional bounds, which is well out of my wheelhouse. The healthcare industry uses Congress to protect their interests at the expense of average Americans who are now burdened with excessive costs and poor outcomes compared to other developed countries.
  1. Send Crooks to JailHealthcare has a fair amount of fraud, and you know what, its perpetrated by people, people who hide behind corporations.  Typically, the corporation settles, without admitting guilt of course, pays a fine and moves on.  But what about the people who directed the corporation to do this stuff? If we sent more people to jail, we’d reduce the fraud. Recently, there have been more announcements by the DOJ holding  individuals personally accountable; so it seems this is moving in the right direction.
  1. Invest in our communities and social services. These phrases have become mantras now:
    1. healthcare only accounts for 20% of your health;
    2. your zip code is one of the best indicators of your health status;
    3. how you live determines how you die,

We must invest more in the areas that impact health like community, safety, schools, parks, access to housing and food, but, and it’s an important but, we have to hold the organizations that we fund accountable, too many of them exist to exist and offer limited value. Much of this funding could come from savings in healthcare costs. Together can create healthy communities for all our community members.

These ten ideas are but a start and I am certain that there are many other good and viable ideas for fixing our healthcare system. It’s time we got serious and began implementing more of them.

What are your thoughts and ideas?



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Alternative Payment Models: Yeah or Nay?

So where do we go with our healthcare system under the new administration? Will we move to Alternative Payment bundled-paymentsModels or will FFS continue? A recent study showed that bundled payments for orthopedic joint replacement appeared to be working at lowering costs while maintaining quality.

At the same time, it seems that Dr. Tom Price, the nominee for Secretary of HHS is not a fan of bundled payment.

Along with Gregg Masters and Doug Goldstein, we’ll be exploring some of these and many other issues about the next phase of healthcare reform during the coming months on PopHealth Week.

Let us know what you think.



PopHealth Week is a Production of Health Innovation Media and Accountable Health, LLC.



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The Underlying Issue is Often the Same in Health Care – Ethics

So I opened my AIS Health Daily email and read two seemingly different stories that are actually related on an underlying level. The first discussed the 340B pharmacy pricing program that allows hospitals and other provider to buy drugs at a lower rate to when they  services to indigents and the uninsured.


340B Program Shirks Charitable Care, Undermines Formularies, Argue PBMs
Reprinted from Drug Benefit News

A new report from a coalition of stakeholders suggests that a considerable portion of the hospitals enrolled in the 340B Drug Pricing Program furnish a negligible amount of free or reduced-price care to indigent, uninsured patients …. Read Full Story

and the second pointed out the large amount of duplication of case management services found by ACOs , and that quote is here:

“The opportunity (for accountable care organizations) is so amazingly large when you get the systems to start talking to each other. One of the most amazing things to us is the duplication across systems — five [case] workers being assigned to one person was not unusual, and nobody knew anyone else was working with the individual.”

— Jennifer DeCubellis, Hennepin County (Minnesota) assistant county administrator for health, told AIS’s ACO Business News.

Click here to read the ACO BUSINESS NEWS article in which this quote appeared. (Free for ABN subscribers; $17 for non-subscribers).

Neither of these are a surprise to me nor probably to most professionals in health care and they relate to two fundamental problems with the system as structured today. Fee for Service as the payment mechanism of choice makes it too easy to set up shop and bill for services and, secondly, if there’s a way to make a buck or “stretch” the system someone will do it.

Obviously moving away from our current fee for service system will create the impetus to look at these issues, and maybe fix them (see the closing paragraph), but more importantly it get back to ethics.  In many if not most of the cases associated with the two instances above, these are non-profit organizations providing 340B drugs or case management services.

Lets look at the Case Management issue.

Case managers are supposed to be coordinating cases, yet don’t know that others are involved?

Come on, that’s their role.  More likely they know or have an inkling, but their organization recognize’s that in order to keep the funds flowing, they just don’t find out. When I worked with Medicaid programs around the country I saw this all the time; supposed case managers not truly coordinating services, closing the office too early, not knowing what was going on with their clients, tracking lots of contacts and other process measures, but having little to no tracking of outcomes. Other  providers servicing Medicaid had similar issues, home health aides providing little to no service, meals on wheels delivering inappropriate foods because they never knew the patient was a diabetic (in this case the patient had both a case manager and a 12 hour a day home health aide who accepted the meals), and the list goes on and on.

The health care system is a giant feeding mechanism for tens of thousands of companies and organizations. Its just too easy to ensure your own survival at a cost to the system because we have allowed it. As we change the payment method,  what do you think some of these organizations will do if they go full risk in a capitated model?  Might their current lack of ethics lead to under-serving their population to make sure they survive?

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Low Hanging Fruit and the Longer Term in Population Health Management

As the health system transitions to a provider centric approach creating Accountable Care Organizations and Patient Centered Medical Homes, being reimbursed by new non-FFS payment methodologies; where will the savings come from? Many of the providers have focused on developing programs that address the obvious excesses in the system associated with poor management and outcomes such as chronic diseases and 30 day readmit programs among others.

This disease/case management approach of better understanding and managing those that cost the most is a very easy to understand model that fits right in with the care delivery system; in fact doctors “get it” because it fits their paradigm.  People show up with an illness, they need care, and they, the provider, will do a better job of caring for the patient resulting in lower costs and better outcomes.

Over the short term these systems plan to bend  trend and achieve savings by targeting the low hanging fruit. But how will these systems control growth over the longer term when they have wrung these inefficiencies out of the system?

You see our growing health care costs are best represented by:

Overflowing sink

Think of the bowl as those with illness being  managed by your ACO or other provider centric group now at risk for costs or attempting to share in savings. The majority of the growth in health care costs in the Unites States, and why the sink is overflowing, can be attributed to an increase in the prevalence of chronic diseases, many of them preventable; that’s the faucet, which is no longer a trickle.  So while the newly structured care systems will focus on the low hanging fruit, those needing care or already in the bowl, resulting in savings in the early years, the influx of newly diagnosed individuals will continue to flood the sink possibly negating these early efforts, but certainly impacting the out years. Until organizations begin to address those that do not have an illness or condition today, but will in the coming years if nothing is done, the flow into the illness sink will continue growing .

Population Health Management is about managing all of the population, those who are ill and those who are not. That is the longer term solution needed to create Accountable Health, a system that focuses on all of the providers patients to reduce risks and better manage care.

Want to know how to do this in your ACO or other provider based system? Just use the contact form below.

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