Bad Pricing Equals Bad Debt

The health care industry should look at a recent report from McKinsey & Company as an indictment of its pricing and billing practices.  A 2010 McKinsey white paper entitled “The Next Wave of Change for U.S. Health Care Payments”  ( puts bad debt of health providers at a whopping $65 billion – and growing.

For hospitals, that expense was put at 4-6% of gross revenues.  In effect, the rapidly expanding body of consumers is mounting a monumental protest against the opaque pricing and shoddy, inscrutable billing practices foisted on them by health care corporations.  I’m sure the providers don’t see it that way; they are invested in their present practices.

They are not accustomed to dealing directly with an army of consumers – there are now an estimated 20 million health savings accounts in the land and another estimated 20 million HRAs, health reimbursement arrangements. Both mean that the checks get written by individuals, not by insurance companies.

The root cause of the consumer frustration and resistance is, of course, the fog surrounding pricing in the industry. No other industry could get away with bills that not even a CFO can decipher.

Serigraph Inc. has a user-friendly price matrix for common procedures, sort of like Travelocity, but it is the exception. It also offers a quality rating, a letter  grade, for provider past performance.  What consumer wouldn’t want to know about infection rates, mortality rates and numbers of re-dos?

The average medical consumer has a hard time obtaining a price up front. There are transparency devices out there, but they’re clunky, and therefore little used. Even estimates up front are hard to come by.

That’s not a small matter, considering half of all medical bills are now paid by individuals. People didn’t used to care about prices when they were paying almost none of the bill.

Because disclosure of prices up front is not standard operating procedure, as it should be, consumers are often surprised and unprepared when the bills hit their mailboxes. The result is $65 billion in bad debt.

Consumers in America want to pay their bills. The McKinsey research bears that out. The medical industry could add several points to their bottom lines if they cleaned up their act.

The right answer form payment reform is a bundled bill – one price, up front, for an episode of care. That means bills net of discounts negotiated by health plans.

The eternal industry response is that medicine is too complex to allow for a single, simple bill. Don’t buy their line.

Serigraph has pushed for such bundled prices, and we are starting to get them. We contracted with a health care broker, Bridge Health, and it has negotiated for us and other payers some excellent, all-in prices at a network of high quality hospitals in the states and abroad. It can be done.

Dan Gehres, a press operator at Serigraph, traveled three hours to Gunderson Health in LaCrosse, Wisconsin for a disectomy. Results: a top notch procedure for $12,500 all-in. That included the cost of a three-day outpatient stay for him and his wife. That compares to an average price in our Milwaukee market of $18,000. Dan got the procedure at no cost to him – that’s our incentive for the travel – and he saved the company and its co-workers in our self-insured pool $5,500. Thanks Dan.

And, because of its willingness to offer an attractive, bundled price, there was no bad debt for Gunderson.

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