Hospital executives today are consumed with expense control. Evaluating how to get the benefits of the products and services they buy at cheaper prices, better terms, and more favorable negotiations. Since their chief revenue activity is the daily embattlement for small portions they actually can collect from what they bill, they are equally ferocious when it comes to purchasing. This is considered a position of stealth to most industries. When it comes to healthcare, however, I hear a lot of moaning and groaning.
I have been astonished that even with strict enforcement of accurate billing, most hospitals average 30-34% in total aggregate collections on what they expect from their revenue streams. While great expense control and productive revenue capture is critical for businesses that operate on slim margins, are we resigned to the fate of overproducing and under-collecting?
Indeed, a closer look at how hospitals establish the price they can charge reveals many instances of what most Americans would consider extreme gouging. My colleagues in hospitals around the country have shared that while prices seem out-of-control, they are established within the guidelines set by Medicare, with follow-the-leader acrimony from private health insurers. And it’s a wonder where those guidelines have come from, since the rates grow costs almost exponentially across the board. One such example became evident in my family.
My father recently had his pacemaker replaced. Cost of the outpatient surgery? $97,000! And this was the newer kind with a built-in defribrulator; this particular operation did not call for removal and replacement of the leads into the aortic chambers. Certainly the physician would need to be compensated, but surprisingly, that charge comes to less than $2000. What then constitutes the other 95K?
Look to the maker of the pacemaker, Medtronic, and look to the amount the hospital is allowed to charge, both as a markup of the device and a healthy facility charge. And yet, the real costs for both the device and the 9 hour use of the facilities – including the recovery areas – amount to less than $25,000.
Define Healthy Profit
One might ask: Shouldn’t hospitals be allowed to make a healthy profit on their product? I say YES, of course they should be allowed to be healthy. [BTW, so should the physician and there is clearly a disconnect here.] And going back to the amount they’ll actually collect, it should be noted that the total collection from Medicare and out-of-pocket from my parents will be just over $77,000. Still, that’s a lot higher than the typical 30-34% collection rate, more like 79%. And it just seems like gouging.
So, why all the complaining? I have a simple, yet powerful explanation for this. The atmosphere of overcharging and underpaying has led to a very hostile relationship between providers and payers in our health system, despite the clear fact that monetarily, there are some big winners out there. We are engaged in daily negativity—Extreme Negativity that encompasses nearly every person working in hospitals today. Not only are we focused too much on the almighty dollar more than the delivery of quality care, but our negatively-charged environment is bleeding the patient of vital healing capacity.
We cannot help but be touched by this detrimental behavior. And it can’t be good for our family lives, our individual contributions to society, and perhaps even our self-pride. Today’s environment of making money by delivering quality medical care is nothing short of toxic.
So now, we may better understand why people are still entering the hospital business today. It’s very lucrative, and for those who know how to manipulate the system, it’s yet another historic opportunity to quell America’s healthcare leadership potential.
I’ll leave you with an important thought:
Its time for a better approach to making money for hospitals.
------Michael
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